The Federal Reserve and the condition of the market have combined to make the home mortgage industry revert to much more traditional lines. This has had several effects on both lenders and consumers. For consumers, the situation is a two edged sword, though lenders stand to gain as much as ever, albeit at a slower pace.

For consumers, this means that credit ratings are no longer the yardstick by which your loan paying abilities will be measured. While for some this may be a bad thing, for others it can definitely help out. These consumers are those with good income but who have a less than stellar credit rating due to past indiscretions and poor financial management.

Since credit scores no longer have so much emphasis placed on them, a borrower’s income will be used to judge whether or not a loan should be extended to them. This is actually a much wiser way of doing business than by simply extending a loan to any consumer that has a good credit rating. That way of doing business is partly responsible for the housing market crisis now enveloping the nation.

Lenders stand to gain simply because their loans are much more likely to be paid in a timely manner. By only extending finance options to consumers with a proven income sufficient to make the payments, lenders can begin to rebuild their industry with a much more sound financial footing.

So, while the new lending procedures may seem out of place, they actually stand to benefit both lenders and consumers through better loans, better payment ratios and a better economic position for both parties. While it may take more time than some would like, this promises to be the best way to rebuild the housing industry and the home mortgage loan industry.

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Are you in debt or have some other type of financial burden you just want to hide in the closet? Trust me on this. You are not alone. When you finally accept that you are in a financial bind, the faster you can work at removing it from your life. Before I moved to Orlando, I had to pump in $8,000 into fixing up my rental property after my previous tenants did some pretty big damages to the house. This situation evaporated all my savings and I started to live on credit. To make things even worse, a business I was partnering with ended up terminating our agreement and totally removed any type of monthly cash flow. I can honestly admit that this was one of the hardest times of my life. I didn’t know what to do, which led me to a small type of depression.

I took even more struggle for me to actually realize what I had to do to get the ball rolling in the right direction. Being in debt, spending over 40 hours a week repairing my rental house, and having no income really threw a wrench in my plan on being financially independent. My sister-in-law said to me that “There’s a big difference between successful and unsuccessful entrepreneurs. Successful entrepreneurs find any way possible [legal of course] to get out of a situation on top. Unsuccessful entrepreneurs give up and cry about their situations.” I was acting like an unsuccessful entrepreneur. Having a negative outlook on the scenario will always bring a negative outcome. Think positive and ask for guidance from people that have gone through a similar situation. Remember the first step to any problem is admitting it’s a problem.

I needed to think of ways to get out of my mess and come out on top. Originally, I tried to handle everything at the same time. I needed to get new tenants, create a case on my previous tenants, find a job, get money, repair my house, and at the time, keep my girlfriend happy. As all of you know, I didn’t resolve this situation without lots of bangs and bruises. I am still in debt from all the house repairs, I didn’t end up getting any money from the old tenants, and I lost my girl. Was I successful in the overall situation? I think so. I currently have incredible tenants, I have a new job in Orlando, and I am paying off my debt slowly but surely. I learned that you need to handle everything like an individual project. Complete one thing at a time and then move on. In my situation, I needed to get new tenants, but first I needed to repair my house so I could get people in there. So repairing my house was the number one priority. After that, things started to fall in place.

Now that that part of my life is complete, I can reflect on the decisions I’ve made and understand my mistakes. After analyzing the past year, I realized that this was all spun from a poor decision I made last year. Renting out my house without doing proper due diligence really smacked me in the face. If I tried to find better tenants, I wouldn’t have had to throw in all the money and go through all the stress that came from it. With every huge financial decision you need to take your time and reflect. It would have been better for me to pay one more month of the mortgage and try to find better tenants; instead of renting it to bad tenants.

Just remember to face your fears before 2008 and handle them accordingly. Don’t be afraid to ask questions to people that know and always learn from your mistakes.

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Taxes can be a burdensome task if you do not have everything set up correctly. In December, I decided to rent out my house as an investment property but totally forgot to set up a new account and activate a new credit card for the property. Thank God I remembered only three months in; instead of a year later. If you have an investment property, here are some good reasons why you should open up a new account too.

Distance yourself from the bills: You need to keep your finances separate from your investment property’s finances. “Never mingle rental income with your personal funds. Learn the law in your state about handling tenants’ deposits. Some states require a special escrow account. If not, keep the money in a separate savings account. “It’s extremely important that landlords — I don’t care what state you’re in — don’t treat it like it’s your money,” says Edwards.”

Get a credit card: If you get a separate credit card for your investment property, it will be much easier to track expenses. At the end of the year you can calculate how much extra money you’ve put into the house and possible write-it off on your taxes. I would also highly recommend using this credit card to pay for your reoccurring bills from the property such as: home warranty fees and any kind of maintenance fees. 

Bill pay the bills: Having everything done automatically can reduce your stress levels big time, so pay the investment property’s bills automatically through your checking account. Bills should include: mortgage, credit card, utilities*(avoid paying your tenants utilities), homeowner’s fees, and repair cost.

By separating your regular account from your investment account, you should save yourself a good amount of time and money when tax time comes around. *eFIPO’s Rule* Multiple transactions is a good thing when it comes to an investment account. A better paper trail can save you if you ever get audited.

