Home prices are appreciating, and home sellers are realizing a sizable return on their investment as a result. Those who sold their homes in the first quarter of 2019 made a 31.5% return, pocketing an average gain of $57,500, according to the latest from ATTOM Data Solutions.



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Morgan Stanley is telling investors to “go long” on mortgage bonds and JPMorgan has raised its view of agency MBS, according to an article Tuesday by Bloomberg News. The investment banks cited a wider spread between the 30-year Fannie Mae current coupon and various measures of Treasury bonds to back up their recommendations, Bloomberg reporter Christopher Maloney wrote.



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Starting out in small multifamily units is the best use of your money as a new investor for a multitude of reasons. For one, it’s a great way to start gaining experience and putting cash in your pocket to grow your portfolio versus the slow growth option of single family buy and hold.

Below are some of the top reasons you should be spending your time and energy looking for small multifamily properties as a first investment.

5 Benefits of Small Multifamily Properties for New Real Estate Investors

1. Better Financing

One of the best arguments for investing in small multifamily is the fact that you can obtain 30-year financing. There are a few key factors that make this attractive for investors.

First, you will likely get a lower interest rate with a 30-year fixed loan, unlike most commercial loans, which can be a percentage or two higher than the prime rate.

Secondly, since your payments are spread out over 30 years, your monthly cash flow will be higher because you don’t owe as much money per month to the bank. This is incredibly helpful when you are just starting your investing career.

It will take longer to pay down your home, but you always have the option to pay more than you owe each month. With a 15-year loan, you are required to pay a higher monthly amount no matter what. But having the option to pay a smaller amount is a huge bonus if you ever find yourself in a difficult financial situation.

Another huge financing benefit for small multifamily units is the ability to finance a property with an FHA loan or VA loan for little to no money out of pocket. You can buy a single family home with a VA/FHA loan and have a liability, or you can buy a multifamily property with the same type of loan and have an income-producing asset that will project you and your investments further and further ahead each month.

Related: What is a VA Loan and Why Should I Consider Using One?

2. Lower Risk During Vacancies

The next largest advantage of investing in small multifamily is the ability to spread your vacancies over multiple units. When you own a single family residence and that property goes vacant, you are responsible for covering not only the entire mortgage, but also the extra holding costs that most people don’t account for (like lawn care, electricity, water, and gas).

A vacant rental house in the Midwest during January can easily add $200 to $300 of utility bills on top of the mortgage! And a few months of winter vacancy can chew up your cash flow faster than you can save it up—a big problem for any savvy investor.

A mentor of mine once described it to me like this: “If you have a farm and your family relies on one cow for milk, if that cow gets sick, your family is going to go hungry. But if you have multiple cows on your farm and one gets sick, your other cows can at least feed your family while your sick cow recovers.”

It’s a concept that is beyond true and applies so well to real estate investing. This is the reason that professional investors do not spend their time buying single family homes. It’s all about economy of scale, and in this game, there is safety in numbers.

gray and white small multifamily real estate

3. Ability to Add Sweat Equity

The third advantage of small multifamily investing is the ability to add sweat equity while you are living in the residence. Sweat equity is a term that people use when they are referring to the process of adding value to their home through physical labor.

If you buy a building and update it with new paint, appliances, and fixtures, you are adding sweat equity. (You’ll be sweating because you’ll be working so hard to add that value.) This is beneficial as adding value to your home oftentimes allows you to increase the amount of monthly rent, thus increasing your overall income.

Multifamily homes are typically appraised like commercial properties because their value is based upon the amount of income they produce. So when you buy an apartment building, the main indicator of price is driven by the income that the building produces, whereas a single family home is often valued by factors like the amount of bedrooms, the type of fence in the backyard, the size of the garage, recent sales in the neighborhood, etc.

Many appraisers will do what’s called an “income approach” in their valuation of the building, along with seeking out recent comparable sales in the area. Thus you can add value to a small multifamily home by simply increasing the rents!

