Take me, for example. I invest in real estate for cash flow, growth in value, diversification from stocks, and protection from inflation, among other reasons. And while precious metals offer three of those four, they’ve never offered cash flow.

That’s the beauty of Monetary Metals: it puts gold and silver to work to earn income.

If you like the idea of diversifying into alternative investments beyond real estate, read our full review below.

What Is Monetary Metals?

Monetary Metals is a market-maker that connects investors with companies that use precious metals in the course of their business. Examples include precious metals dealers, refiners, recyclers, jewelers, mints, and mining companies.

These businesses lease gold or silver from Monetary Metals—or more accurately, from you. You own the metals and simply lease them for use.

In exchange for leasing your investment metals, you collect interest. Think of it like a loan, except instead of lending dollars, you lend your gold and collect interest, also in gold.  Monetary Metals finds the lessees and alerts you when new leases become available. You choose an amount to invest in any given lease or wait for the next one to come along.

Alternatively, Monetary Metals sometimes opens gold bonds for investment. The bond issuer borrows gold and repays you in gold. Gold bonds on Monetary Metals are only available to accredited investors, however.

How Monetary Metals Works

After creating an account and verifying your identity, you can then add gold or silver to your account in one of two ways:

• You can buy metals directly on the platform (after wiring funds to your account).
• Ship your physical gold or silver (free of charge under certain conditions).

The company earns money by charging a premium to lessees (usually 2% above the marketed interest rate) and not through vault fees.  In other words, you don’t pay Monetary Metals—the company leasing the gold does.

On the other hand, you invest by browsing available leases and bonds. Each investment option displays the offered interest rate, the term, and the repayment frequency. Most leases pay monthly interest, but some pay quarterly.

Here’s what an actual account statement looks like:

When the lease ends, you can typically renew to reinvest with the same lessee (or not, if you’d rather withdraw your metals). In fact, you can usually withdraw your metals even mid-lease, because most leases oversubscribe. If you want to pull your gold out early, most often there’s a waiting list of other investors happy to step in.

Of course, that cuts both ways. When nearly every lease oversubscribes, that indicates a scarcity of investment options—more on that later.

Pros of Monetary Metals

Monetary Metals has a lot going for it.

Consider the following highlights that Monetary Markets makes for its platform:

No Vault or Management Fees

One of the downsides of owning physical metals is that you have to store them somewhere safe (read: totally not under your mattress).

Not a safe space to store anything in, guys.

The trouble is, plenty of banks and online vault services offer to store your gold or silver for you—at a cost. That cost eats into your returns. Many investors skirt the storage issue by investing in exchange-traded funds (ETFs) that own metals. But they simply swap one set of fees for another with annual fund fees.

Monetary Markets doesn’t charge any vault, storage, or management fees to hold your gold.

Interest Net of Fees

When you browse available investments on Monetary Metals, they advertise a specific interest rate. That’s what you earn, with no fees diluting it.

Monetary Metals charges a separate fee to lessees to create revenue, usually 2%. For example, at the time of this writing, Monetary Metals offers a silver lease paying 5% to investors. Presumably, the lessee is paying 7% total to lease that silver: 5% to the owners and 2% to Monetary Metals.

Perfect Track Record

Monetary Metals has batted a thousand on their leases and bonds—no investment has ever lost money.

For that matter, no investment has ever failed to pay interest. Of the 55 metals leases they've executed, every single one has repaid in full, with interest. The same goes for their gold bonds.

That doesn’t happen by accident. Monetary Metals has put strong protections in place to prevent losses.

Loss Protections

To begin with, Monetary Metals requires that lessees buy insurance policies protecting all leased metals. And that these policies list Monetary Metals as the beneficiary in the event of a claim. Monetary Metals also buys supplemental insurance as an additional layer of protection.

They further require lessees to sign both corporate and personal guarantees on the leases. If they were to default, all company assets and the principals’ personal assets would be subject to collection.

Finally, Monetary Metals also keeps a close eye on lessee financials with direct portal access and regular third-party audits.

All investments come with risk, but Monetary Metals has systematically worked to shield against risk from multiple directions.

(Some) Liquidity

If you need to pull your metals out of an investment mid-lease, Monetary Metals can usually accommodate you.

Most investments oversubscribe between 2 to 4 times their capacity, leaving a long waiting list of investors ready to step in if another pulls out mid-lease. So while liquidity isn’t guaranteed, investors can typically recall their gold or silver in an emergency.

Free Shipping From Residential U.S. Addresses

Have gold in a vault behind a painting in your home office?

Gold is heavy and expensive to ship, but Monetary Metals foots that bill for you. They provide a prepaid shipping label from any residential address in the U.S. if you opt to fund your account by shipping physical gold or silver. And they insure the shipment so it doesn’t get “lost in the mail.”

Interest Paid in Kind

You earn interest on the metal you invest, but not in U.S. dollars. Rather, on the metal that you've invested in.

For example, if you invest 100 ounces of gold in a lease that pays 5% interest, you’d close out the year with 105 ounces of gold. It doesn’t matter if the value of gold went up, down, or in squiggly lines that year—you collect interest in gold.

Completely Passive Investment

Once you click the “Invest” button, you don’t have to lift a finger again.

Which is something I’ve come to value more and more as I get older. When I was in my 20s, I had no problem with running around looking at properties, negotiating with contractors, screening tenants, or hassling with lenders, inspectors, and property managers.

Actually, that’s not entirely true; it was a pain even then.

But today, I only invest passively. That goes for real estate investments such as crowdfunding platforms and syndications, and it goes for stock index funds. And that’s why Monetary Metals is right up my alley.

Cons of Monetary Metals

All investments come with drawbacks and risks. So what are Monetary Metals’?

Lack of Investment Options

At the time of this writing, Monetary Metals only has one open investment: a silver lease. There are no gold leases or bonds available.

And when investments do become available, they typically oversubscribe quickly. That means you have to pay attention to email alerts from Monetary Metals and jump on investments ASAP.

It also means you just don’t have many options to choose from, limiting your opportunities to diversify.

High Minimum Investment

Monetary Metals requires a minimum investment of at least 10 ounces of gold or 1,000 ounces of silver.

In today’s prices, that comes to over $20,000 for gold or over $24,000 for silver. That’s not chump change, especially when most investors only put a relatively small percentage of their portfolio in precious metals as a defensive play. You can see how the price of gold per ounce has changed over the last decade below:

Gold prices over the last 10 years (adjusted for inflation). The gray bar in the middle represents the COVID-19 pandemic.

Metal Transaction Fees

If you opt to buy or sell precious metals directly on Monetary Metals’ platform, they charge a transaction fee.

Specifically, they charge a spread over and above the London Fix Price (or the spot price, depending on when the trade takes place). The spread surcharge depends on how much you buy or sell. Monetary Metals charges an extra 0.75% for transactions under $250,000, 0.55% for transactions between $250k to $1 million, and 0.40% for transactions over $1 million.

Risk Is Difficult to Determine

When you invest in a metal lease or bond, how do you know how risky the investment is?

Take the current silver lease offering. The lessee is AGA Bullion, described as “one of the largest precious metals companies in Turkey. AGA offers integrated precious metals solutions including assaying, refining, bullion trading, sourcing, logistics, and vaulting services. This lease will provide and finance their inventory.”

I don’t know anything about AGA Bullion—do you? For that matter, I don’t know anything about how difficult it is to recover money from a company in Turkey if something happens the insurance policy doesn’t cover.

As a layperson with little knowledge of the precious metals industry, I have little to go on besides Monetary Metals’ track record and the steps they take to limit risk. That makes it hard to assess just how much default risk comes with any given offering on their platform.

And that says nothing of the market risk of metal valuations dropping. But that’s a separate topic entirely.

How Monetary Metals Compares to Other Investment Platforms

I don’t know of any direct competitors to Monetary Metals or any other investment platforms offering precious metals leases and bonds. Still, we can still compare them to other alternative precious metals platforms or other real estate investment platforms.

Glint offers a debit card tied to your gold holdings. Every time you make a purchase, it deducts the value from your gold balance. It charges no transaction fees for debit card purchases in the U.S., and charges 0.5% for foreign transactions. That’s lower than the typical 1% to 3% foreign transaction fee for debit cards. However, Glint does charge a 0.02% monthly storage fee to hold your gold, which adds up in the long term.

For a more traditional gold storage option, Vaulted holds your metals for a 0.4% annual fee. You can buy and sell metals on the platform for a 1.8% transaction fee. And if you prefer, you can have Vaulted deliver your physical gold to you rather than store it for you.

Alternatively, you can invest in real estate crowdfunding platforms for fractional ownership of properties. Platforms like Arrived (full Arrived review) and Ark7 (full Ark7 review) let you buy shares in rental properties for as little as $20 to $100, and you get full cash flow, appreciation, and tax benefits. Arrived doesn’t offer liquidity, but Ark7 does offer a secondary market.

If you’d rather invest fractionally in larger properties, EquityMultiple (review) and Crowdstreet (review) let you do so. Expect higher minimum investments, but still potentially lower than Monetary Metals. That said, both restrict access to accredited investors and typically require long-term investments for equity.

Or you can invest in a fund that owns many properties, such as what Fundrise offers. You can check out our review in the YouTube video below.

Nor do the options end there. You can also invest small amounts in secured debts to earn fixed interest. My personal favorite option is Groundfloor (review), which has delivered remarkably consistent returns year-after-year averaging 9.5% to 10%.

Final Thoughts on Monetary Metals

To be candid, I’ve always been skeptical about precious metals as an investment. I don’t like the lack of income, and I don’t like how speculative it feels. The prices rise or fall based on fear of financial collapse or inflation, not based on the measurable value created by a company or property.

Monetary Metals makes a strong case for itself, however, by adding passive income to the returns on metals. It points to historical gold returns of 8.35% over the last 20 years, on top of which you can add 2% to 5% interest from gold leases or 5% to 19% on gold bonds.

Those combined returns sound spectacular for a “defensive” or “hedge” investment. But again, it’s hard to know for certain just how safe the gold leases or gold bonds are.

By all accounts, Monetary Metals has delivered on its promises of security. If you like precious metals as an investment class, check out their current offerings. Just be aware that you take on both default and market risks on the value of precious metals dropping.

The post Monetary Metals Review: Earn Passive Income on Your Gold & Silver appeared first on REtipster.

The U.S. is a huge country, with plenty of wide open land. If you don’t care about nearby amenities, you can buy cheap land.

That said, the cheapest raw land tends to sit in a handful of states. Use this data to help kickstart your search for your own perfect plot of paradise. Or more accurately, the cheapest land available in the country.

Where to Buy Cheap Land: States and Counties

When you start digging into the cheapest counties in the U.S., start with the states where they cluster.

Focus on the following states and counties to find the right fit for your needs. I ranked them by the average cost per acre, as reported by LandSearch, although I also incorporated anecdotal data from other land investors to form this list. Listen to the episode below for more details on how to use LandSearch.

1. New Mexico

Average Price Per Acre: $3,337

Cheap Counties for Land:

• Luna County
• Valencia County
• Sandoval County

An old adobe church in Los Lunas, Valencia County, NM

While there’s more to New Mexico than desert, the cheapest land in New Mexico does tend to be desert land far from the larger cities.

You can find particularly cheap land near the town of Deming in Luna County, and the towns of Bosque, Belen, and Rio Communities in Valencia County. You can also check out the cheap land northwest of Albuquerque and Rio Rancho in Sandoval County.