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Now that I am a full time landlord (I’m not a slumlord) there are many things that I wish I knew before jumping into the real estate renting market. Screening is the most important part of renting and doing it improperly could cost you a lot of money and increase your stress level.

Screening: Tenant screening is perhaps a landlord’s most crucial task. You may think your gut is your best ally for this job, but there are two important reasons this isn’t a good idea:

• It doesn’t work.

• It’s not legal.

Even if you think you have a great judge of character, you need to screen. You can’t always judge a renter by the way they dress and present themselves. They might have a lot of skeletons in their closets; which will come out a few months after you give them the keys.

If you don’t end up screening your renters, disaster will surely follow. You can expect late payments, non-payments, damages and complaints from the neighbors. Having a rental property can be a very rewarding experience. Protecting yourself and your investment should be top priority.

Here are the things you look for when you screen a candidate.

• Applicant’s full identity
• Rental history
• Credit picture

Here’s a wonderful rental application that you should use to screen your future tenants.

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Yesterday, I was asked the question “What would you do with an extra $10,000?” When I started to really think about it, there are tons of things I could do with that kind of money. What would you do with it? Buy that new TV you always wanted? Save it? Invest it? Pay down some credit card debt?

My first thought was to pay off my student loan debt. Would that be a smart financial decision? Probably not. That was a loan so I could leverage myself by paying for my education without using any of my own money. Another reason why it would not make sense to pay off my student loan quickly is the tax benefit and the low interest rate. After thinking about all the advantages, why would I want to expedite paying off a near interest free loan?

My second thought was to put $6,000 into my online savings account and invest the other $4,000 in my individual stock portfolio. This would be great way to increase my net worth and help build my retirement portfolio. I would then have $6,000 which I could use at my own discretion.

Then I thought of how I can use this money to get a higher long term return, and leverage this money as much as I could. Real estate is one of the only ways that you could purchase a big asset with little or no money. The $10,000 could be used as bargaining money for a down payment on a rental property. There’s a town house community that I’ve been looking at that would be perfect for this kind of investment. I could purchase the property and immediately rent it out to an Atlanta commuter or a fellow college student.

*eFIPO’s Rule* Always think outside the box when it comes to personal finance. There’s never just one way to solve a problem. Learn how you can turn a little money into lots of money.

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Do you know when it’s a time to buy a home? Well right now is that time. With prices on 30 year mortgages dropping to 6.11% and the tons of foreclosures happening all around the U.S., this is definitely a buyers market. Check Bankrate for some hot deals on mortgages, but remember not to get involved in stupid mortgages such as: balloon mortgages, short ARMs, interest only ARMs, and option mortgages that you will not be able to cover with regular income.

You can get a lot of house with low monthly payment options, so shop around for the best deals possible. If you are a first time home buyer; which usually means you will be moving in the next five years, consider getting a 5-7 ARM. It will still give you the benefit of appreciation without throwing extra money to your principle. I was a first time home buyer and decided to get a 30 year fixed mortgage because I planned to own the home for a long time, but I also knew that I would be moving out in three years to rent the whole house. Plan ahead so your mortgage matches your plan.

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Here’s a consolidated version of my “How to make money in Real Estate” articles. If you are looking for the complete articles, just click on the links below to see the specifics about the certain topic.

1^st Buy The Right House. Buy The House The Right Way.

Get your FICO. Better score, better rate, lower price.

Find how much house you can buy. Find out what YOU can afford, not what they offer you

Now it’s time to shop for a mortgage. Shop around for the best possible rate & terms

Make some choices. Find the area you want to live around

Get a real estate agent. Makes real estate shopping much easier

Take a week off work. It’s a big deal; take some time off to get a clear mind

Find a house that you really like. Doesn’t have to be the best. Comfort comes first

Hire a pro. When you find the house, hire someone to look at the construction

Rent a truck or U-Haul and pay some friends to help you out. Less money=good

Have a house warming party! It’s over and it’s time to let loose!

2^nd Build Your Wealth in Real Estate

Step one: Develop your game plan. Don’t go in blind. Investing requires thinking.

Step two: Already nice, or fixer upper. Choose your money maker.

Step three: Financing. Buying stuff with none of your own money! Spend a lot of time shopping. This will either make or break your return.

Step four: Advertising time baby! Advertise so you can rent, lease or sell quickly.

3^rd Build Your Wealth in Real Estate#2

Step five: Short term money maker. Buy. Fix. Flip. Which way are you going to make your money?

Step six: Buy smart. Rent smarter. Always plan ahead. Renting a house is long term investing; which requires a different plan then flipping.

Step seven: Lease-to-own. Find out the ways to profit now and profit later. This is a win-win situation.

4^th Making 250k Tax Free Per Year-MUST READ

Step eight: Using the tax system to your advantage. Learn the tax laws to make a never-ending stream of real estate income. This is a MUST read post for long-term investors or investors expecting large property appreciation.

Do you have any other real estate money making secrets to share with everyone?