4. Ability to Self-Manage

Living in your own multifamily unit allows you a few key advantages as far as management. The opportunity to self-manage your building is one of them!

Most new investors want to be involved in the day-to-day management of their property, and the best way to be involved is to live in the rental that you own. We lived in a duplex as our first home and self-managed our tenants next door. We learned a TON about management, and it really pushed us to understand our local and state laws regarding landlords and tenants.

We no longer self-manage our rentals. But because we did at one time, we know exactly what we want out of future property managers, and we know a few of the extra addenda we want added into our leases.

Related: How to Safely Navigate Landlord-Tenant Laws as a Real Estate Investor

Open door with keys, key in keyhole

5. Live for Free

Let’s be honest, the number one most attractive quality to investing in small multifamily is the ability to live for FREE! And if you don’t live for free, you can at least live for far cheaper than if you would have purchased a single family home.

We purchased our first duplex with a VA loan, which allowed us to put $0 dollars down on a property up to four units. This enabled us to get in right away with no money out of pocket.

We did some research on local banks and found out that one in particular was not only offering the lowest rates available, but they were also giving a $5,000 credit toward closing costs. For us, that amounted to about $2,500.

So we walked away from the closing with a duplex and $2,500 in our pocket! Plus, we got to live in our four-bedroom, three-bathroom, 1,900-square-foot duplex for only $400 per month.

By creating this scenario, the money we were able to save over the course of three years totaled roughly $36,000. That gave us a huge head start in terms of making other investments, and all I had to do was buy a multifamily home to get there.

Conclusion

As you can see, there are many good reasons to start out in small multifamily instead of single family homes. Since investing in multifamily and “growing our herd,” we are able to sleep better at night, knowing that we’ll never be drowning due to one vacant unit.

The first vacancy we experienced with one of our single family homes was one of the most difficult times we’ve had in our investing careers. It brought about feelings of failure and dismay, because the house sat empty for two months. Meanwhile, we were paying out the nose for it.

We now only buy multifamily properties. When one unit is vacant, I can rest assured that the other tenants are still paying down the mortgage for me. We never rule out a great deal on a single family home, but for us, our future is all multifamily.

hard-money-lenders

Are you considering investing in multifamily properties? Do you have any questions for me? Or do you prefer single family homes? For what reason(s)?

Let’s discuss in the comment section!

 





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In residential real estate, prorated rent is a term that describes the amount of money a tenant pays to a landlord for occupying a rental unit for less than a full month.

The concept of prorated rent is central to both landlords and tenants, as each has a financial interest in when it is used and how it is calculated.

Before we describe when prorated rent is used, let’s first look at how it is calculated.

Calculating Prorated Rent

There are three common ways that prorated rent can be calculated, and each of the three will produce slightly different amounts. For the purpose of our calculations, we’ll assume a full month’s rent of $1,000 and that a new lease is to begin on May 15, 2019.

Close up view of bookkeeper or financial inspector hands making report, calculating or checking balance. Home finances, investment, economy, saving money or insurance concept

Related: How to Be a Landlord: Top 12 Tips for Success

365 Days in a Year

The first typical way to prorate rent is based on a 365-day calendar year. The formula is as follows:

(Number of Days Occupied / 365 Days in a Year) x (Monthly Rental Amount x 12 Months in a Year)

A $1,000 per month lease beginning May 15, 2019 produces the following:

(15 / 365) x ($1,000 x 12) = $493.15

The second way prorated rent is calculated is based on the number of days in a month. The formula is as follows:

(Number of Days Occupied / Number of Days in a Month) x Monthly Rental Amount

Using this method, prorated rent is calculated:

(15 / 31) x $1,000 = $483.87

Finally, some property managers use a 30-day “banker’s month,” regardless of the actual number of days in the prorated month.

