Real Estate Q&A
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Questions Asked and Answered
I'm looking to buy my 1st property. Should I buy a small multifamily (duplex, triplex, quad plex) or a Single Family Home?
If possible, you should buy a 4 unit, duplex, or triplex first if you can get 3.5% - 5% down. The issue with finding a single family with a livable basement, it that the next time you go to buy a multifamily, the underwriter will look at it was downsizing and may require you to put down 20%. If I had to start all over I would get a 4 unit first with 3.5% down, then another 4 unit in a year with 5% down, and another 4 unit in a year. And by the time you know it, you'll have a small rental empire.
Is it smart to Purchase a property that will not cash flow, and wait for appreciation?
I currently invest in DC, PG County, and Baltimore. While Baltimore is cheaper, DC has the appreciation potential. I don't think that you should buy a property that loses money every month. Never count on appreciation to bail you out. At the very least you should have a small return. If you are losing money and you have a repair come up, then you are out even more money. I look at it this way, when I buy a house (in DC or the DMV), when I move out in a couple of years will the rents cover my mortgage plus CAPEX and repairs and then give me $100-$300+ of cash flow. The only thing I'm taking out in this scenario is the cost of property management since I self-manage most of my properties. I do believe that rents are going to continue to rise in DC, but I also feel like you can still find deals that don't require you to lose money while you wait for appreciation. Maybe you can find a deal that has a value add opportunity. I bought a 4 bedroom house and turned it into 6 bedrooms in DC. Renting out the house as a 4 bedroom would have caused me to break even. However, renting out each of the 6 rooms individually, allowed me to cash flow $1,000 a month. Because the DC market is so expensive, you may need to get creative. Does renting out by the room increase the cash-on-cash return (COC)? Does using it as an AirBnB increase the COC? Don't settle for no cash flow just because the market is expensive. We just have to be creative and work on finding good deals.
DC is expensive. Should I still look for properties in DC or should I start looking in Maryland.
Yes. Yes and Yes. I currently invest in DC, PG County, and Baltimore. While Baltimore is cheaper, DC has the appreciation potential. The DMV is small enough where you can work in one state and live in another state. We don't have to limit ourselves. The key to getting through underwriting if you are buying owner-occupied with 3.5% - 5% down is starting with a smaller property and buying a slightly larger property each time. (With Rentals, it doesn't matter because you have to put down 20%-25% regardless).
Currently, because DC is so expensive, I use a 5% down owner occupied loan to purchase in DC. If I do more out of the property in a year or 2, I rent out my prior home. If not, then I just keep living there.
5% down on a $500k property = $25,000 down payment
20% down on a $500k property = $100,000 down payment
20% on a PG county rental $250k = $50,000
20% down on a Baltimore City rental $150k = $30,000
Should I put more or less money down?
If depends on your goal.
If you want a lower monthly payment, then putting more money down will help you achieve that goal.
If you want to save your money so that you can use it to buy another cash flowing asset, then it might make sense to put less money down.
Legal Bedroom in DC
Code of the District of Columbia: § 44–110.08. Bedrooms.
According to DC code, for a bedroom to be legal it must include:
At least 70 Square feet of habitable space. At least 100 square feet in double occupancy resident units
Each bedroom shall have adequate dresser and closet or wardrobe space for residents’ seasonal clothing and personal belongings. A secure storage space in a resident’s unit shall be made available if requested by the resident.
An ALR shall ensure that each resident has an adult size bed with clean comfortable mattress and extra linens. Additional furnishings, such as night stand, desk, chair, mirror, waste basket, etc., shall be made available, subject to residents wishes and tastes. Beds in double occupancy bedrooms must be at least 3 feet apart. Residents may choose to provide their own furnishings after being made aware of the furnishings that the facility is required to provide. All furnishings must meet the Fire Safety Code and be maintained in good repair.
If you use hard money to purchase and renovate a property through an LLC, can you use an FHA loan to refinance it into your primary residence?
This answer depends on your lender. Reach out to your lender for their specific term.
Lender #1
If it is a rate and term refinance, the property must be put back in clients name to refinance immediately
If you want to do a cash out refinance, then you must hold the property for 12 months before it can be refinanced
Lender #2
After 6 months the refinance can happen BUT it's limited to 85% of original purchase price. After 12 months, it can be done off a new appraisal. So if you're looking to refinance into a 96.5% LTV FHA or 95% LTV conventional, then you can only do that after 12 months.
What are my options after a home inspection?
Read your contract carefully.
If you are not satisfied with the results of your home inspection (and you have included an inspection contingency) you typically have 3 options:
Ask the seller to make repairs
Ask the seller to reduce the price. (With the reduced price then you will use some of that saved money to make repairs after you purchase the property).