There’s beautiful hiking and camping in the Organ Mountains outside Las Cruces, and in White Sands National Monument. I lived there briefly and can attest to it. The nearby land isn’t as cheap as some parts of New Mexico, but in general, your money goes further buying land in the Land of Enchantment than it does in most of the U.S.

2. Wyoming

Average Price Per Acre: $3,852

Cheap Counties for Land:

• Albany County
• Natrona County

Albany County Courthouse in Laramie, WY

It’s harder to find small, cheap lots of land in Wyoming than in New Mexico. Plots tend to sell in larger parcels, driving up the total purchase price. But on a per-acre basis, Wyoming offers the second cheapest land of any state.

And besides, larger parcels offer opportunities for subdividing lots for a profit.

Wyoming doesn’t boast a lot of booming metropolises. The rolling scrub-covered hills offer their own rugged beauty, however.

Check out the land near Casper in Natrona County as an easy starting point. If you want to go even more rugged and further from the beaten path, look north of Wilcox in Albany County.

3. Colorado

Average Price Per Acre: $6,464

Cheap Counties for Land:

• Pueblo County
• Costilla County
• Saguache County
• Park County

A road in Costilla County, CO

The Front Range of Colorado is notoriously expensive, as are the ski resort towns dotting the Rockies. But much of Colorado is either empty, desert, or both.

In your hunt for where to buy cheap land in Colorado, start in Pueblo County. The area surrounding Colorado City offers plenty of cheap lots.

Next, look south to Costilla County and the region to the west of San Luis. You can also find cheap land in Saguache County to the east of… well, Saguache.

Park County offers some larger lots that are cheap on a per-acre basis as well.

4. Oklahoma

Average Price Per Acre: $7,850

Cheap Counties for Land:

• Adair County
• Cherokee County
• Comanche County
• Delaware County
• Tillman County
• Harmon County

A road leading to Mt Scott, Comanche County, OK

While known for its valuable farmland, you can also buy cheap land in Oklahoma. It may or may not offer good farming, or be near any significant towns, however.

Check out the hills north of Chewey in Adair County for some low-cost options. Just north across the border in Delaware County, you can also find affordable plots.

Several of Oklahoma’s counties also rank among the cheapest home prices in the country. See the interactive map down below.

5. Mississippi

Average Price Per Acre: $8,951

Cheap Counties for Land:

• Walthall County
• Marion County
• Copiah County
• Pike County
• Coahoma County
• Jasper County

If you’re looking for forests, bayous, or open fields, you might find them at bargain prices in Mississippi.

Check around Dexter in Walthall County, or slightly to the east around Hurricane Creek in neighboring Marion County. To the west, look around Leggett and Dykes Crossing in Pike County.

For median home prices, Coahoma County ranks among the cheapest in the nation. More on that shortly.

Most of Mississippi remains affordable, however, so keep hunting until you find a quiet corner that you like.

6. Oregon

Average Price Per Acre: $9,221

Cheap Counties for Land:

• Lake County
• Klamath County

Crater Lake National Park, Klamath County, OR

Surprised to see a lower cost per acre in Oregon than West Virginia?

Most people assume Oregon is all expensive, given Portland’s outlandish property prices. But Oregon is a huge state, and some of it is downright cheap.

In particular, check out the area surrounding Christmas Valley in Lake County. You can also find cheap land lots near the Sprague River in Klamath County, surrounded by buttes.

7. West Virginia

Average Price Per Acre: $9,441

Cheap Counties for Land:

• Clay County
• Wayne County
• Monroe County
• Wyoming County

Interstate 79 is a major highway that passes through Clay County, WV

West Virginia proudly lives up to its slogan of “Wild and wonderful.”

For forests, mountains, lakes, rivers, and other outdoor recreation, the entire state offers plenty of affordable land. Try the mountains near Pedro in Monroe County in southern West Virginia for cheap land. Or look along the Elk River in central Clay County.

In the west of the state, look around in the rugged hills surrounding Wayne. Median homes in Wyoming County rank among the cheapest properties in the U.S.

Regardless of where you look, the state remains an affordable place for outdoors enthusiasts.

8. Maine

Average Price Per Acre: $9,799

Cheap Counties for Land:

• Penobscot County
• Aroostook County

Bangor, ME, county seat of Penobscot County

Another surprising entry for many, Maine offers some of the cheapest land in the Northeast.

Maine has relatively low population density, keeping it relatively affordable. Take Linneus or Amity in Aroostook County, for example—you can find excellent outdoor recreation here, at low land prices.

Or look around Hermon or Franklin in Penobscot County for similar secluded parcels. Just don’t expect any of these areas to be easy to access, or near major amenities.

Beware that you may have trouble finding small plots, like much of the cheapest land in the U.S. You can find low per-acre prices in parts of Maine, but they may come in large parcels with hefty total price tags.

9. Arkansas

Average Price Per Acre: $13,438

Cheap Counties for Land:

• Jefferson County
• Miller County
• Hot Spring County
• Izard County
• Chicot County
• Baxter County
• Fulton County

Mirror Lake, AR

Agriculture dominates the economy in much of Arkansas, including Jefferson, Miller, and Chicot Counties. But there’s more to Arkansas than just farmland.

Arkansas is rich in lakes, including 44 in Fulton County alone. Anglers will also appreciate the fishing in the Arkansas River, which runs through Jefferson County. Izard County offers great hiking at Mirror Lake Waterfall, Blanchard Springs Canyons, and Ozark Folk Center State Park.

For mountainous landscapes, try Baxter County. It too features plenty of lakes, and tourism dominates the local economy.

10. Texas

Average Price Per Acre: $14,566

Cheap Counties for Land:

• Culberson County
• Presidio County
• Hudspeth County
• El Paso County
• Hamilton County

“El Capitan,” Guadalupe Mountains National Park, TX

You may not think of Texas when you think of cheap land, given its booming cities like Dallas, Houston, and Austin. But Texas is a huge state, with plenty of rural and largely empty land. The expensive land in urban areas and oil-rich tracts skew the average per-acre price higher, but you can score great deals if you know where to buy cheap land in Texas.

Start hunting around Fort Hancock in Hudspeth County for cheap land for sale. Or look around Guadalupe Mountains National Park in Culberson County, or the colorful McKittrick Canyon.

You can buy relatively cheap land not far from the sizable city of El Paso, with its population of around 677,000. Or you can look at land near the wineries in Hamilton County for a surprising change of pace.

Mapping the Cheapest Counties by Property Sales

Raw land sells on many different platforms, and there’s little comprehensive data to compare every single county in the U.S. But the same can’t be said for residential properties.

Using data from Zillow, we mapped (nearly) every county in the country by median home prices:

While home prices and land prices don’t correlate perfectly, they’re awfully close. By mapping residential real estate prices, you get a pretty clear picture of land prices across the country.

That said, bear in mind that large parcel sales skew the total prices higher, even when the price per acre remains low. And a county with a wealthy town in it might still contain cheap land elsewhere in the county.

Mapping the Cheapest Towns in the U.S.

Likewise, mapping the cheapest towns in the country can also help you find where to buy cheap land.

As you hunt for cheap land, try searching around the most affordable towns in the U.S.:

Again, median home prices don’t perfectly match the cheapest land prices, but they offer a strong indicator. Check the surrounding counties for cheap land and you’ll often find it.

Start with the ten cheapest towns in the country, along with their median home prices:

1. Helena, AR $45,390
2. Clarksdale, MS $49,995
3. Selma, AL $70,158
4. Greenville, MS $70,369
5. Forrest City, AR $75,005
6. Middlesborough, KY $75,663
7. Kennett, MO $79,813
8. Coffeyville, KS $79,922
9. Parsons, KS $81,353
10. Danville, IL $82,160

Realistic Expectations About Counties With Cheap Land

At the risk of stating the obvious, cheap land is cheap for a reason.

My grandfather used to say, “Yeah, and if you believe that, I’ve got some swampland in Florida to sell you.” Consider that expression before buying cheap land.

That said, there’s plenty of money to be made flipping land. Or buying and holding land, for that matter. And when you buy cheap land, you can often avoid land loans altogether.

Land investing offers a simple way to earn money from real estate without leaving home, but it’s not without its risks. Before buying land, make sure you understand the highest and best use for that land, and have a plan in place to capitalize on it. For example, that could include recreational use, such as camping, hiking, hunting, and fishing. Or it could include building a house or farming.

Regardless, you need to understand the ideal uses for any land before buying it—and then you need to know how to market that land accordingly.

There’s no one perfect county for land investing in the U.S. But the data above should give you some starting points in your search for where to buy cheap land.

The post Wondering Where to Buy Cheap Land in 2024? Try These Counties and States appeared first on REtipster.

Interest rates are more than two and a half times higher than at the start of 2022. Cap rates have risen, inflation remains defiantly high, insurance premiums have skyrocketed, and occupancy rates are declining.

That sets the stage for falling property prices and rents in a paralyzed housing market. Home sales have plummeted as 93% of homebuyers and 95% of sellers regret their transactions this year.

But where are property prices declining, and by how much? Where are rents falling? And how should real estate investors respond to today’s market uncertainty?

I'm glad you asked because I love interactive maps, and we can pick through several.

Cities With Falling Property Prices

First, it’s worth noting that most U.S. cities have not seen declining real estate prices over the past year. So don’t panic just yet.

Still, a sizable number have seen home values decline, either annually or quarterly. And both numbers rose in the third quarter of 2023 after slimming in the second quarter.

Year-Over-Year Price Declines

Of the roughly 900 cities Zillow tracks, 244 experienced a drop in home prices over the last year. While still a minority, that still amounts to around 27% of U.S. cities.

You can view all 244 of them below, along with their median home prices and the annual drop in value:

That marks a rise from the 200 cities that saw annual price declines at the end of the second quarter.

Quarterly Home Price Declines

Over the third quarter, 153 cities saw home values decline:

While a jump from the 95 cities that lost value in the second quarter, it still marks an improvement over the first quarter, when 224 cities saw quarterly price declines.

Cities With Falling Rents

Real estate prices do drop sometimes, such as during most recessions. But rents rarely dip, even during recessions, as some homeowners become renters and add to rental demand.

That makes it extra scary when you see rents fall, as we’ve seen in the following markets:

Fully 78 of the top 350 cities experienced declining rents over the third quarter. But annually, the numbers don’t look as stark, with only 14 cities seeing rent declines:

The worst of those annual rent declines—Austin, TX—was only 2.79%. Hardly cataclysmic.

Still, you have to wonder if the last quarter’s data represents a broader trend, and we’ll see more rents fall in the coming months.

Should Investors Fear Falling Property Prices and Rents?

As an eight-year-old going rock climbing for the first time, I asked the instructor, “Are rock climbers not afraid of heights?”

He replied, “Climbers have a respect for heights.”

Should you lock yourself in your basement and stop investing in real estate when markets get tumultuous? No. As Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.”

Watch out for the hidden bear.

At the same time, you need to have respect for the turmoil in today’s markets. You need to bring caution and conservative underwriting to investments at all times, especially when markets are as uncertain as they are right now.

Some of the best bargains come when everyone else is terrified of real estate. Look no further than the stretch from 2009 to 2013. I bet you wish you could buy properties today for what they went for then. But at the time, most people had nothing positive to say about real estate.

How to Invest in Tempestuous Times

All investments in all markets come with risk. You can’t avoid it entirely, but you can take steps to mitigate and manage risk.

As you explore investing in this market, whether in flips, rentals, real estate syndications, crowdfunding, or alternative investments like land, keep the following tips in mind.

Review Local Market Fundamentals

Just because a city has been good to your real estate investments for the last five years doesn’t mean it’s a good market for investing in a world beset by falling property prices and rents.