(Number of Days Occupied / 30) x Monthly Rental Amount

This produces prorated rent as follows:

(15 / 30) x $1,000 = $500.00

From a landlord’s perspective, banker’s months will yield the highest prorated rent in every month except February. In a market with rapid turnover, using banker’s months might be a practical way to help offset high vacancy.

However, in more stable markets where tenants tend to stay for longer periods, the significance of strong tenant relationships might dictate using a method more favorable to your resident.

Critical, however, is that landlords are consistent in their application of prorated rent and its calculation. In fact, the formula used should be described in your rental agreement.  Inconsistent application of prorated rent could be interpreted as discrimination, which is prohibited by Fair Housing Laws.

From a tenant’s perspective, it’s vital to know that unless it’s stated in the lease or otherwise mandated by state or local law, landlords are not obligated to provide prorated rent.

Female hand holding key house shaped keychain.

Related: How To Rent Your House: The Definitive Step by Step Guide

Why Prorated Rent Matters

Move In/Move Out

The signing of a new apartment lease is the most common scenario in which you might encounter prorated rent. It’s important to know that if a lease begins on the first of the month and you don’t move in until the fifth by choice, the landlord is unlikely to offer prorated rent.

However, if a tenant knows that move-in will occur after the first, it’s essential to request that the landlord begins the lease on the projected move-in date. If the lease begins on the fifth, then the tenant is much more likely to be granted prorated rent for that month.

Prorated rent is most likely to become contentious when a tenant decides to terminate a month-to-month rental agreement. This is because rent is generally due on the first and paid in one-month installments. The landlord is not under any obligation to prorate a tenant’s last month.

For a tenant interested in paying prorated rent for the final month of occupancy, it’s always best to provide as much notice of vacancy as possible and come to an agreement in writing about prorating the final month.

Purchase and Sale of Rental Property

A more nuanced aspect of prorated rent is when investors buy and sell rental property. Most purchase and sale agreements will have a provision that entitles the buyer to receive one month’s prorated rent as of the closing date of the property.

As a buyer, this means the best day to close on your rental property is the first of the month. When you do, you’ll collect an entire month’s rent just for showing up to the closing table! As a bonus, though beyond the scope of this article, closing on the first means that your first mortgage payment will not be due until two months after closing.

However, if you’re selling rental property, the opposite is true: you want to close on the last day of the month. Doing so will minimize the amount of prorated rent you must pay to the buyer at closing.

So there you have it, prorated rent in a nutshell. Some concepts in real estate are complicated and require full-length articles to explain. Coincidentally, explaining prorated rent requires one that’s, well, prorated!

Does this make sense? Do you have any additional questions about prorated rent? 

Ask me in the comment section!

 





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Mortgage rates continued climbing in the last week, putting the recent historic drop further into the rearview mirror. Just a few weeks ago, mortgage interest rates posted the largest single-week drop in 10 years. Since then, rates have ticked back up. And that trend continued last week, but rates are still well below where they were a year ago.



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“Are you ready for the next recession?” This is a question I see on BiggerPockets almost daily.

There’s been a lot of talk lately about bubbles, up markets, down markets, if commercial real estate is overheated, if there’s too much student loan debt, and so on and so forth. I’m often asked what my personal economic prediction is for things going forward.

Although I have my own opinions on where I think things are headed, the one thing I do know for certain is that markets will change, including the real estate market. The real question is not just when will it change, but how can you prepare for it now and deal with it when it happens?

The Problem: A Lack of Liquidity

In the late 1980s, I was a newly licensed realtor and interest rates were coming down from a high of 18 percent. That’s right—18 percent.

In fact, a little while later, I purchased a home owner-occupied at 11 percent with six points (aka 17 percent, due to the fact I was self-employed and in business less than five years). Ouch! Remember that the next time you complain about rates!

Fortunately, I owned it for many years, eventually selling it at a profit—proving there’s a deal in any market. But I digress.