Terminate the Contract and receive your Earnest money back
If you do not have an inspection contingency, then you must still move forward with the purchase of the property or risk losing your earnest money deposit.
Vocabulary to Research
Appreciation
Asset
CAPEX
Cash flow
COC - cash on cash return
Credit Score
DTI
FHA
Lender
LTV
Mortgage Broker
Passive Income
Property manager
Repair Cost
Residual Income
Underwriter
Real Estate Vocabulary - Common Words - A through Z
Real Estate Vocabulary A-Z
A. Appraisal: An assessment of a property's value conducted by a licensed appraiser.
B. Buyer's Market: A market condition favoring buyers, where there are more properties for sale than buyers, giving buyers more negotiating power.
C. Closing: The final step in a real estate transaction where the property ownership is transferred from the seller to the buyer.
D. Due Diligence: The process of thoroughly investigating a property before finalizing the purchase, including inspections, surveys, and reviewing relevant documents.
E. Equity: The difference between the market value of a property and the outstanding mortgage balance.
F. Foreclosure: The legal process where a lender takes possession of a property due to the borrower's failure to repay the mortgage.
G. Good Faith Estimate: An estimate of the closing costs provided by the lender to the borrower within three business days of receiving a mortgage application.
H. Home Inspection: A thorough examination of a property's condition conducted by a professional inspector.
I. Interest Rate: The percentage of the loan amount charged by the lender as interest over the loan term.
J. Joint Tenancy: A form of property ownership where two or more individuals have an equal and undivided interest in the property, with the right of survivorship.
K. Key Money: A payment made by a tenant to a landlord to secure a lease, typically in commercial real estate.
L. Listing Agent: A real estate agent who represents the seller in a real estate transaction and helps market and sell the property.
M. Mortgage: A loan obtained to purchase a property, where the property serves as collateral for the loan.
N. Negotiation: The process of discussing and reaching an agreement on terms and conditions between the buyer and seller.
O. Offer: A formal proposal made by a buyer to purchase a property, outlining the purchase price and terms.
P. Pre-approval: A preliminary evaluation by a lender to determine the maximum loan amount a borrower can qualify for based on their financial information.
Q. Qualifying Ratio: A calculation used by lenders to determine a borrower's ability to repay a mortgage, comparing their monthly income to debt obligations.
R. Realtor: A real estate professional who is a member of the National Association of Realtors (NAR) and adheres to a strict code of ethics.
S. Seller's Market: A market condition favoring sellers, where there are more buyers than properties for sale, giving sellers more leverage in negotiations.
T. Title: The legal ownership and rights to a property.
U. Underwriting: The process of evaluating a borrower's creditworthiness and the risk associated with a mortgage application.
V. VA Loan: A mortgage loan program offered to eligible veterans, active-duty military personnel, and surviving spouses by the Department of Veterans Affairs (VA).
W. Walk-through: A final inspection of the property conducted by the buyer shortly before the closing to ensure its condition.
X. X-Factor: Some factor of the property that confirms your decision to buy or sell the property. For some people it's location, for others it's the style of home. It really can vary. That X-Factors do you consider when purchasing a home?
Y. Yield: The income or return generated from an investment property, often expressed as a percentage.
Z. Zoning: Local regulations that divide land into different zones or districts with specific allowable uses and restrictions on development.
100 Frequently Asked QuestionS and Answers REgarding Real Estate
What is real estate? Real estate refers to property consisting of land, buildings, and natural resources.
What is the difference between residential and commercial real estate? Residential real estate is used for housing, while commercial real estate is used for business or income-generating purposes.
What is a mortgage? A mortgage is a loan obtained to purchase a property, where the property serves as collateral for the loan.
How does the home buying process work? The home buying process involves finding a property, securing financing, making an offer, conducting inspections, and closing the sale.
What is a down payment? A down payment is a portion of the property's purchase price that the buyer pays upfront, while the remaining amount is financed.
What is a real estate agent? A real estate agent is a licensed professional who represents buyers or sellers in real estate transactions.
What is a real estate broker? A real estate broker is a licensed professional who manages a real estate brokerage and may have agents working under them.
What is a listing agent? A listing agent represents the seller in a real estate transaction and helps market and sell the property.
What is a buyer's agent? A buyer's agent represents the buyer in a real estate transaction and helps with property search and negotiation.
What is a multiple listing service (MLS)? An MLS is a database used by real estate agents to share property listings and cooperate with other agents.
What is an appraisal? An appraisal is an assessment of a property's value conducted by a licensed appraiser.