What’s the population growth rate in that city (a.k.a., demand)? What’s the job growth rate (a.k.a., a predictor of future demand)? At what rate are new housing units being built (a.k.a., supply)? What’s the occupancy rate in that city?

In other words, will there be a housing shortage or oversupply two years from now?

Only invest in markets where you feel confident—based on hard data—that there’s a housing shortage and it’s not going away any time soon.

RELATED: The American Dream Dilemma: The Unaffordability of Homeownership

Play the Long Game

Remember the stat from the introduction: 95% of home sellers this year regret selling.

It’s a bad market for selling right now. It might remain a bad market for sellers for a while. That means you should prepare for holding properties long-term, at least five years.

Play it like a game of 4D chess. No, seriously.

In turn, that means properties you buy today need to cashflow well. Selling may not be easy or profitable for years, so keep income front-of-mind as you evaluate deals.

Beware of Spiking Expenses

I’ve heard countless horror stories of insurance premiums leaping by 100% or more over the last year or two. That can crush your cash flow.

Nor are they the only expense shooting through the roof. Property taxes have exploded post-pandemic as counties reassess values. Labor costs for repairs and maintenance have risen sharply. And continued high inflation keeps driving up material costs.

That makes forecasting cash flow tricky. Imagine buying in a market where rents are declining, but all your expenses keep jumping. Within a year, a property could become cashflow-negative.

Now do you get why I stressed rechecking your market’s fundamentals? As you play the long game, use extra caution.

Use Leverage Carefully

Even in the best of times, leverage is a double-edged sword. And this is certainly not the best of times for borrowing.

If you don’t want to get cut, again, use extra caution when approaching loans. Get more comfortable with creative financing options, such as assumable loans, seller financing, wraparound mortgages, private loans from friends and family, and more.

Better yet, buy in cash.

Avoid traditional mortgages and portfolio loans if you can.

Real estate investors who can buy in cash or negotiate low-interest loans privately can find plenty of opportunities to make money in a challenging market. Investors who rely on more traditional financing will have a harder time finding deals that cash flow well.

As a parting (and terrifying) visual, here’s how interest rates have changed since late 2021:

Is the End Nigh for Real Estate Investors?

Of course not. When the market is bleak, you can often find the best deals.

If you know where to find and fund them.

With declining property prices and rents, investors have less competition from homebuyers, with so many of them either locked in their current homes or unable to afford high-interest mortgages. For that matter, they have less competition from other investors, many of whom don’t know how to use creative financing. Again, that creates opportunity.

But today’s market also has some very real dangers. Proceed with caution, stay conservative, and above all, don’t make any assumptions about where interest or cap rates are headed over the next few years.

Happy Halloween!

The post Where Should Investors Be Scared of Falling Property Prices and Rents? appeared first on REtipster.

Perhaps you want to know why buying a home is so hard. Or, more importantly, how you can break into homeownership if you’ve been locked out in recent years.

The good news is that with a little creativity, you can break into the housing market without a trust fund or rich uncle.

Context: Undersupply Dating to the Great Recession

One of the (many) problems that caused housing to crash in 2008 was the oversupply of housing. Back in the mid-2000s, real estate had been sizzling so hot that homebuilders went buck wild and overbuilt homes.

In the end, they got burned and lost billions of dollars in the ensuing 33% crash in home prices.

So, in the decade following 2012, homebuilders underbuilt by almost four million housing units. In that decade, 15.6 million new households formed, but developers only built around 8.5 million single-family homes and 3.4 million multifamily units.

Source: Realtor.com, “US Housing Supply Continues to Lag Household Formations; Multifamily Construction Offers Alternatives“

Where does that leave us today? Estimates vary, but economists agree that the U.S. has a housing shortage. Moody’s Analytics puts the shortage around 1.6 million housing units, while a report by Up for Growth pins it at a whopping 3.79 million units.

Regardless, the U.S. doesn’t have enough housing, and that shortage measures in the millions.

The Impact of Interest Rates

Imagine you borrowed $350,000 to buy a home for a 30-year fixed interest mortgage. If you bought in early 2022, you could have borrowed that mortgage at 3% interest. That would put your monthly principal and interest payment at $1,476.

Fast forward a year or two, and imagine you borrow the same mortgage at 7% interest. You’d instead pay $2,329 each month—over $850/month more, or a 57.8% jump in your housing payment.

Of course, people’s incomes didn’t jump 57.8% during that time. Which means homebuyers simply can’t afford to spend as much on housing.

But home prices haven’t dropped by much, or at all, in many markets. The median sales price of existing homes stayed around the same, from $391,400 in the third quarter of 2022 to $397,500 in mid-2023.

So what gives?

Lock-In Effect and Low Inventory

Most U.S. homeowners today enjoy low fixed-interest mortgages in the 2-4% range, given how low interest rates stayed for so long. If they sold today, they’d be borrowing money at today’s high rates to buy their next home—meaning they couldn’t afford nearly as much home as they currently have.

That, in turn, means most would-be sellers have decided to stay put. And in doing so, they deprive the housing market of inventory.

Specifically, the U.S. housing inventory has reached just 3.1 months of supply. That’s close to an all-time low and the lowest for this time of year.

source: tradingeconomics.com

Low supply buoys home prices and prevents them from dropping further.

Cash Is King—Especially During High Interest Rates

Not everyone has to pay high interest rates to buy a home. Homebuyers with deeper pockets and more liquidity can pay in cash and skip all those high-interest loan payments.

In a slow housing market, that also gives them better negotiating power.

The higher the cost to borrow money, the higher the value of cash on hand.

Would Lower Interest Rates Fix Affordability?

If you think the housing affordability crisis would disappear if only the Fed lowered interest rates, think again.

Buyers pay the going rate for real estate. If interest rates fall and the same monthly payment suddenly buys you a higher loan amount, buyers simply raise their purchase offers.

Prices would rise, and buyers would end up with a similar monthly payment.

So What Actually Drives Down Home Prices?

There aren’t many levers that actually push down real estate prices. But there are a few.

High interest rates often do, as outlined above. The nationwide numbers outlined above obscure a huge range of price swings in different cities. In the second quarter of 2023, 95 cities saw home prices fall, and that number represents a dip from 224 cities in Q1 and 253 cities in the Q4 of 2022:

But higher interest rates merely represent one way of curbing demand for housing. Other ways to quash demand and lower home prices include higher unemployment rates, lower incomes, and other ugliness that often walks hand-in-hand with recessions.

Sure enough, if you look at home prices over history, they often fall during recessions:

US median home prices from 1980 to present; shaded areas represent recessions (source: Federal Reserve Bank of St. Louis)

Of course, governments could put downward pressure on home prices in a happier way by finding ways to boost the housing supply. That starts with common sense moves like approving more housing permits, reducing burdensome housing regulations, and offering more tax incentives for building starter homes and low-income housing. Not that common sense ever plays much of a role in politics.

The numbers don’t look great on the supply side. Housing starts fell 11.3% month-over-month in August as homebuilders pulled back, and starts on single-family homes remain 16% lower than the 2020-2022 average.

How to Buy Your First Home in an Unaffordable Market

Struggling to buy a home?

If you don’t have much cash, you need creativity. Try these ideas to get your foot in the door of homeownership.

House Hack

I haven’t paid full price for housing since 2012. In some way, shape, or form, I’ve gotten someone else to cover most or all of my housing costs.

The classic house hacking strategy involves buying a multifamily property with two to four units, moving into one unit, and renting out the other(s). The idea is simple: your neighboring tenants’ rent covers your monthly mortgage payment.

Mortgage lenders count these properties as residential, so you can take out a conventional mortgage loan, including FHA loans, VA loans, USDA loans, and conforming loans. You can even use the future rents from the other units to help you qualify for the mortgage.

But that’s not the only way to house hack. Other house hacking ideas include renting to housemates, renting out part of your home on Airbnb, renting out your entire home on Airbnb when you’re not using it, adding an ADU (the so-called "granny flat"), renting out parking or storage space, or any other way you can think of to generate revenue with your home.

My cofounder, Deni Supplee, went so far as to host a foreign exchange student. The monthly stipend covered most of her mortgage payments.

Find a Job With Free Housing

Today, my family and I enjoy free housing through my wife’s job. She’s an international school counselor, but there are plenty of other jobs that provide free housing; you just need to look for them.

Get rid of your housing payment, and you can save for a down payment much faster.

Ask for Help From Family

Mortgage lenders typically don’t allow you to borrow any part of the down payment, but your family members or friends can give you a financial gift that doesn’t need to be repaid.

Or they could help in other ways, such as cosigning on your mortgage to help you get approved for a loan.

Assume the Seller’s Cheap Mortgage

Most homeowners today have low-interest mortgages, given how low interest rates stayed for most of the last two decades. You can take over the seller’s existing mortgage to avoid borrowing at today’s exorbitant rates.

Banks don’t like letting new borrowers assume an old mortgage because it’s not in their best interest (pun intended). But you could get creative with it, perhaps by negotiating seller financing with a wraparound mortgage.

Enter an Installment Contract

Many sellers don’t like offering seller financing because if you default on them, they have to go through the long, expensive foreclosure process. For them, it’s a lot of risk without much reward.

Plus, if you do a wraparound mortgage and the original lender finds out, they can call the loan.

An installment contract skirts both issues. You agree to the payment terms, but the deed ownership doesn’t change hands yet. Technically, you remain a renter, and if you default on your payments, the seller merely has to evict you.

The seller’s existing mortgage remains in place, plus extra for the difference in what you owe them. You agree to pay them off within a certain time frame, and they deed the property to you. That locks in your price at today’s pricing and gives you time to improve your credit and wait for (hopefully) lower interest rates.

Move Somewhere Cheaper

I live in Lima, Peru. I enjoy an oceanfront condo with three bedrooms, two full baths, and a balcony with a 180-degree view of the Pacific Ocean for the equivalent of $1,300 per month. (Which my wife’s employer pays, as I mentioned.)

But you don’t need to move to Peru for a lower cost of living. If you can’t afford to buy a home in San Francisco Los Angeles or New York, move to Columbus, OH or Lexington, KY.

While you’re at it, consider moving somewhere that lets you live car-free or drop down to a one-car household. My family went from two cars to one, and today we own none. It helps us save even more money towards our goals like buying properties and early retirement.

Final Thoughts

The massive millennial generation has entered its prime move-to-the-suburbs-and-pop-out-kids years. Except they don’t have any starter homes to move into.

Part of the problem is that homebuilders just don’t build starter homes anymore because the profit margins are lower. In fact, not a single new home sold for under $200,000 during the last year. To really bludgeon home how homebuilding has changed, check out this chart from Insider:

To break into homeownership today, you need either cash or creativity. Use the latter to build up more of the former and squeeze into the ever-more-elusive American dream of owning your own home.

The post The American Dream Dilemma: The Unaffordability of Homeownership appeared first on REtipster.

Clearly, there’s plenty of demand for self-storage. But a corporate storage facility isn't the only option.

Described as the “Airbnb for storage space,” Neighbor offers a peer-to-peer storage and parking platform. But is it safe and secure? How much does it cost? How does it earn revenue?

If you have extra storage or parking space—or are looking for it yourself—consider Neighbor.com.

What Is Neighbor.com?

Neighbor is a listing platform that connects hosts and renters looking for extra space.

Hosts rent out their spare garages, basements, attics, or parking pads to renters, letting them earn passive income each month on unused space. Renters get a bargain on storage space or parking.

Like Airbnb, hosts create listings with photos, descriptions, and amenity listings. The latter could include features like climate control or separate access. Renters browse local listings and connect with hosts to ask questions about their available space.