Anyway, back in 1987, the real estate company I worked for had a great training program where all the newbie agents had a senior agent train them in exchange for a percentage of our commissions. I was lucky enough to be trained by the “top sales dog” of the company at the time.

He was no doubt number one in listings and sales, and I learned a lot from him in that regard. However, his private real estate endeavors were another story.

He had 25 rental properties back then, which is a considerable amount even today. So I thought he really knew what he was doing. But not long after our training, he was losing all 25 rentals, filing bankruptcy, and was no longer a practicing agent.

What happened?

Well, I came to learn that he was extremely over-leveraged with very little equity and little to no reserves. He couldn’t handle the cost of any move outs or required repairs (i.e., township and Section 8—HUD required).

He got in even more trouble when he couldn’t re-rent multiple properties, and unfortunately, he quickly went into default on his mortgages. The house of cards came crashing down.

What happened to him taught me early on many valuable lessons about reserves, over-leveraging, and access to cash.

businessperson showing unbalance between stacked coins

Related: Want to Secure Your Family’s Financial Future? Before You Pay Off Your Properties, Consider THIS.

The Importance of Reserves in Real Estate

It was easy to see that my former real estate sales mentor had done several things to increase his odds of experiencing a disaster. First, he had no reserves.

So when I was starting out, I made sure to set aside about $2,000 to $3,000 in cash per property. Later on, as my portfolio grew, it became more about access to cash for similar amounts—whether through credit cards, home equity lines of credit, or business lines of credit.

Keep in mind these numbers were specific to my “buy box,” which was properties under $100,000. Even to this day, I have access to significant capital if need be, and I strive to have the right entity structures and financing in place in case I need to access cash quickly.

The Danger of Being Over-Leveraged

Today, working in the distressed debt space, I’ve come to learn that unfortunately bad things can happen to good people. The four main reasons borrowers default on their mortgages are death, divorce, health reasons, and job loss.

What you learn from working in this space is that just because these people face a setback doesn’t mean they can’t get back on track; after all, most people had to qualify for their mortgage at one point in time. But some of us make choices that lead to being over-leveraged to the point that a default becomes almost inevitable.

Many folks get into trouble taking on too much overall debt, with things like student loans, credit cards, auto loans, or home equity loans (or a combination of these). It’s easy to get into debt, but it’s not always so easy to get out.

And when you’re an investor in addition to being a borrower, as your portfolio grows, it’s easy to imagine having to replace three roofs and two heaters in a short period of time. When that happens and you don’t have some form of liquidity, you’re in trouble.

For other investors though, it’s more than just reserves and access to cash. It really starts with having the right mortgage.

Mortgage loan agreement application with house shaped keyring

Related: To Leverage or Not to Leverage? Why the Answer Isn’t as Simple as You Think

The Solution: Choosing the Right Mortgage for You

When I started in real estate, it was a time of high interest rates and adjustable rate mortgages. Plus buy down mortgages were being invented.

The buy down was a mortgage that had a low rate initially but jumped up a point each year until year three. Then it stayed fixed for the next 27 years.

The adjustable rate mortgage (ARM) was even worse: it adjusted with a potential 2 percent increase each year that was capped and an overall 6-point cap on the life of the loan. (Each point is 1 percent of the mortgage amount.)

You can see how these kinds of loans could be dangerous types of debt for certain borrowers, particularly those who aren’t ready when adjustments happen.

Right before the last real estate crash, I decided to make half my rental properties fixed rate mortgages and half adjustable. It turns out, I made (or saved) a lot of money by freeing up cash to remain liquid with the ARMs, because the interest rates stayed very low for a good 10 years.

I also made sure the properties attached to these mortgages still cash-flowed, even at the highest potential rates of the ARMs. Plus with more monthly net cash flow, I was protected with larger reserves if and when interest rates reset.

And using 30-year mortgages similarly enabled me to have more monthly liquidity via lower payments compared to a 15-year mortgage with a higher payment.