What is a home inspection? A home inspection is a thorough examination of a property's condition conducted by a professional inspector.
What is a title search? A title search is a process to verify the legal ownership and history of a property's title.
What is earnest money? Earnest money is a deposit made by the buyer to demonstrate their serious intent to purchase the property.
What are closing costs? Closing costs are fees and expenses associated with the purchase or sale of a property, such as legal fees, taxes, and insurance.
What is a home warranty? A home warranty is a service contract that covers repairs or replacements of certain home systems and appliances.
What is a homeowners association (HOA)? An HOA is an organization that sets and enforces rules for a community or development and collects dues for maintenance and amenities.
What is a contingency? A contingency is a condition that must be met for a real estate transaction to proceed, such as obtaining financing or satisfactory inspection results.
What is escrow? Escrow is a process where a neutral third party holds funds and documents until the completion of a real estate transaction.
What is a foreclosure? Foreclosure is a legal process where a lender takes possession of a property due to the borrower's failure to repay the mortgage.
What is a short sale? A short sale occurs when a property is sold for less than the amount owed on the mortgage, and the lender agrees to accept the proceeds as full satisfaction of the debt.
What is a lease agreement? A lease agreement is a contract between a landlord and tenant that outlines the terms and conditions of renting a property.
What is a property survey? A property survey is a detailed measurement and mapping of a property's boundaries and features.
What is a home equity loan? A home equity loan allows homeowners to borrow against the equity they have built in their property.
What is a 1031 exchange? A 1031 exchange is a tax-deferred exchange of like-kind investment properties, allowing investors to defer capital gains taxes.
What is the difference between a fixed-rate and adjustable-rate mortgage? A fixed-rate mortgage has a consistent interest rate throughout the loan term, while an adjustable-rate mortgage (ARM) has an interest rate that can change periodically.
What is private mortgage insurance (PMI)? PMI is insurance that protects the lender if the borrower defaults on the mortgage, typically required for buyers with a down payment of less than 20%.
What is an escrow account? An escrow account is a separate account where funds for property taxes and insurance are held and disbursed by the lender on behalf of the homeowner.
What is a pre-approval for a mortgage? A pre-approval is a preliminary evaluation by a lender to determine the maximum loan amount a borrower can qualify for based on their financial information.
What is a dual agency? Dual agency occurs when a real estate agent represents both the buyer and seller in a transaction, which can present conflicts of interest.
What is a home equity line of credit (HELOC)? A HELOC is a revolving line of credit secured by the borrower's home equity, allowing them to borrow funds as needed.
What is a deed? A deed is a legal document that transfers ownership of a property from one party to another.
What is a quitclaim deed? A quitclaim deed is a deed used to transfer ownership interest in a property without making any warranties about the title.
What is a comparative market analysis (CMA)? A CMA is a report prepared by a real estate agent to estimate a property's value based on recent comparable sales in the area.
What is a buyer's market? A buyer's market is a market condition where there are more properties for sale than buyers, giving buyers more negotiating power.
What is a seller's market? A seller's market is a market condition where there are more buyers than properties for sale, giving sellers more leverage in negotiations.
What is a real estate investment trust (REIT)? A REIT is a company that owns, operates, or finances income-generating real estate, allowing investors to pool their funds to invest in a diversified portfolio of properties.
What is a capital gain? A capital gain is the profit earned from selling an investment or property at a higher price than its original cost.
What is a capital gains tax? A capital gains tax is a tax on the profit earned from the sale of an investment or property.
What is a home appraisal contingency? A home appraisal contingency is a clause in a purchase contract that allows the buyer to back out of the transaction if the property appraisal comes in below the agreed-upon purchase price.
What is a home equity? Home equity is the portion of a property's value that the homeowner truly owns, calculated as the difference between the property's market value and the outstanding mortgage balance.
What is a lease option? A lease option, also known as a rent-to-own agreement, allows a tenant to rent a property with the option to purchase it at a later date.
What is a real estate bubble? A real estate bubble refers to a rapid increase in property prices followed by a sharp decline, often fueled by speculation and unsustainable demand.
What is the Fair Housing Act? The Fair Housing Act is a federal law that prohibits discrimination in the housing market based on race, color, religion, sex, national origin, disability, and familial status.
What is the role of a title company? A title company ensures that a property's title is legitimate, conducts the title search, issues title insurance, and facilitates the closing process.
What is a balloon mortgage? A balloon mortgage is a short-term mortgage with lowermonthly payments for a fixed period, typically 5 to 7 years, followed by a large final payment (balloon payment) of the remaining principal.
What is a certificate of occupancy? A certificate of occupancy is a document issued by a local government or building department that certifies a property's compliance with building codes and is safe for occupancy.