All of which sounds great, cutting out corporate storage facilities and connecting neighbors with complementary needs. But when you dig into the details, plenty of questions sprout up about exactly how it works.

How Neighbor.com Works

You get the big picture: prospective storage or parking space renters browse listings with photos and descriptions. And parking does make up a hefty portion of the listings on Neighbor.com, not just for cars but also for boats, RVs, trucks, ATVs, and other vehicles.

Here’s exactly how Neighbor.com works, both for hosts and renters.

Allowed and Prohibited Storage

Renters can’t just store whatever they want in the garage down the street. That radioactive plutonium will have to go somewhere else.

Sign Up for Neighbor Today!

Neighbor.com prohibits the following items from being stored:

• Firearms and ammunition
• Fireworks and other explosives
• Toxins and pesticides
• Controlled substances
• Perishable food items
• Waste
• Stolen items

Renters must disclose exactly what’s being stored at the host’s property, and the host has the right to inspect stored items.

Finally, renters may not live or work at spaces rented on Neighbor.com. Phroggers should look elsewhere.

Rent Payments

The greatest strength and drawback of Neighbor.com is its payment platform.

Renters make payments through Neighbor.com’s built-in payment platform (powered by Stripe). They typically pay through automated recurring credit card payments each month. Late rent fees are also automatically charged to the renter’s credit card.

Which is great—except you don’t have a choice. All storage and parking leases through Neighbor.com must use their payment platform for rent.

Why? Because that’s how Neighbor.com earns its revenue.

Neighbor.com Fees

Both hosts and renters pay fees to Neighbor.com.

The fee for hosts is simple enough: 4.9% of all payments collected, plus $0.30 per transaction. That covers credit card processing fees and then some.

Renters also pay a fee, but it varies per lease. When you go to reserve a space, you can see the service fee before committing. While Neighbor.com doesn’t explicitly share how these fees are calculated, they typically range from 15% to 20% of the rent.

Renter Protection Plan

Actually, fees aren’t the only way Neighbor.com makes money.

Neighbor also earns revenue by selling protection plans to renters. They offer three plan levels: Minimum, Moderate, and Standard. You set the coverage amount, and Neighbor prices the premium accordingly.

Neighbor pays out a maximum reimbursement of 90% of the repair or replacement cost for belongings.

Sound a lot like insurance? Neighbor insists they don’t sell insurance, probably for some legal liability reason, but the distinction is lost on me.

Read more about renter protection plans here.

Cancellations and Refunds

If a renter cancels their reservation before the host accepts it, within 24 hours of acceptance, or more than three days before the reservation starts, they get a full refund of both the rent and the Neighbor.com service fee.

Renters who cancel their reservation one to three days before it starts receive an 80% refund of the rent (but not Neighbor’s service fee). On or after the start date, renters don’t receive any refund if they cancel.

Hosts can cancel a reservation any time before the lease start date. They can non-renew contracts with 30 days' notice and can, of course, evict non-paying renters’ belongings.

Host Identity Verification

To list their space on Neighbor.com, hosts must verify their identity.

Neighbor partners with Persona to verify hosts’ identities. The process is mostly automated, where hosts use their webcam (or phone camera) and a photo ID to verify their identity. Read more about the identity verification process here.

It protects renters from real estate scams, and Neighbor.com does not store any sensitive identity information, as the verification happens entirely through Persona.

Host Liability and Payout Protection

Neighbor provides a Host Guarantee with up to $1 million in liability protection. It includes bodily injury and “third-party property damage (excluding host and renter property damage) related to your Neighbor storage reservation.”

As a more mundane protective measure, Neighbor pays out up to two months of lost rental income if the renter stops paying and you need to evict their stuff. They refer to this as Host Payout Protection, and it’s a nice feature to entice wary would-be hosts.

Renter Access to Storage

When hosts create a rental listing, they set the frequency at which the renter can access the space.

That could be 24/7, of course, for spaces with their own separate entrance. Or hosts can set more restrictive access to areas that require the host’s presence, such as attic storage that requires the renter to enter the host’s home.

Business Uses

Neighbor also markets to businesses for a range of flexible uses.

For example, Neighbor connects companies with vehicle fleets to parking lot owners. They also help retail property owners fill vacancies on a temporary or flex basis, perhaps while they wait for longer-term tenants. In a head-scratching nomenclature, they call these “Retail REITs” despite bearing no resemblance to real estate investment trusts.

Pros of Neighbor.com

There’s a lot to like about Neighbor.com. Upsides to the peer-to-peer leasing platform include:

• Host Protections: Between the Host Guarantee and Host Payout Protection, hosts can sleep easy at night. As for what renters store in their homes or other storage space, hosts can inspect it to make sure they feel comfortable.
• Free Listings: Since Neighbor.com makes most of its money on rent payment transactions, hosts can test the waters by posting listings for free to see if anyone bites.
• Host Verification: Renters can trust that a host is who they claim to be, as all hosts must verify their identity before listing their space.
• Automated Rent and Late Fee Processing: With payments automated on credit cards, hosts and renters alike can “set it and forget it.”
• Renter Protection Plans: Renters storing valuable items can protect them with a policy directly with Neighbor.com or buy their own insurance policies elsewhere.
• Better Bargain than Storage Facilities: Renters can typically find better deals on storage and parking spaces by renting directly from another individual than paying a business.

Cons of Neighbor.com

No platform is perfect. Beware of the following drawbacks when considering Neighbor.com as a renter or host.

• Can’t Pay with Other Means: When you use Neighbor.com, you agree only to transact payments on their platform. You can’t make or receive payments in cash or through free platforms like PayPal or Venmo. It’s how Neighbor.com earns its revenue, after all!
• Less Convenient Access for Renters: Most self-storage facilities offer 24/7 access, or at least access from early morning to late at night. When renting space on Neighbor, you agree to the host’s access conditions.
• Potential Risk to Stored Belongings: Self-storage facilities and commercial parking venues typically provide strong security. That almost always includes surveillance cameras, physical barriers such as fences or walls, and, in some cases, human security guards. Your neighbor’s garage doesn’t come with that level of security.
• Availability Depends on Local Hosts: As a peer-to-peer platform, you can only rent space through Neighbor.com if someone in your area happens to have listed it. While major cities have pretty wide usage, less densely populated areas may not have any listings at all.

How Neighbor.com Compares

For renters, Neighbor.com offers the potential to score a bargain. Or not—you may find that after Neighbor’s fee, it costs just as much as renting space from a self-storage or parking facility with more convenient access and better security.

Renters should compare pricing and availability on Neighbor.com with SpareFoot, a parking and storage listing aggregator. It compares all commercial storage or parking options in your area with excellent search filters.

For hosts, Neighbor.com is the only peer-to-peer storage service I’m aware of (other than StashBee in the UK). But would-be hosts have plenty of other ways to house hack and monetize their home.

They can rent out rooms to housemates, of course, or rent out an accessory dwelling unit. Or if they’re willing to move, they can follow the tried and true multifamily house hacking model. Every one of those options can generate more revenue than renting out storage space, albeit with more costs or headaches on your part as a host.

Alternatively, you could rent out parts or all of your home as a short-term vacation rental. A friend of mine used to rent out a bedroom/bathroom suite in her apartment on Airbnb, and she found that if she rented it for two long weekends each month, it covered most of her rent. My cousin rented her entire home out on Airbnb, and just crashed with her fiance whenever someone booked it. Again, more hassle, but far more income as well.

Another option for peer-to-peer renting is Turo, the “Airbnb of cars.” You can rent out your car, for a few days or weeks at a time. In fact, when I travel home to the U.S., I usually rent a car on Turo. It potentially comes with greater risk and headaches, but again, it can generate more income than renting out storage space.

Final Thoughts

Renting out storage space is as passive as passive rental income gets in most cases. You throw a few photos and sentences in a listing, give someone a key when they drop off their boxes of college notebooks, and you don’t see them again for another year or two.

And it doesn’t pay particularly well, in most cases.

Still, if you have spare parking or storage space that goes unused each month, you have little to lose by renting it out.

Renters can also potentially score a great bargain by renting garage space from someone a few streets down rather than a public parking garage or self-storage facility.

Whichever side of the transaction you find yourself on, make sure you understand the risks and costs before committing to a lease agreement.

The post Neighbor.com Review: Peer-to-Peer Storage & Parking appeared first on REtipster.

To avoid any nasty surprises, especially as a seller, you should know what liens are secured against your property. But how do you find out if there are any liens, who owns them, or how much debt is attached?

Fortunately, it’s easier to get answers about liens than most other questions in real estate. In a few steps, you can get a clear picture of the debts secured against any property.

What Is a Lien?

Before going any further, you should understand exactly what a lien is.

A lien is a debt secured against real property. The property owner can’t typically sell or borrow against the property without paying off all liens against it.

You’re likely familiar with some types of liens. Others—not so much.

Types of Voluntary Liens

Everyone understands the concept behind a mortgage loan. You borrow (a lot of) money, and the lender secures that debt against your home. If you default on your mortgage, the lender forecloses on your home to recover their loan.

A lien is the legal mechanism that allows the lender to foreclose if you stop making payments. It attaches the loan to your home, lets the lender force the sale if you default, and prevents you from selling the house without paying them back.

A mortgage lien is voluntary; you chose to borrow that loan and agreed to let it attach to your property as collateral.

Mortgages aren’t the only type of voluntary lien. For example, when you open a home equity line of credit (HELOC), you also put your home up as collateral by letting the lender put a lien against it.

*slaps roof of car* This bad boy can fit so many liens on it (“Slaps Roof of Car,” Know Your Meme. June 28, 2018. Retrieved from https://knowyourmeme.com/memes/slaps-roof-of-car)

The same principle applies to car loans. When you take out a car loan to buy a car, the lender puts a lien against your car. If you default, they repossess your car to recover their money.

Involuntary Liens

Property owners already know about voluntary liens—they voluntarily agreed to them!

Involuntary liens, on the other hand, don’t require your consent. You crossed somebody, and they put a lien against your property to try and collect a bad debt.

Tax liens offer a classic example. If you fail to pay Uncle Sam (or your state or local government) their taxes, they can secure a tax lien against your property to force your compliance.

Likewise, if you fail to pay a contractor for a job they completed, they can file in court to attach a mechanic’s lien against your property. If you didn’t bother opening your mail from the local courthouse, you might find a surprise when you run a lien search on your property.

Creditors who win a judgment against you can also sometimes attach it as a lien against your property to collect on that judgment. For example, if someone sues you and wins or your mortgage lender forecloses but still doesn’t recover their loan, they could win a deficiency judgment against you.

How Liens Work

While there are some differences between different types of liens, in general liens work simply.

First, lienholders can force the sale of your property by foreclosing on it if they like. They get paid from the proceeds of the sale. But foreclosing on a property is expensive, and some lienholders don’t mind waiting for the owner to sell or borrow money.

This raises the second point: liens prevent the property owner from selling or borrowing money against the property without paying off the attached debt. You can’t go to ten different banks and borrow money from all of them against the same property. If you have an existing mortgage, you have to either pay it off when you refinance, or you can take out a second mortgage for a much smaller amount that accounts for the first mortgage.

Liens follow a specific pecking order, called lien position. In most cases, the first lien recorded sits in the first lien position, meaning they get paid off first in a foreclosure sale. If you take out a second mortgage (home equity loan) or a HELOC, it goes in second lien position behind your first mortgage.

There are exceptions to that rule, however. Some liens, like the federal government’s tax liens, usually jump to the front of the line. When this lien is present, it takes the first lien position even if they’re recorded after other liens.

