What alternative real estate investments are available?
Buying a home is the largest single investment most people will ever make but there are other real estate investments available to those seeking a way to diversify their real estate related resources.
1. Tax Certificates. Unpaid property taxes and other liens such as paving or utility assessments are often "auctioned" by local government to maintain the tax basis. Although the exact methods differ from county to county, most require a buyer to pay the tax assessment in exchange for a guaranteed rate of interest when the owner "redeems" the property. Interest rates can be as high as 18 percent in some states.
2. Tax Deed Sales. Many people investing in Minnesota real estate tax certificates confuse them with tax deeds. A tax deed sale typically takes place when a certificate or other lien holder petitions to have the property sold to satisfy the money owed.
3. Surplus Land Sales. Relatively unknown, surplus land sales are typically run by state, local or federal entities - or in some cases very large corporate interests - when tracts of land are no longer needed.
4. Foreclosures. One of the most widely known investment real estate sources includes foreclosure sales where a lender has taken the property back due to non-payment or other issues.
5. REIT. Real Estate Investment Trusts are a common vehicle for investing in real estate that blends the convenience of the financial market with the underlying assets of real estate.
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How do I get an insurance quote?
Smart buyers take the time to obtain insurance estimates on Minnesota new homes or pre-existing Minnesota homes for sale before making a final offer. The rising cost of property taxes and insurance can dramatically impact a budget and even offset the savings of buying a less expensive home. Use these quick tips to obtain reliable insurance estimates before buying:
1. Understand Insurance. Insurance companies base rates upon many different factors including individual credit, age etc...Some things you can change and others you can't. Rates are also based upon factors impacting the property itself - some subject to change and others that can't be changed. For example; distance to a fire hydrant or fire station and type of construction materials used are out of your control unlike security systems or proper maintenance of the home. Keep low insurance criteria in mind when shopping for Minnesota homes for sale.
2. Insure the House - Not the Land. It only makes sense; even if the house is a total loss the land still exists. Subtract the value of the land when purchasing insurance or requesting a rate quote.
3. Ask for a C.L.U.E. Report. The local real estate agent will be able to provide a C.L.U.E. report on the home listing prior damages and the "rating" of the home itself. Minnesota homes for sale with prior problems may cost more to insure for years to come.
4. Call for Quotes. Be sure to check with at least three reputable insurance agents. You will need the address of the property, square footage, number of rooms, type of construction, age of the home and other pertinent information handy. Simply tell the agent you are considering the purchase of the home and would like to obtain a quote in advance.
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How does the misery index impact real estate?
When it comes to buying or selling Minnesota real estate few people stop to contemplate the effects of the "Misery Index" but years of research demonstrate that some forms of real estate do better than others when the "Misery Index" begins to rise.
To calculate the Minnesota misery index add the local unemployment rate to the inflation rate. The combined number equals the local misery index. The higher the index, the more unhappy the average consumer is going to be and unhappy consumers spend less on luxury items.
However, as the misery index increases across the nation, people flock to safety - including potential home buyers. Minnesota real estate that offers a way to reduce costs or lock in savings could fair better than average even as the overall real estate market still suffers.
Position your Minnesota property for a fast sale by emphasizing money saving trends or convenient factors like short commute times, energy efficient appliances, low maintenance lawns or just affordability.
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What revised lending standards should I be aware of?
Home buyers searching for Minnesota new homes might be surprised to encounter significantly different lending standards than expected. As bankers and underwriters write-off losses from the sub-prime mortgage industry the trend is toward tighter lending standards. A few of the changes you can expect when applying for a mortgage include:
Increased Down Payments: At the height of the real estate bubble, little to no money was put down when purchasing a home. Banks are returning to more typical history norms that require from 5 to 20 percent down.
Increased Interest Rates: While it is still possible to obtain very competitive interest rates, expect to pay more if you have credit problems, minimal down payment or unstable employment record.
Fewer Loans: Minnesota real estate investors could be hit hard by revised lending standards limiting the number of loans or stipulating how often a home can be sold. Longer "seasoning periods" and reductions in the number of loans underwritten by Freddie/Fannie could have significant long term impact.
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Top Three Questions to Ask Before Selling a Home
Before making the decision to place Minnesota real estate on the market there are three very important questions to ask. Learn how to save time and money while avoiding financial distress by taking inventory with these simple questions.
1. How much will I "clear" from the sale of the property? Be realistic when setting a sales price and then include the cost of paying off the current mortgage, commissions, taxes, transfer fees, moving expenses and other costs to derive an estimate of how much you will receive at closing.
2. What can I afford to purchase with the sale of this home? Many home owners simply look at the profits but forget to check the cost of buying or renting. If your home has gone up in value then chances are other properties have also gone up in value. Unless you are relocating from a high cost area to a lower cost area, you might find yourself unable to afford another home or owing more than ever.
2. Can I afford the total cost of taxes, insurance, transportation and other needs? Remember, even if you pay for a new home in cash from the sale of the prior property, the increased taxes and insurance can result in considerable expenses especially if you formerly had homestead exemption or other deferments in place.
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Why should I own investment real estate?
With all the discussions about the mortgage melt-down and real estate bubble, many potential real estate investors have been sitting on the sidelines. That could be a costly mistake. If you have contemplated the purchase of investment real estate then here are a few great reasons to buy now:
1. Tax Incentives. Investment real estate still provides on the most versatile and appealing tax incentives available to investors of all sizes.
2. Financial Trends. While real estate has experienced a downturn in many areas of the nation, so have stocks and bonds - especially when inflation is taken into account. Unlike stocks and bonds, the value of real estate is based upon a physical presence with an intrinsic value so the value is unlikely to ever fall to zero unlike stocks or bonds.
3. Increased Rates & Regulations. As the banking industry begins to tighten lending standards and underwriting requirements, it is likely to become more difficult to obtain a mortgage or multiple mortgages to purchase more property. Local ordinances including density and zoning regulations, permits and building regulations often result in increased cost completely out of the control of builders.
4. Inflation. While the official core rate of inflation remains fairly low it has started to increase resulting in increased rates of production, distribution costs and other factors that will eventually cause housing prices to rise. Building materials, labor costs, insurance and other price increases are passed to buyers. As the cost of basic supplies and labor increases, the value of existing homes tends to keep pace.
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Cash Flow or Appreciation?
When purchasing Minnesota real estate as an investment, buyers often wonder if it is better to buy for cash flow or appreciation. The answer is both. Here are some general rules of thumb to keep in mind when evaluating potential real estate investments:
Cash Flow Plus: It is imperative to have at least some cash flow from the start otherwise, you might find yourself having to fund your investment out of pocket - creating a money pit rather than investment. Vacancies, expensive repairs and increasing taxes and insurance costs can outpace the ability to increase rental rates. Plan ahead by providing a financial cushion through additional cash flow.
Appreciation: Cash flow alone simply isn't enough: All real estate, even investment real estate or Minnesota new homes eventually require upgrades, maintenance and repairs. Over time, neighborhoods change and can either increase or decrease in value. While it is often possible to purchase inexpensive homes that cash flow well, appreciation is where the most money is made when investing in real estate.
The Problem with Appreciation: Believe it or not there are some potential problems with rapid appreciation including rapidly escalating property taxes and insurance costs and increased Capital Gains or other taxation issues when selling. It is a good idea to consult with your CPA or real estate lawyer before purchasing any real estate investment.
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