Did my equity grow more slowly? Sure. But there was more money in my pocket to take care of repairs, move outs, and everything else along the way.

5 Ways to Recession-Proof Your Real Estate Investing Strategy

I’m not so sure you can predict when the next real estate market shift will occur for many reasons—namely because real estate markets are localized. But there are many things you can do to get ready.

  1. Fix your rates. If you anticipate rates rising and you plan to hold real estate, then consider fixed interest rates on your mortgages.
  2. Develop more access to cash. This could be everything from increasing credit card limits and taking out equity and business lines of credit to developing more private money relationships. It’s good to do this before you need to (i.e., when you’re physically and financially healthy).
  3. Build up your cash reserves. Your access to cash and cash reserves should be at a level that’s commensurate to your portfolio. Don’t just be in accumulation mode; preservation mode can be just as important. Remember it’s “not what you make, it’s what you keep.”
  4. Employ asset protection strategies. This is also important to do before the need arises. Develop safer investment buckets, such as trusts, qualified plans, and insurance contracts, to sweep some capital and profits off the table during the good times.
  5. Diversify investments. Invest in areas aside from hard real estate, especially ones that aren’t as market-driven or illiquid as real estate. In other words, don’t put all your eggs in one basket (or asset class).

So am I ready for the next recession? I think I’m as ready as I’ll ever be, and hopefully some of these tips will help you get to a similar stage of comfort.

It’s very easy to get caught up in the frenzy and momentum of up markets, but it’s very hard to stay the course and make plans for the rainy days. Similarly, it’s difficult to argue against the fact that “cash is king” in down markets, and the best time to sell is when the market is up.

What are you doing to prepare for the next market fluctuation?

Let me know in the comment section. 

 





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9 Tips For Selling A Distressed Property In Philadelphia PA

 

Selling a distressed property in Philadelphia doesn’t have to be stressful. Learn more about how to sell your distressed Philadelphia PA house in our latest post!

You might think that selling a distressed property will be difficult and time-consuming. In some cases it is! There are repairs that need to be made, contractors to hire, and to mention the time it will take to make sure the project runs smoothly. However, with our top 10 expert tips for selling a distressed property, you will be able to sell quickly and for a fair price. This post walks you through how to sell your distressed house in Philadelphia PA!

Tip #1: Avoid Costly Agents

Selling your distressed property to a professional buyer such as Building Opportunities, will save you time and money. Listing your Philadelphia house can be expensive and you will have no idea when it will actually sell. Your home could sell within a few weeks or it could take months to get a reasonable offer. By selling it directly to an investor, you will be able to have your closing date right away and also avoid the expensive commissions an agent will charge you.

Tip #2: Make It Pretty

If your property is in need of major repairs or if it is going into foreclosure, you will likely want to sell it quickly. Taking some small steps to make it visually appealing will help buyers see it in a new way. Clean up as much as possible and make any cosmetic fixes you are able to. This could mean fixing holes in the drywall, sanding the floors, painting the interior and exterior, replacing the fixtures, and updating the landscaping. Try to showcase the property’s potential to help people see beyond its flaws.

Tip #3: Disclose Everything

No matter what is wrong with the property, you need to be upfront about it. By not letting people know about property defects, you could be setting yourself for a lawsuit down the road. There are quite a few things that may need to be disclosed and you can speak with your local Chattanooga real estate attorney to find out what needs to be disclosed. Take the ethical approach. There is a buyer out there for your property, and you will find them!

Tip #4: Find The Right Buyers

Think about the people who are actively looking for distressed properties. Market to investors and other buyers whom you think would have an interest in your house. It can help to join some local real estate or investment groups in your area to really get the word out. Another unique way to find investors is to search for “we buy houses Philadelphia companies” in your search engine. Some of these companies can buy your home in any condition and make you a fair offer in minutes.