How to Find Liens Against Your Property

You have a few different options at your disposal to find liens against a property.

• Public records: Liens are a matter of public record. Most states and counties post these sorts of public records online for anyone to search without having to physically walk into a courthouse and pore through manila folders. Start here, and in most cases, you can find all liens recorded against your property.
• Private lien search services: Some real estate data providers include liens in their data searches. For example, PropertyShark and Records Finder provide lien data. Just beware that these services cost money, and you can usually find liens for free with a public record search.
• Title agencies: The most expensive but most definitive are title companies. When you buy or sell a property, a title company runs a formal title search to unearth all liens against it. They then issue a title insurance policy to the lender (and sometimes the buyer), guaranteeing clean title.

How to Remove Property Liens

In most cases, you remove a lien by paying off the debt. For example, when you sell a property, the lien disappears because you pay off the mortgage.

It gets trickier if you want to remove the lien without paying off the debt. You can try negotiating with the lienholder; they might accept a lower payoff if you can convince them they won’t get their money back, at least not for a long time. Mortgage lenders sometimes accept short sales, and other lienholders tend to be more flexible, particularly for smaller amounts that aren’t worth foreclosing over.

Once you’ve paid off a balance secured by a lien, it may fall to you to apply for a lien release in court. Clarify that with the lienholder so the lien doesn’t continue sitting against the property even after you’ve paid off the debt.

Alternatively, you can dispute a lien. That involves filing in court and appearing before a judge to plead your case that the lien isn’t legal and should be removed. You can hire an attorney to help with this or present your own evidence.

Final Thoughts

While voluntary liens tend to be both benign and known to you, involuntary liens can catch you off guard at the worst possible time: when you have a property under contract to sell or in the midst of a refinance.

Don’t let liens take you by surprise. Find out if any liens are attached to your property before listing your property for sale or getting a rate lock with a lender. Start with a free public records search, and if you discover a surprise lien, use discretion as you research it. Don’t let the lienholder know that you plan to sell or borrow money against the property, as you tip your hand that you need to pay off the lien. Then the lienholder knows they have you over a barrel.

Instead, don’t reveal anything and express curiosity about how it came to be attached to your property. That leaves you in a far better negotiating position if you do end up trying to negotiate a lower payoff balance.

The post How to Find Out If There Is a Lien On a Property appeared first on REtipster.

Why?

Because being a landlord is more work than anyone tells you, it’s more passive than working a 9-5 job — but not at all passive like stocks, bonds, REITs, and syndications are passive. I understand why some investors consider passive rental income “a lie.”

RELATED: What Is “Passive Income” Exactly?

The public shares a misconception that landlords live high on the hog, getting rich off the backs of working people, all without lifting a finger. Every single component of that cultural belief is false.

Still, it begs the question: What work is required for rental properties? What costs landlords time?

Buying and managing rental properties may not require you to clock into a job at the same time every day, but it still requires plenty of work from start to finish. Keep the following tasks in mind before buying a rental property.

Finding Deals

As an investor memorably told me once:

“There’s no deal tree that you can just walk up to and pluck good deals.”

The MLS, as an open market, is—by definition—where you pay market pricing for properties. And market pricing for rental properties tends to leave slim cash flow margins.

This is just like the MLS, just less glamorous and aesthetically pleasing.

That doesn’t mean you can’t find good deals on the MLS. But even that requires work: scouring dozens of properties, perhaps visiting them in person, making offers, negotiating deep discounts, you name it.

The best deals aren’t found there at all, but rather on off-market properties where you aren’t competing and bidding against every other investor. These include “abandoned” properties, pre-foreclosure or other distressed properties, probate properties, and the like.

Reaching out to these owners costs labor and money. It takes effort and funds to identify them, to contact them via direct mail, text, or voicemail campaigns, and to screen leads as they come in.

In contrast, you can just buy shares in an index fund mirroring the S&P 500 and call it a day.

Funding Deals

You just spent 100 hours evaluating 80 potential deals, made 40 offers, and signed one contract of sale. Congratulations! Now you need hundreds of thousands of dollars actually to buy the property at closing.

If you have it lying around in a checking account somewhere, great. Most of us don’t, however, so we have to go out and line up financing.

Again, that takes hours of work—work to network with lenders, work to comparison-shop interest rates and fees for this specific loan, work to submit an application, and all the subsequent paperwork the lender demands.

The good news is that it gets easier. As you build relationships with portfolio lenders, they become easier to work with. They close faster, ask for less paperwork, and offer you their best possible rates with no haggling. But in the beginning, you start from scratch with them.

Initial Repairs

It’s possible to buy turnkey properties, either with tenants already in place or ready to be rented. But in my experience, few “turnkey” properties are in 100% perfect condition, and those that are sell at a premium.

No, in most cases, if you want any kind of bargain, you’re looking at properties that need at least some cosmetic updates, and possibly a full renovation. Read: more work.

Managing Contractors

You may not be swinging the hammer yourself on your nights and weekends, but you’ll still incur plenty of labor time. It takes time to get quotes from contractors, negotiate with them, oversee their work, demand high quality from them, and keep them on the promised timetable.

I have found contractors to be consistently difficult to work with, and it’s an experience I’ve heard reflected from other real estate investors time and time again. Managing contractors is one of those hidden challenges that no one expects when they get into real estate. It’s neither fun nor easy, and it’ll cost you time and money to learn the skills needed to manage contractors effectively.

Hiring a general contractor helps—and it adds to your costs. The pricier the contractors, the more professional they tend to be, both in their work quality and in their ability to do basic things like show up on time for appointments and keep a timetable. But if you’re paying retail prices for high-end contractors, you can expect a harder time keeping your budget.

Permits and Inspections

If you make any improvements beyond cosmetic ones, you need to file (and pay) for permits. Your contractor can potentially do this for you, but they’ll charge you a premium for it.

Filing is the easy part. When the work is complete, you have to schedule an inspection, and inspectors are not the easiest or most professional people to work with. I’ve known many inspectors to fail every property the first time they look at it, simply to prove to their supervisors that they’re making their rounds and “enforcing the law.”

In fact, I’ve known some inspectors who fail properties without a bribe.

Consider yourself warned.

Filling Vacancies

Once you get your Use & Occupancy permit, you’re free to advertise the property for rent.

And then show the property to prospective tenants, review rental applications as they come in, run tenant screening reports, call up landlord references and employers, draft and sign a lease agreement, and collect the security deposit and first month’s rent.

All while maintaining a written standard for which applications you’ll accept and keeping records of all applications. You do all this so you can prove you didn’t discriminate if a disgruntled applicant sues you because you chose someone else over them. More on lawsuits later.

How passive does all that sound?

Managing Tenants

Once you sign a lease, you don’t just sit back and watch your bank account grow. While more passive than the previous efforts required of you, you still incur some ongoing work.

Collecting Rents

Maybe you pay your rent or mortgage on time every month. I do (or did, back when I paid for housing), and I initially assumed everyone just paid their bills as the standard course of business.

Wow, was I wrong.

Some people never saw a bill they wanted to pay on time. They wait until someone chases them before they pay it.

Others might pay on time for a little while, then lose their job or get a divorce, or their car breaks down. Most landlords don’t report rents to the credit bureaus, and it’s the largest bill for most renters, making it an easy first choice for delaying payment.

So you have to send late notices, then official eviction notices, then file in court for eviction, then show up in court to the eviction hearing, then schedule a put-out date, AND then show up for it.

Enforcing Your Lease

Nothing makes you more jaded than watching people abuse your empathy.

I’ve heard every sob story in the book from tenants asking me to hold off “just one more week” from filing an eviction. In my early years as a landlord, I thought I was being a “good landlord” by offering extension after extension.

I eventually learned that it’s human nature to push boundaries, and it’s your job as a landlord to defend your boundaries as laid out in your lease. Some renters simply made up stories, others had no clear plan or budget for getting caught up. Few ever caught up on rent without me forcing their hand by filing for eviction.

And that doesn’t just go for unpaid rent. Tenants can break your rental agreement in other ways, from bringing in unauthorized occupants or pets to damaging your property to committing crimes in it.

It falls to you to enforce the two-way legal contract you signed with your renters. It’s often uncomfortable and is never fun. But it’s what you sign up for when you become a landlord.

Regular Inspections and Maintenance

How do you discover when a tenant has violated your lease?

By visiting the property regularly, of course. Which, in turn, requires work on your part.

I recommend visiting each rental unit every six months at least. It sends a clear message to the renter that you care about the property, that you’re paying attention, and that you’re not an absentee landlord.

Inspections aren’t just to look for lease infractions—it provides you a chance to look for maintenance issues that need attention. To catch problems in their infancy, before they become expensive.

Because real estate is, well, real. Buildings are physical objects that experience wear and tear, that deteriorate over time, that become outdated. They require ongoing upkeep and maintenance, which means (joy!) more working with contractors.

Inspections also give you a chance to check in with renters about their plans for renewing their lease and gauge whether you can retain them by making a requested property improvement.

Bookkeeping and Additional Accounting

I remember how simple my tax return used to be when I was a W-2 employee with no rental properties. It took me about an hour to prepare my own tax return.

Rental properties add complexity to your tax return. You have to sum up all income and expenses accurately and put them in the right places on your Schedule E. That includes depreciation, by the way—Uncle Sam will charge you depreciation recapture when you sell the property, whether you actually deducted for depreciation or not while you owned the property. I learned that nasty tax lesson the hard way.

I eventually gave up and hired an accountant to prepare my taxes for me. That added to my personal expenses each year.

But the accountant won’t keep accurate records of your income and expenses for you. You need to keep your own books, including expenses ranging from repairs to utilities to travel to insurance to mortgage interest and more.

If you don’t keep your books accurately, the best-case scenario is you pay more taxes than you should have. The worst case scenario is an IRS audit, and if you thought the rest of being a landlord is a lot of work, wait until you suffer through an audit.

Fending Off Lawsuits

People love to sue landlords.

Some of that stems from our aforementioned cultural hatred of landlords. But it also stems from the fact that landlords have at least one valuable asset that litigators know about: the property itself.

You can’t move or hide an investment property. If a tenant with a silver-tongued attorney sues you, they know they can eventually collect the judgment from you because it attaches as a lien against the property.

It’s also why cities often make landlords liable for their renters’ actions: they know they can collect from landlords, but it’s much harder to collect from tenants.

I’ve been sued as a landlord. It’s stressful, time-consuming, and expensive. And it cost me plenty of hours of sleep to boot.

What About Hiring a Property Manager?

If you yawned your way through all the work outlined above, shrugging it off with “I’ll just hire a property manager,” think again.

Sure, a property manager can take on some of the headaches for you. They show the property, review rental applications and screening reports, and show up in court for you for eviction hearings.

But when you delegate these tasks to a property management firm, you have to then manage the manager. You have to confirm they screened the tenants well, that they’re actually inspecting the property (thoroughly) every six months, and they’re getting the best value for you on repairs and maintenance. For that matter, you also have to watch out that they aren't charging you hidden fees and collecting kickbacks from contractors.

Managing the property manager is a recursive problem, similar to Juvenal's timeless epigram, “Who watches the watchmen?” (Quinn Dombrowski from Berkeley, USA, CC BY-SA 2.0, via Wikimedia Commons)

My experiences with property managers have been just as fraught as those with contractors. Property managers love to bury fees in their legal contract, such as fees for renewing leases with existing tenants, changing the locks, visiting the property, or hiring contractors to do, well, anything. Then they bury those fees in complex monthly statements.