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Right now I am trying to refinance my property to a lower payment and remove my PMI without it costing me an arm and a leg to do it. When I first purchased my house, I was uneducated about home buying and I was an even worse at mortgage shopping. People ripped me off left and right because they knew they could. Eventually, I learned a lot about mortgages and real estate after having Real Estate Law and reading a ton of books about real estate. Now I can use my arsenal of knowledge to get the loan I want and deserve.

But with every adventure there are always problems before you get to the treasure (the new loan). Having to shop around for a mortgage requires a lot of time even if you use an online service like Bankrate or LendingTree. I decided to go with Bankrate and I want to deal with a local Georgia broker instead of a national company unless there’s a huge difference in the rates. The reason why I want to go with a local broker is communication process is key. I want to meet the person I am dealing with instead of always trying to call your mortgage representative and set up telephone conferences.

Closing cost will eat up your profit very quickly for the short term, but there are some ways to prevent paying any closing costs. Most of the time, closing cost can be lowered or eliminated if you have good enough reasons to argue them. The easiest way to get rid of closing cost is to ask for a higher rate than the rate given. If you are quoted 6.125% on a 30 year fixed loan, ask for 6.25% and the elimination of closing costs. If you end up selling your home before the ~7^th year, you will end up profiting more money versus paying for closing cost with the lower rate. If you want the house for a long term investment, consider paying the closing cost and throwing them into your mortgage.

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READ THIS ARTICLE!

Here is a tax code not many people know about. It’s called the Internal Revenue Code 1031. This is a huge money making possibility for real estate investors. The IRC 1031 has a serious tax advantage to land exchanges for commercial and real estate investing. This kind of land exchange, also known as the Starker Exchange, can defer capital gains taxes on �like kind� investments in real estate.

What does “like kind” mean? “Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However, livestock of different sexes are not like-kind properties. Also, personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.
Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.” That is pretty broad, leaving the investors with a ton of money making potential.

This is the gist of how a 1031 works. I will show you how you and your spouse can make $250,000 per year with real estate.

Say Jim wants to sell his investment property, a log cabin in North Georgia, to Taylor. Jim purchased the property for $600,000 dollars four years ago, and is now selling it for $900,000. He would have to pay $300,000 on the capital gain from that sale. Jim finds a qualified intermediary, a third party who facilitates an exchange of property, and pays them to harbor his $900,000 from the sale. Jim now has to find another investment property within 45 days and purchase one by 180 days from the exchange. Jim finds a beach house in Florida for $800,000 and throws in the other $100,000 for upgrades. Jim has now differed his taxes and didn’t have to pay a penny right now.

Now this is a wonderful use of our extremely complicated tax system, but I guess the IRS wants us to educate ourselves to become rich. You might be asking yourself “I want to know about making $250,000 per year!” Well here is comes! Let’s just say Jim decides to sell his beach property and purchases three other pieces of real estate that cost him $350,000 each. Jim has the money because he sold the beach property for 1.2 million anyways. Jim goes through another 1031 exchange and buys the three properties. Jim rents the houses for a few years, and then lives in one of them for two. The house has now become a personal residence and can be sold tax free.

Jim’s first property, which he currently lives in with his wife, is now selling for $500,000. That’s a $150,000 gain (Paid 350k and selling for 500k); which he would have to pay taxes on that until the Taxpayer Relief Act of 1997 came into law. He can now sell that house for $500,000 TAX FREE, and move to his other investment property, live in it for two years and do the whole process over again.

Jim turned a $300,000 tax liability to a tax free $250,000 per year income generator. Not a bad deal. Could you deal with earning $250,000 of tax-free money per year?

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Well now that the countdown to moving back in my parents’ house has begun, I need to set up a plan to get back on track with my finances. The past semester I did not want to work so I ended up using all my savings and getting in some pretty minor debt. I would say about $1,000 by the time I move back to the r’ents house. My schedule has finally opened up so I can have a job and graduate on time. This will pretty much be the highest paid job I have ever had because all the money I will be receiving from the paychecks will be mine (no monthly living expenses).

Monthly living expenses usually burn about 60-75% of your paycheck (mortgage/rent, and utilities); which I will no longer have to take care of. My house will be paid for by my tenants, so I will need to redirect some of my money back to savings and investments.

My first plan of action is to pay off all my credit card debt that I have accrued for the past couple of months. That shouldn’t take too long, no more than two to three months (I’m shooting for two).

After paying off all the debt, I need to rekindle my savings account to about $2,000. The savings account will be used for some down payment money, if it’s needed, so I can look at purchasing my second piece of real estate. This will probably take about four months depending on a few factors such as: monthly paycheck, internet revenue, and stock performance.

When all of that is done, I can start reinvesting money in my individual stock portfolio. This will probably be done around June. I will aim at putting in the full Roth IRA amount. If I do end up using my savings account money for a down payment, I will put half of my money in savings and the other in my IRA.

Finally, when everything is in place and I feel comfortable with my finances again, I will have to save money to repair a few things around the house. This will be a pretty short-long term goal. My tenants will be living in the house for 18 months so I will have about one year to save around $7,000. I plan to put down either hardwood or laminate because carpets get destroyed to quickly in a house like mine.

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