Tip #5: Be Patient

There isn’t as large of a market for distressed properties as there is for turnkey homes. It might take a while to find a buyer. This can be frustrating when trying to sell within a specific timeframe. If time is an issue, your best bet will likely be selling it directly to a home buying company in Philadelphia.

Tip #6: Be Flexible

It is important to have a plan B just in case you aren’t able to sell the property. Consider renting it out if you are able to or finding a loan to help you with repairs. You could also talk with a real estate company about structuring a creative financing deal like a lease option or owner finance. It is important to think about the what if’s so you don’t find yourself foreclosed on.

Tip #7: Know The Value

You might think your house is worth a certain amount, but once you factor in the necessary repairs and upgrade it requires, the actual value of your property today might be much less than you had originally thought. Be realistic about what your house is worth in the condition it is in. Don’t expect to get retail prices for a house that needs repairs.

Tip #8: Paperwork Check

If you choose to sell the house on your own, you will be responsible for taking care of all the paperwork. You will need to provide disclosure documents and create the contract. Everything must be legal and by the book as to protect yourself. When you work with us, we handle all the paperwork, so you will have one less thing to worry about.

Tip #9: Don’t Give Up

People are going to try to come at you with low-ball offers. If you are able to, stand firm until you are able to get a realistic offer on your house. You don’t have to jump at the first person who makes an offer unless this is your only choice. At Building Opportunities, we always pay fair prices for houses, distressed or not.

Are you ready to sell a Philadelphia house? We can help! Send us a message or give us a call today! 215-447-7209

 




Commercial real estate giant CBRE announced that Leah Stearns will be joining the company as its next chief financial officer. Stearns is stepping into the role as the company’s current CFO, James Groch, transitions his focus on responsibilities as the company’s global group president and chief investment officer.



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Some people have no credit at all, and some people have bad credit.

Understanding how to build credit is particularly important to investors who are looking to use their score to help build their wealth. A good credit score allows them to take advantage of leverage (aka debt such as loans).

To access the most funding options to invest in real estate, chances are you’ll need good credit. There are numerous ways you can boost your credit score, depending on where you are today.

But first, we must understand credit.

How Are Credit Scores Calculated?

The definition of credit is “the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future,” according to the Oxford Dictionary.

There are multiple things affecting your credit score. The length of time accounts have been open, ratio of outstanding debts compared to the credit you’ve been extended, types of credit owned, and number of late or missed payments are all factors that can raise or lower it.

Carrying a high balance on credit cards, opening and closing accounts in a short amount of time, and of course late payments will all ding your credit—as much as 100 points in one go. In addition, the amount of inquires (companies checking your credit to open credit cards, get loans, etc.) can and will ding your credit, even if temporarily.

Be smart about taking on credit, and learn as much as you can about what it is before you engage in accounts reporting to credit agencies.

Here’s a quick rundown of credit scores:

800-850: Exceptional

740-799: Very Good

670-739: Good

580-669: Fair (Note: It’s common practice to require a 600+ credit score for leasing properties.)

300-579: Poor

With fair/poor credit, one may experience higher interest rates on loans/mortgages. If renting or leasing, you may be required to pay higher security deposits. A co-signer may even be required in certain instances.

The terminology and ranges associated with these labels do vary by source, but it’s more important to have a general idea of where you fall on the spectrum. You’ll qualify for the best rates if you have a 740 or higher score, with some institutions that even call for a 760.

Shot of beautiful glad young female with Afro hairdo, types number of credit card on smart phone, makes purchase online or checks bank account, recreats in outdoor cozy cafe with fresh cocktail

Types of Credit

There are quite a few types of credit; however, I’m going to focus on the two most common.

One of the most utilized types is revolving credit. Credit cards fit into this category.

With revolving credit, one is expected to pay a minimum each month but is not required to pay the entire amount.

Another common type is installment credit. This refers to such things as automobile loans or mortgages. A certain amount is borrowed, and every month the same amount is paid until the balance is paid in full.