Do honest, effective, and professional property managers exist? Certainly. But it’s an industry rife with mediocre and/or unscrupulous operators, and it usually takes plenty of effort on your part to screen, hire, and manage the best property managers.

Final Thoughts: Higher Hidden Costs on Lower-End Properties

I’ve found that the lower-end the rental property, the worse the hidden costs, both financial and to your time.

For example, the best property managers don’t work with low-end properties. Low-rent properties come with twice the work at half the commission. That leaves you with the dregs of property management options in your area.

Likewise, I’ve found higher default, eviction, and turnover rates at lower-end properties. All of which are where the bulk of landlords’ financial and time costs lie, as opposed to renters who just pay on time each month.

Lower-end renters tend to cause more abuse to the property, which in turn means more repairs and maintenance.

These have been my own experiences, and those of every other real estate investor I’ve ever spoken with on the subject. If you find me sharing these experiences offensive, by all means, go out and buy up every low-end rental property you can afford. Someone has to, and I’m just glad it’s not me anymore.

The post The Hidden Costs of Being a Landlord: Debunking the Passive Income Myth appeared first on REtipster.

But as in most industries, the barriers disappear once you learn a few dozen terms and abbreviations. What sounds like a foreign language contains just a few new vocabulary words.

In fact, the terminology is the easy part. Finding great deals on properties or managing contractors? That’s the hard part.

54 Real Estate Abbreviations for Investors

As you learn the language of real estate investing, keep an eye out for these common real estate abbreviations.

1. ARV

After-repair value, or ARV, refers to a property's (drum roll please…) value after repairs are completed.

House flippers, in particular, use ARV to calculate the potential profit on a flip.

2. BPO

A broker price opinion is a report prepared by a real estate broker or agent, estimating a property’s value. It’s less comprehensive—and less expensive—than a full property appraisal.

3. Cap Rate

A property’s capitalization rate or cap rate is the ratio between its income and its value or price. Specifically, it’s net operating income (NOI) divided by the cost or value.

It offers one of many ways of calculating the return on an income property. A cash buyer for a $100,000 property that nets $8,000 per year would earn an 8% cap rate on the property. Buyers willing to accept lower cap rates pay more money for the same property.

Or play around with our cap rate calculator to get a better sense of how cap rates work.

4. CCIM

The National Association of REALTORS® (NAR) offers the certified commercial investment member designation to Realtors who specialize in working with commercial real estate and investment properties.

5. CC&R

In planned communities and homeowners associations, the term “covenants, conditions, and restrictions,” or CC&R for short, refers to the governing rules in that community. Read them before buying, because you’re stuck with them once you purchase a property.

6. CMA

Real estate agents perform a comparative market analysis, also known as a competitive market analysis, to inform sellers about the market value of their property. It features comparable homes (“comps”) that have sold recently.

A screenshot of “comps” using Zillow.

7. CoC/CCR

Cash-on-cash return refers to the annual income yield you earn on your personal cash invested in a property or fund.

For example, if you invested $50,000 as a down payment on a property that nets $5,000 annually, you’d earn a 10% cash-on-cash return. The same calculation applies to real estate syndication investments: CoC refers to the income yield you earn on your cash investment.

Try our cash-on-cash return calculator to get more comfortable with the concept.

8. COF

Most commonly used by lenders, cost of funds (COF) reflects their cost to acquire the money they need to fund loans. If you invest in private notes, for example, and you can borrow money at 5% and lend it at 10%, then your COF is 5%.

9. Comp

A comparable property or comp is precisely like it sounds: a similar property very close to the property that has recently been sold or rented. You use comps for market research and determine a property's value or market rent.

The perfect comp would be an identical property right next door that sold yesterday. Obviously, that almost never happens, but the more similar and closer the property, and the more recent the sale or leasing, the better the comp.

Also see CMA above.

10. COO

A certificate of occupancy (COO) documents that a property is rented out and physically occupied.

11. CPM

Another designation by the National Association of Realtors, a certified property manager (CPM) has completed the licensing required by the NAR.

12. CRE

Commercial real estate. ‘Nuff said.

13. DSCR

Debt service coverage ratio or DSCR is a calculation used to measure an income property’s cash flow. Simply divide the property’s annual net operating income (NOI) by the annual cost of its debt service (principal and interest). For example, a property that generates $12,500 in net annual income and costs $10,000 in debt payments has a DSCR of 1.25.

14. FHA

You probably already know the Federal Housing Administration—they’re known for their famous FHA mortgage program requiring just 3.5% down for borrowers with credit scores above 580.

15. FMR

“FMR” stands for fair market rent, for people too lazy to write “market rent.”

16. FMV

Likewise: fair market value, or a property’s estimated market value.

17. Fannie Mae (FNMA) and Freddie Mac (FHLMC)

Fannie Mae and Freddie Mac are two quasi-governmental lending institutions that issue standardized mortgage loan programs, buy loans that conform to those programs, and then bundle and sell them as mortgage-backed securities on the secondary market. If you’ve ever heard the term “conforming loan,” it refers to loans that meet these loan program rules.

18. FSBO

You probably know this one too: for sale by owner. For sale by owner (FSBO) refers to property whose owner is selling it directly without the assistance of a real estate agent or broker. In an FSBO, the owner assumes the responsibilities typically handled by a real estate agent.

19. Ginnie Mae (GNMA)

Ginnie Mae operates similarly to Fannie Mae and Freddie Mac, with a few differences. It’s owned by the federal government and guarantees loans but doesn’t buy them. Read more about Ginnie Mae here if you just can’t live without understanding all the differences and similarities.

20. GP

A general partner or GP on a real estate syndication is the primary investor who found the deal and will oversee acquisition, renovation, property management, and eventual sale. Read more about the legal structure of a general partnership for more details.

21. GRM

Gross rent multiplier (GRM) helps investors compare at a glance the ratio of a property’s gross rent versus its price or value. You calculate GRM by dividing the price by the gross annual rental income. For example, a property that sells for $150,000 and generates $15,000 in gross annual rents has a GRM of 10.

22. HELOC

A home equity line of credit (HELOC) is a rotating line of credit secured against your home with a lien. You can also take out lines of credit against a rental property, but it’s not called a HELOC, because it’s not secured by your home/primary residence.

23. HML

In real estate investor-speak, an HML refers to either a hard money lender or hard money loan, depending on the context. These private loans stay with a single lender rather than bundled and sold on the secondary market like conventional mortgages.

24. HOA

A homeowners association (HOA) is a community-run organization that manages common property and provides services for its members, who are residents of the community.

25. HUD

The Department of Housing and Urban Development, or HUD, is the bureaucratic agency in the federal government that oversees all things housing-related.

26. HVAC

Short for heating, vacuum, and air conditioning, HVAC can refer to either these mechanical systems in a property or a contractor who specializes in repairing them.

27. IRR

New investors find internal rate of return (IRR) one of the more confusing concepts in real estate—largely because the formula is so complex—but it’s not as scary as it sounds. IRR refers to the annualized return that an investment delivered, if you adjust for compounding.

For example, imagine you buy a property, break even on cash flow for two years, then sell it for a 40% profit. The average annual return is 20%: 40% divided by two. But if you had actually earned 20% in the first year and were able to reinvest that extra money, you’d have earned a higher return in the second year, right? Taking into account the compound returns you would have earned if you’d collected those returns along the way, the IRR in this example would be 18.32%.

28. JV

No, it doesn’t stand for junior varsity. In real estate investing, JV refers to a joint venture, where two or more investors go in on a project together. That project could be a property investment, or it could be a marketing initiative, or something else.

29. LLC

A limited liability company or LLC is a simple legal entity many investors use to buy and own investment properties. If you want to start your own, Seth shows how in the video below.

30. L/O

A lease option agreement offers the renter the right to buy the leased property at a specified price.

31. LOC

Property owners can take out a line of credit against their investment properties, not just against their homes.

32. LP

A limited partner or LP invests passively in a real estate syndication or fund. In other words, they act as a “silent partner” investing money only and don’t take on any labor or responsibilities. They’re also protected from legal liability and can’t be named personally as a defendant in a lawsuit.

Read more about the legal structure of a limited partnership here.

33. LTC

Loan-to-cost ratio or LTC refers to the ratio of a project’s debt over its total costs. It’s often used for construction or heavy renovation projects. If a project will cost you $1 million and you can borrow $800,000, it has an LTC of 80%.

34. LTV

The corollary to LTC, the loan-to-value ratio is the percentage of a property’s value that you can borrow. For example, if you borrow $150,000 to buy a rental property worth $200,000, you borrow at 75% LTV.

35. MLS

Real estate agents use the multiple listing service or MLS as an open marketplace platform for listing properties for sale. Read more about how the MLS works here.

36. NNN

A triple net or NNN lease leaves the renter responsible for property taxes, property insurance, and repairs and maintenance. It’s commonly used in commercial real estate but not residential real estate.

37. NOI

Net operating income or NOI refers to the annual net income that a property produces after accounting for ownership expenses (but not debt service).

For example, say a property rents for $1,000, but comes with $500 in monthly expenses, not including the mortgage payment. It generates an annual gross income of $12,000, but the NOI is only $6,000.

38. NOO / OO

Real estate professionals sometimes specify whether a property is owner-occupied (OO) or non-owner-occupied (NOO). For instance, Realtors might tout that until recently being vacated, a property was OO for the last 20 years. Alternatively, hard money lenders might state “NOO only” to describe their loan eligibility.

39. O/F

The real estate abbreviation “O/F” stands for owner financing (also called seller financing). In a real estate listing, it indicates the seller will consider offering it for qualified buyers.

Here's how seller financing can work to your advantage and practically set off a chain reaction in land investing, as explained by Eddie Speed:

40. PITI/PITIA

In the context of mortgage financing, PITI stands for principal, interest, property taxes, and insurance.

Many lenders offer a cheaper interest rate for borrowers who agree to let the lender escrow and collect funds in each monthly payment for property taxes and insurance. The association fees are often included for a property belonging to a homeowners association or condo association, adding an “A” for PITIA.

41. PMI

Private mortgage insurance or PMI protects the lender if you default on your loan and they take a loss. Conforming loans typically require it if you borrow more than 80% of the property’s value. They typically allow you to drop it once you pay your loan below 80% LTV.

Note that FHA loans come with their own mortgage insurance requirements under the moniker of mortgage insurance premium (MIP). Unlike conforming loans, FHA loans now require you to keep paying for MIP for the entire life of the loan, even after you pay the loan balance below 80%.

42. POA

A power of attorney (POA) lets you authorize another person to act on your behalf in legal matters. For example, a hospitalized property owner might sign a power of attorney authorizing their adult child to review and accept purchase offers for a property and sign at the settlement table.

43. Pref

The preferred return or “pref” on a real estate syndication deal or fund sets a certain return percentage that LPs are entitled to before the GP starts collecting their portion of returns. For instance, a 7% pref means that passive LP investors have rights to the first 7% of returns that a deal generates each year before the GP takes any profits.

44. Promote

The “promote,” on the other hand, is a percentage of a syndication’s profits that the GP earns to compensate them for their labor, aside from the returns on any of their own money they invested. In an 80/20 profit split, financial investors (including LPs) are entitled to their proportion of 80% of the deal’s profits—but 20% gets skimmed off the top to compensate the GP.

45. PUD

Homeowners get access to shared community features in a planned urban development or PUD. However, they must also pay homeowners association fees for that right; participation is mandatory.

46. REIA

A real estate investors’ association or REIA is a private networking group of local investors. They meet regularly (such as monthly) to discuss market trends, share information, network, and otherwise help each other succeed in what can otherwise be a lonely business.

47. REIT

As a passive investment in real estate, you can buy shares in a REIT or real estate investment trust. These companies must hold at least 75% of their assets in real estate (or loans secured by real property), earn at least 75% of their income from real estate, and payout at least 90% of their net profits each year to investors in the form of dividends, among other requirements.

Traditionally, investors bought and sold REIT shares like stocks through their investment brokerage accounts. Today, investors can also buy shares in private REITs directly from real estate crowdfunding platforms as well.

48. REO

When mortgage lenders take back properties at foreclosure auctions, they refer to them as real estate-owned or REO properties. In most cases, lenders aim to sell REO properties quickly to get them off their books.

49. ROI

Return on investment, or ROI, refers to (you guessed it) the financial return you earn on an investment. Imagine you have $200,000 of total costs wrapped up in a house flip, and you sell the property for $250,000—you earn a return of 25% ($50,000 profit divided by $200,000 invested).

50. RTO

Rent-to-own homes allow the tenant to buy the property, often with a portion of their rent going toward their eventual down payment.

51. SDIRA

A self-directed IRA (individual retirement account) lets you invest in almost anything you want. Real estate investors particularly like them as a tax-advantaged way to invest. Read more about SDIRAs to fully understand their limitations and rules.

An IRA, whether self-directed or otherwise, is one of the best ways to get started in the land investing game. If you've got some cash sitting in the bank, do these nine money moves now to put your foot in the door.

52. TLC

When a real estate listing says the property “needs TLC,” they mean it needs updating or renovations. The acronym TLC stands for tender loving care.

53. VA

A virtual assistant works remotely for a relatively affordable wage, taking on any tasks you give them. Read up on how to use VAs to streamline your real estate investing business for ideas.

54. VA Loan

The Department of Veterans Affairs (VA) offers one of the best mortgage programs for military servicemembers and their families. The VA loan program famously lets some borrowers put 0% down on a home purchase.

Final Thoughts

Don’t be intimidated by real estate abbreviations and lingo. The concepts are usually simple, and you don’t need a math degree for real estate calculations, either.

In fact, that’s one of the most significant advantages to real estate: anyone can master the basics and reproduce others’ success. Take the time to learn the fundamentals, and never pass on a chance to learn from investors with more experience than you have.

The post 54 Abbreviations Every Real Estate Investor Should Know appeared first on REtipster.

Despite being founded in 2018, Ark7 didn’t get much press in the real estate crowdfunding space until 2022. But today, its platform feels polished and fully realized, albeit without the range of property options competitors like Arrived offer.

Is Ark7 worth investing in? Understand these pros and cons before whipping out your wallet.

What Is Ark7?

Ark7 is a real estate investing platform that lets you buy fractional shares in income properties. That includes single-family long-term rentals, multifamily properties, and short-term vacation rentals.

When you buy a share in an investment property, you buy a small piece of ownership. That entitles you to your portion of both the rental cash flow and the appreciation and profits upon sale. Or losses, of course—no investment comes without risk.

But you don’t have to wait for Ark7 to sell the property in order to get your money back (hopefully with a profit). Ark7 features a secondary market where shareholders can sell their shares anytime after an initial one-year holding period.

How Ark7 Works

The lifecycle starts with Ark7 buying an investment property, typically a turnkey either recently built or renovated. They make any final updates needed and rent out the property.

Ark7 then opens the property to the public for investment, pricing each initial share at $20. It usually keeps a 1% to 10% interest in each property and sells off the rest of the property ownership. Doing so frees up its capital to go out and buy more properties and keep growing the portfolio of available investments on the platform.

Once the initial offering sells out, the property operates for a year before Ark7 opens it on its secondary market. It mandates a one-year minimum holding period to prevent the day trading of shares.

After the one-year holding period, owners can sell their shares if they like, and investors from the public can buy shares. Beyond adding liquidity for owners, it also ensures the portfolio of properties available on Ark7 keeps growing, not limited to newly acquired properties.

While you own shares in a property, you receive rental cash flow through distributions.

Prospective investors can browse properties and view detailed information about their financials and cash flow, the neighborhood, historical and projected appreciation, and past performance.

Pros of Ark7

I have invested in Ark7’s real estate platform. Here’s why.

Liquidity and Secondary Market

One of the huge drawbacks of most real estate crowdfunding platforms is the lack of liquidity. Most require you to lock up your money for at least three to five years and penalize you if you withdraw it sooner (if they allow early withdrawals).

Ark 7 has a minimum investment period, but only one year. That makes it a rare short-term real estate investment option.

After a year, you can sell your shares at any time, for either the market bid price or by setting a limit asking price (just like a stock).

Low Minimum Investment

Another common downside to real estate investments is the high minimum to invest. That includes everything from direct property investing to real estate syndications to many real estate crowdfunding platforms. In many cases, you need tens of thousands or even $100,000 to invest in real estate.

Ark7 lets you invest in a rental property for as little as $20. You could cover that by skipping a few coffees or a lunch out of the office.

That means anyone can truly buy an investment property—or at least partially own one.

Non-Accredited Investors Allowed

Another huge drawback to passive real estate investments is that only wealthy accredited investors can access them. Average Joes need not apply.

But Ark7 allows anyone with a U.S. bank account to buy shares and become a fractional owner.

Multifamily and Short-Term Rentals Available

Beyond single-family rentals, Ark7 also offers multifamily properties and short-term Airbnb rentals.

If you’re an accredited investor, anyway. Unfortunately, these properties are not available to non-accredited investors (more on that shortly).

Simple and Transparent Fees

Some real estate crowdfunding platforms bury their fees in offering circulars or get away with hiding fees by calling them operating expenses, even though they get paid to a subsidiary owned by the same platform.

I appreciate Ark7’s simple and transparent fee structure. Ark7 charges a one-time property sourcing fee of 3% of acquisition costs to cover their expenses. It also handles most property management in-house and charges between 8% to 15% of the rent collected as a property management fee. Long-term rentals fall on the lower end of that range, while vacation rentals lie on the higher end, given the greater labor required.

Invest Through an IRA

You can open an IRA investing account on Ark7 at no additional cost.

That said, you still need a self-directed IRA custodian. Ark7 has partnered with Millennium Trust Company to make this easier if you don’t have one. It’s the same company that Fundrise has partnered with, and they charge $100 per property per year, capped at $400 and waived if your balance exceeds $100,000.

Intuitive Web Interface

Ark7 keeps its website and dashboard simple, clean, and easy to navigate.

After creating a free account, you can browse available properties, both new offerings and on the secondary market. Just click on a property to view all investment details—from the neighborhood to the property’s acquisition cost breakdown to cash flow and monthly expenses.

Even without logging in, Ark7 makes it easy to browse frequently asked questions and its help center and browse an overview of available properties.

Mobile App

Prefer to manage your investments on your phone or tablet?

You can download the Ark7 mobile app to invest through it instead. It brings a similarly simple user interface, so you don’t need to spend hours learning how to navigate it.

Strong Security and Encryption

Security matters when you’re buying and selling, well, securities.

When you connect your bank account and manage investments on an online platform, you need to sleep at night knowing it’s secure. Ark7 loves to brag about its ironclad security, which you can read more about here.

Cons of Ark7

For all those upsides, no platform is perfect, and Ark7 has its fair share of drawbacks.

Keep the following in mind before you invest your hard-earned cash.

Restricted Properties for Non-Accredited Investors

While non-accredited investors can buy long-term rental properties on Ark7’s platform, only accredited investors can buy shares in multifamily properties and short-term vacation rentals.

That limits how much you can diversify your portfolio on Ark7 if you aren’t a qualified investor. But as more properties pass the one-year mark and become available on the secondary market, more options become available over time.

Brief Track Record

Despite being founded in 2018, Ark7 didn’t ramp up its property acquisition until early 2022. It just hasn't been offering property shares for very long, at least compared to the more established crowdfunding platforms like Fundrise, Groundfloor, EquityMultiple, and even Arrived.

While relatively new, Ark7's evolution is continuous process.

Past performance may not guarantee future returns, but it makes you feel better about investing. And the more past performance you can look at, the better.

Limited Selection of Properties

Having just started scaling operations in early 2022, there aren’t many properties available currently.

As of June 2023, Ark7 offers six long-term rental properties for non-accredited investors: four listed for initial share offerings and two listed on the secondary market. Accredited investors can access more, with seven new property share offerings and six properties trading on the secondary market.

Ark7 lists properties available to accredited investors only as “Ark7+” properties.

Minimum Holding Period

I get why Ark7 doesn’t want people day trading or manipulating share prices.

Even so, “full liquidity after one year” is not the same as “full liquidity.” Plan on leaving your money parked for at least a year when you invest in property shares on Ark7.

No Automation

Ark7 does not offer automated investing. Again, I understand that each property is different, and most investors want to manually review each before buying shares.

But as someone who currently automates my Groundfloor investments, it’s also nice to have the option to put your investments on auto-pilot for easy, effortless diversification.

How Ark7 Compares to Competing Platforms

Arrived and Lofty compete directly with Ark7 to offer fractional shares in rental properties with low ($100 and $50, respectively) share prices.

In Arrived’s favor, they have a longer track record and have featured many more properties over the last few years. They, too, offer both long- and short-term rental properties. But they still don’t offer a secondary marketplace and therefore don’t provide any liquidity for shares. Once you buy into a property on Arrived, you’re stuck with it until they sell, usually five to seven years later.

That also means that the selection of available properties on Ark7 will eventually beat Arrived since every property bought by Ark7 starts trading after a year. Unlike Arrived, I also like that Ark7 maintains a small but real ownership interest in each property. For more information, read our review of Arrived.

Lofty does offer a secondary market for buying and selling property shares, but it comes with an enormous caveat. When you sell shares, you don’t receive U.S. dollars; you get paid in cryptocurrency. You then have to convert those funds to a more compatible cryptocurrency, convert it again to USD, then transfer the money from a crypto wallet to your bank account. Gag me with a watermelon, as my father used to say.

With its short-term loans, Groundfloor comes closest to the brief investing timeframe set by Ark7. But Groundfloor doesn’t offer liquidity, and for individual loan investments (LROs), you get paid only after the borrower repays the loan. Plus, there’s the obvious difference that Groundfloor offers property-secured debts rather than fractional ownership of properties. Read our Groundfloor review for more details.

Technically, Roofstock One offers fractional property ownership, but only for accredited investors, and with a minimum investment of $5,000. Read our full Roofstock review here.

Lastly, Fundrise does include single-family rental properties in their portfolios, but in most cases, you can’t pick and choose—they’re included in broad investment funds.

Final Thoughts

As hands-off investing goes, Ark7 offers an easy way to invest in long-distance properties with little cash and no headaches.

I like Ark7’s platform and have invested in property shares myself. Between its secondary market, clean interface, transparent fees, and accessibility to everyday investors, it makes a compelling crowdfunding option.

But it still feels new and less-than-proven. Consider starting with small amounts, building comfort with the platform, and scaling up as you gain confidence.

The post Ark7 Review: Fractional Ownership in Rental Properties for $20 appeared first on REtipster.

In fact, real estate offers the perfect breeding ground for scams, given the high dollar values involved.

As you navigate real estate transactions as a buyer, seller, investor, or renter, watch for the following real estate scams.

1. Foreign Buyer Scam

A variation on a classic check scam, a foreign or long-distance buyer offers to buy your property, often in cash. They can’t meet with you in person because they live far away, but they put down a deposit to buy your home.