How to Protect Your Credit

To protect yourself and your credit, you should check your credit report annually. More often than you’d think, individuals find out their identity was stolen or some sort of fraudulent activity occurred months or years after the fact.

Don’t give criminals a bigger head start than they already have. Protecting your credit starts with you. Monitor your bank accounts and credit card accounts, and go over your statements to ensure there aren’t any discrepancies.

In instances where you may be vulnerable or in order to be extra cautious, one can go a step further and implement credit freezing, monitoring, or other services to help ensure you don’t become a victim of fraud.

Related: How to Improve Your Credit Score

How to Build Credit

Apply for a Credit Card

Dave Ramsey may not support this advice—but to each their own. If you can’t trust yourself to use a credit card appropriately, you may want to disregad this advice.

However, opening up a credit card, using credit, and making timely payments is a great way to build your credit score. The key is paying off your balance monthly and always making payments on time.

If you’ve never had a credit card and/or are building your credit from scratch, you may need a secured credit card. This acts as a prepaid card until you establish somewhat predictable spending patterns with the institution.

Keep Credit Cards Active

As mentioned, the length of time an account has existed is taken into consideration when determining credit scores. However, banks have been known to close inactive cards after a certain length of time.

To prevent a credit dip as a result of a closed account, it’s useful to add a tank of gas here and there on cards you may not use much.

Adjust Your Balances/Records/Limits

It happens to so many people for so many reasons. There may come a point when you are unable to pay off your balance in full.

If this is you, concentrate on paying whichever accounts have outstanding balances down to less than 30 percent of the associated credit limits. This in and of itself will help boost your score.

Do you have a late payment on record? If it’s out of character, it never hurts to ask for this late payment record to be removed. Many institutions will be happy to do this for first-time offenders.

Do you have autopay set up for any of your accounts? If something happens and your payment account is compromised, you will be assigned a new account number. This will interrupt your autopayments.

Pay close attention to your credit card accounts in these instances so that missed autopayments don’t translate into late or missed payments, thereby dinging your credit score. If this happens, again, reach out to your creditors and explain the situation. If you aren’t a repeat offender, they’re likely to help you out.

In some cases, adjusting your credit limit can improve your credit. It can essentially push your revolving credit balance percentage down. This is not recommended for everyone, however. Prior payment history and the status of your outstanding credit will be taken into consideration. Not everyone may be granted a higher limit when they ask.

Student Cards/Credit Building Loans

Some banks even offer services like credit-building loans. Participants are required to make timely payments on these loans, and the institutions report this activity to the credit agencies throughout the process until the loan is paid in full.

Normally, services such as these are offered by local banks. But it never hurts to ask your current institution if you already have an established banking relationship.

Sometimes student credit cards are a good way to go, too. These cards are classified as higher risk due to the inexperience of customers who open said accounts. As such, these cards typically have higher interest rates for those who carry a balance. Be aware of these rates, and try not to charge more than you can afford on these cards.

closeup of tabletop with pile of fanned credit cards on wallet on cash

Authorized Users and Co-Signers

For those who are looking to build or rebuild credit, one option is to be added as an authorized user to someone else’s account. You may consider adding an authorized user to your account for similar reasons.

In either instance, this situation is going to be detrimental to one or both parties if you are not committed to making timely payments. The relationship requires trust. But if both parties are responsible, this is one way to go about boosting your scores.

For best results, before utilizing this tactic, establish the following:

  • How often will this card be used and for what purposes?
  • Do you both have a history of paying in full and/or on time?
  • Can you trust each other to not abuse this card?

In many cases, mortgages, credit cards, rental leases, other loans, etc. may require a co-signer for those who apply and do not meet the optimal credit criteria. A party with good credit co-signs onto the credit agreement with the party that has lower credit.