You receive a check—often an official-looking cashier’s check—for more than the agreed-upon amount. The buyer apologizes and instructs you to deposit it and send them a partial refund for the overage. You do so, only to then have their check bounced.

How to Protect Yourself

First, work with reputable local real estate agents or attorneys. But even if you’d rather sell FSBO, watch out for sketchy buyers who refuse to meet in person or send a licensed representative, such as their Realtor, to see the property and oversee the transaction.

Bill Gassett of Maximum Real Estate Exposure, a thirty-seven-year real estate veteran, suggests never doing business with someone you’ve never met in person and especially a stranger from a foreign country. “With a purchase as significant as buying real estate, a buyer (or their credentialed representative) should have no issues meeting face-to-face. If they balk at that suggestion, red flags should go up immediately,” he advises.

Most of all, never send a stranger money for a “refund.” Even if the check appears to clear, the sender can sometimes claw back the money later.

2. Fake Realtor Scam

In a fake real estate agent scam, the scammer contacts you claiming to be your Realtor or someone from their office. They use your Realtor’s email address (or one that looks similar to it), or they call you, claiming to be the Realtor's assistant or associate.

Once they’ve established these fake bona fides, they give you the wrong bank account information for transferring an earnest money deposit (EMD). You wire the money, only to discover that your actual agent or title company never received it.

How to Protect Yourself

When you take down payment account information, do it by phone or in person with your real estate agent. If you must take it by email, take it as part of an existing email thread that you know is with your actual Realtor.

3. Fake Escrow Scam

This one works similarly to the fake real estate agent scam, but with the scammer pretending to contact you from the title company or settlement attorney.

They may even go so far as to have a website and phone answering service that look or sound similar to the real title agent’s website or phone system. The phone number or address might be off by a single digit.

The person claiming to work for the title company gives you fake wire instructions for sending in your escrow or settlement funds. You then show up for the real settlement, only for the true settlement agent to ask where your funds are.

How to Protect Yourself

Contact the title company based on the phone number listed in your original loan documents to confirm the funding instructions.

If you receive an email or other communication informing you that the funding instructions have changed, double check it with your existing contact at the title company.

4. Fake Competing Offers

While not criminal fraud like the scams outlined above, lying Realtors still pose a problem.

When you express interest in a property, unscrupulous listing agents sometimes tell you all about how much interest they’ve received in the property, how multiple offers are coming in hot, how the property may not be available “after tomorrow when the buyer compares offers,” and so on.

It’s sometimes true. And it’s sometimes a complete fabrication to spur a hasty and higher offer from you.

How to Protect Yourself

Unfortunately, there’s little way to know just how much competing interest there is from other prospective buyers.

All you can do is stick to your guns and don’t let yourself be oversold by a fast-talking agent. Make the same offer regardless of how much buzz the listing agent tries to spin up, and negotiate based on what the property is worth to you.

“Ignore the hype from the listing agent and create leverage in your negotiations with a real estate comps analysis,” recommends Ramonelle Lyerla of Mashvisor. (Side note: check out our full Mashvisor review here.)

5. Bait-and-Switch Listings

You know the old bait-and-switch trick, but it can cost you thousands of dollars in an industry with assets worth hundreds of thousands.

In real estate, it works like this: You find a property listed for sale or rent, at an excellent price. When you reach out to the listing agent, they tell you that the property has already been sold or rented, but they have some outstanding other properties available.

Then they take you on a spirited romp across town, showing you one overpriced mediocrity after another.

How to Protect Yourself

One option is hiring your own buyer’s agent or renter representative. They can find good deals for you and negotiate on your behalf.

Even if you don’t take that route, insist on the listing agent sending you all listings in advance before you waste time traipsing all over the city.

6. Bait-and-Switch Movers

Sadly, the moving industry isn’t known for its scruples. In fact, it’s so rife with bad actors that two of the biggest names in the industry, United Van Lines and Mayflower, launched a service called MoveRescue to help residents avoid problems.

Many movers agree to one price verbally, then once they start loading your belongings, insist on a higher price. “Hmm, this furniture is a lot heavier than we thought. I’m afraid it’s going to cost more than we originally discussed.”

In extreme cases, they hold your belongings hostage. Or they insinuate that your items are fragile, and they’re not responsible for any damage if they unload it back into your home after you “wasted their time.”

How to Protect Yourself

Bribe your friends and family members with pizza and beer to help you move?

If you’d rather hire a moving company, get a referral from someone you trust. Get several quotes, and insist on all of them in writing. If a mover seems reluctant to commit to a written contract, skip them and find someone else. You can also check movers’ profiles on the Better Business Bureau website, which has over 20,000 moving companies listed.

7. Fake Landlord Scam

Renters, especially those moving long-distance, sometimes have to rent a home sight-unseen. That leaves them vulnerable to scammers pretending to own or manage a property, but in fact have no affiliation with it.

The fraudster lists a property for rent at an appealing price—often too good to be true—and then when you contact them, they impress upon you how much interest they’ve received about this property (see the “fake competing offers” scam above). They then offer to hold the property for you if you put down a security deposit, first month’s rent, and/or holding deposit.

All sight-unseen.

You transfer them the money, and they disappear. When you get desperate enough to look up the actual owner or property management company, they don’t know what you’re talking about.

How to Protect Yourself

First, always either see the property yourself or send a representative to see it. It’s harder (but not impossible) for scammers to gain access to the property to show it to you.

Second, verify the ownership of the property and the property manager’s role. That’s easier in the case of large apartment buildings, where you can look up the manager online and contact them independently. You can always hire a Realtor as well to represent you and have them verify the owner or property manager.

Finally, make sure you report these and any other real estate fraud to the police. “Many people hesitate to report being scammed for fear of embarrassment or simply wanting the whole ordeal to go away,” explains Sallie McBrien of Your At Home Team. “But not reporting the incident to authorities only enables the bad actors to continue scamming innocent people. If you are scammed out of money during a real estate transaction, please contact your financial institution and the proper authorities to handle the situation.”

8. Predatory Refinance Lenders

I spent the first five years of my career working for a mortgage lender, and there’s a reason why they love refinancing borrowers so much. Several reasons, in fact.

To begin with, they get to charge you a whole new set of lender fees. These include loan points, but also “junk fees”—flat fees that they literally make up to charge as much as they think they can get away with. “Processing fee,” “underwriting fee,” “document preparation fee,” “wire transfer fee,” and “document recordation fee” are just a few examples.

The other incentive is more subtle. At the beginning of your loan, most of your monthly payment goes toward lender interest. As time goes by, the proportion of each monthly payment that goes toward interest slims down, and more of each payment starts going toward your principal balance. This process is known as amortization.

It means that lenders effectively earn higher interest in the early years of your loan. That, in turn, means that they want to perpetually keep you in those early years by refinancing you as soon as you have enough equity to do so.

In the worst cases, predatory lenders push older borrowers—particularly those with impaired memories or cognition—to refinance as often as every year.

How to Protect Yourself

Older borrowers should discuss major financial decisions with a trusted child, friend, or financial advisor. That includes refinancing their home or investment properties.

But all property owners should understand mortgage lenders’ incentives. Don’t just look at whether a lender can offer you a lower monthly payment or a juicy cash-out refi—calculate the remaining life-of-loan interest on your existing mortgage and compare it to the total cost (including fees and interest) of the proposed loan.

While your loan payoff date might seem infinitely far away and extending it with a refinance might feel like trading one far future data for another, that’s a cognitive illusion. Don’t put yourself into a cycle of endless debt.

9. Timeshares

My stepmother got sucked into a timeshare program from a major hotel chain. Now she and my father own not one but two timeshare packages.

That they almost never use.

If they do find a destination they want to go to, it usually qualifies as a “premium” hotel property and costs double or triple the points. If they want to bring their adult children, they need the upgraded apartment suite option—for triple or quadruple the points.

See where this is going?

I’ve attended a few timeshare presentations myself, and I can tell you firsthand that their salespeople are some of the most persuasive in the world. They have a sexy product and a streamlined, perfected sales pitch honed over many thousands of presentations.

How to Protect Yourself

Don’t attend timeshare presentations, even if they offer you a free vacation.

Hard stop.

10. Hidden Fees from Crowdfunding Platforms

I’ve invested in a lot of real estate crowdfunding platforms, and reviewed even more.

Some are transparent, with clear, simple fee structures. One of my favorites, Groundfloor, doesn’t charge investors any fees. They earn their revenue by charging fees to borrowers (check out our full Groundfloor review for more details).

Other crowdfunding platforms bury their fees in their SEC investment circulars. As a layperson, good luck finding them in these 100+ page legal documents.

One common way to hide fees is by billing expenses to a company that they own and operate. On the more benign side, they might manage the property in-house and charge property management fees, which is fine so long as they disclose that and the fees are in line with the market. But the waters get murkier when they handle all repairs and maintenance in-house, and bill these as expenses without you ever knowing how much they charged for any given repair or how involved the repair actually was. For example, a $900 wall repair could have been a simple patch.

How to Protect Yourself

First, read third-party reviews from expert investors who have actually invested their own money on a platform. For instance, Seth Williams invested money in Fundrise, left it there for five years, and then withdrew it. In his Fundrise review, he breaks down the returns he earned and the other pros and cons of his experience with Fundrise.

Do as much research as you can on each crowdfunding platform, and in particular, their fee structure.

11. High-Dollar Guru Coaching Programs

I’m loath to admit it, but I myself have taken real estate coaching programs for astronomical sums. They all too often disappoint.

In most cases, they start with something cheap, or even “free plus shipping” (which isn’t free, because shipping never costs as much as they charge). Then they take you up an escalation ladder with their $99 program, then their $999 program, then their $9,999 program, and so forth.

How to Protect Yourself

In my experience, paying four- or five figures for an education program is usually a raw deal. At that level, you should really work with a one-on-one or small group coach, where they hold your hand through several deals or otherwise guarantee a specific result.

They may not even charge a fee for this but rather take a percentage of the result they help you achieve. For example, they might partner with you on a real estate deal with 50/50 financial investment, but they get 70% of the profits in exchange for them holding your hand and helping you secure that first deal. There’s nothing wrong with that model—in fact, it ensures their interests align with yours.

12. Not-So-Turnkey Properties

As a real estate investor, you see turnkey properties available for sale all the time. And some of them truly are rent-ready, or have existing tenants paying rent each month.

But some unscrupulous sellers simply cover up the defects and hope that a dumb buyer comes along who fails to do a home inspection or whose home inspector misses lurking problems.

“Often, so-called ‘turnkey properties’ come with hidden defects,” explains Chris Lee, cofounder of Landlord Gurus. “I’ve especially seen problems related to water damage, such as roof or pipe leaks and mold.”

Hidden problems could also include structural defects behind the walls or flaws in the mechanical systems that you just can’t easily detect. In some cases, they could cost tens of thousands to fix.

How to Protect Yourself

“Always get an inspection done,” insists Lee. “Even in a seller’s market, invest the time and money to bring in an inspector, and an experienced and honest one at that.” Ask for a referral from your real estate agent if you don’t know one.

Ask them point-blank: Which structural components could you not see? Do you have any concerns whatsoever?

Trust your nose as well. Do you smell moisture? Mold?

Finally, take all the seller's information with a proverbial grain of salt. If you only have their word on something important—verify it.

Final Thoughts

If something ever looks or feels too good to be true, it probably is. Follow your gut when evaluating offers, listings, or other opportunities in real estate.

Most importantly, get an expert unbiased opinion when verifying something. When something feels even remotely suspicious, call in someone who knows more than you do to double-check it.

The post 12 Real Estate Scams You Should Never Invest In (According to Experts) appeared first on REtipster.