In doing so, the co-signer is accepting a certain level of responsibility—they are now on the hook for paying creditors should you fail to do so. This is simply another way to lessen the risk on the institution’s side while still allowing for credit building opportunities.

Rent and Utility Payments

Another possible way to build your credit is through rent and utility payments. Certain programs are available whereby a company will collect your rent for a fee, pay it to your landlord, and report your timely rental payments to credit agencies. Some landlords themselves may have such a system in place.

The same situation can be set up for utility payments. But be aware that many utility companies themselves don’t report to the credit bureaus—unless you fail to pay. In those instances, they will report you.

Related: Why Credit Scores Matter & How to Improve Them

How to Rebuild Credit

People experience all sorts of situations that may bring them to a point where they need to rebuild their credit. While this article is more about ways to increase your credit score or build it from scratch, it’s important to quickly note that there are ways to work with collection companies.

In some instances, you may be able to reach a compromise where you pay them a lesser amount than was owed in order to settle an outstanding debt. But this isn’t always the best option—it’s highly dependent on the individual situation. Obviously the best option is to avoid a debt from being turned over to collections in the first place. This isn’t a forum for legal advice, however, so consult the appropriate financial professionals for the best course of action.

If you find yourself in a position where you’re rebuilding, explore all of the aforementioned options to help get yourself back on the road to success. Avoid further late payments. Avoid being sent to collections. And know that credit issues from years—even decades—ago can continue to haunt you down the road if left unresolved.

Conclusion

This is by no means an all-inclusive look at credit, but for those starting out or trying to build their credit, it’s a great place to start. Understand how credit works, the factors playing into your credit score, and how monitoring your credit report can help you protect your score.

The higher your score, the more of a ding your credit takes should you have an issue with any of the above. Building credit takes time, but it can be done faster if you have the right tools and use the correct strategies.

Do you understand what can hurt your credit score? Do you have a grasp on what can help it? What other questions can I answer for you?

Leave me a comment!

 

 





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Want to keep more of your hard-earned dollars in your pocket? Making sure you are maximizing tax deductions on your rental properties is one of the best ways to do that.

Stessa teamed up with top tax strategists over at the Real Estate CPA to bring you the top tax deductions for rental owners. We cover everything from home office, mileage, and repairs and maintenance to the new Tax Cuts and Jobs Act 100% bonus depreciation (limited time opportunity) and Opportunity Funds.

How to Lower Your Tax Bill

All real estate investors will benefit from taking a proactive approach to taxes. The reality is there is little you can do retroactively to impact your results once the year ends.

Use the guide below to develop a plan and start implementing strategies now to deliver the best results for the next tax filing season.

Here are some of the most important deductions and strategies to reduce and defer taxes that investors should be aware of:

  • Depreciation: This is one of the biggest and most important deductions for rental property investors because it reduces taxable income without impacting cash flow. Since land cannot be depreciated, the preferred strategy is to allocate as much of the property’s purchase price to the building as possible to maximize your depreciation expense.

  • Home Office: As a rental property owner you can dedicate a room, or a portion of a room, exclusively for home office purposes to claim what is often a significant tax deduction. The presence of an official home office also allows you to deduct local transportation expenses, including auto mileage.

  • Repairs & Maintenance: When you incur repair and maintenance or renovation expenses, you’ll want to classify as much as possible as standard repairs and maintenance to deduct them in the year incurred.

  • 1031 Exchanges and Opportunity Funds: These offer additional methods to defer and reduce taxes. 1031 Exchanges allow you to defer both the capital gains tax and depreciation recapture from the sale of a property and invest the proceeds into another “like-kind” property, often called “trading up.” Introduced by the Tax Cuts and Jobs Act, Opportunity Funds allow you to defer and reduce the capital gains tax from the sale of any capital asset.

Related: 4 Helpful Tax Tips for Overwhelmed Landlords

Do you have further questions about any of these tax strategies or about lowering your tax bill as a real estate investor?

Ask in a comment below!





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