What is a zoning ordinance? A zoning ordinance is a regulation that divides land into different zones or districts with specific allowable uses and restrictions on development.
What is an easement? An easement is a legal right that allows someone to use another person's property for a specific purpose, such as accessing a neighboring property or utility lines.
What is a 1031 reverse exchange? A 1031 reverse exchange allows investors to acquire a replacement property before selling their existing property, reversing the typical order of a 1031 exchange.
What is a home inspection contingency? A home inspection contingency is a clause in a purchase contract that allows the buyer to withdraw from the transaction or negotiate repairs based on the findings of a professional home inspection.
What is a rent control? Rent control is a government regulation that limits the amount landlords can increase rent on certain residential properties to protect tenants from excessive rent hikes.
What is the role of an escrow officer? An escrow officer is a neutral third party who oversees the closing process, holds funds and documents in escrow, and ensures that all conditions of the purchase agreement are met.
What is a warranty deed? A warranty deed is a deed that guarantees the title's validity and provides certain assurances to the buyer regarding the property's ownership and freedom from liens.
What is a closing statement? A closing statement, also known as a settlement statement or HUD-1, is a document that itemizes all the financial transactions involved in a real estate closing.
What is the difference between a condo and a co-op? A condominium (condo) is a form of property ownership where individuals own their individual units and share ownership of common areas. A cooperative (co-op) is a housing corporation where residents own shares in the corporation and have the right to occupy a specific unit.
What is a property lien? A property lien is a legal claim against a property as collateral for a debt. It can be placed by a creditor, such as a mortgage lender or a contractor seeking payment for work done.
What is the difference between a pre-qualification and pre-approval for a mortgage? A pre-qualification is an initial assessment of a borrower's creditworthiness and ability to qualify for a loan. A pre-approval is a more in-depth evaluation that indicates the lender's willingness to provide a specific loan amount.
What is a short-term rental? A short-term rental refers to renting out a property, typically a residential unit, for a short period, often less than 30 days. Platforms like Airbnb facilitate such rentals.
What is a home equity conversion mortgage (HECM)? A HECM, also known as a reverse mortgage, is a loan available to homeowners aged 62 or older that allows them to convert a portion of their home equity into loan proceeds without monthly mortgage payments.
What is a capitalization rate (cap rate)? A capitalization rate is a ratio used in real estate investing to estimate the potential return on investment by dividing the net operating income (NOI) by the property's value or purchase price.
What is a quiet title action? A quiet title action is a legal process used to establish clear ownership of a property when there are disputes or uncertainties regarding the title.
What is a land surveyor? A land surveyor is a professional who measures and maps land boundaries, preparesplats, and provides other survey-related services.
What is a homeowners association fee? A homeowners association fee, also known as HOA dues, is a recurring fee paid by homeowners in a community or development to cover maintenance, amenities, and other shared expenses.
What is the role of a real estate attorney? A real estate attorney provides legal advice and representation in real estate transactions, reviews contracts, ensures compliance with laws and regulations, and protects clients' interests.
What is a building code? A building code is a set of regulations that specify minimum standards for the design, construction, and maintenance of buildings to ensure safety and compliance with local regulations.
What is a walkability score? A walkability score is a measure that assesses the convenience and ease of walking to amenities such as grocery stores, schools, parks, and public transportation from a specific location.
What is a mortgage prepayment penalty? A mortgage prepayment penalty is a fee charged by lenders if the borrower pays off the mortgage earlier than specified in the loan terms, usually within a certain timeframe.
What is a leasehold property? A leasehold property is a property that is leased or rented from the landowner for a specific period, after which the ownership reverts back to the landowner.
What is a home staging? Home staging is the process of preparing a property for sale by enhancing its appeal to potential buyers through interior design, furniture arrangement, and decor.
What is a reverse 1031 exchange? A reverse 1031 exchange allows investors to acquire the replacement property first and then sell their existing property, reversing the typical order of a 1031 exchange.
What is a housing cooperative? A housing cooperative, or co-op, is a type of housing where residents collectively own the building through shares in a cooperative corporation and have the right to occupy specific units.
What is a real estate development? Real estate development refers to the process of creating new properties, including acquiring land, obtaining approvals, designing and constructing buildings, and marketing and selling or leasing the units.
What is a contingency release? A contingency release is a document signed by a party to a real estate transaction, indicating that a specific contingency, such as a financing or inspection contingency, has been satisfied or waived.
What is a property management company? A property management company is a professional firm hired by property owners to handle the day-to-day operations, maintenance, tenant relations, and financial aspects of rental properties.
What is a land lease? A land lease, also known as a ground lease, is an agreement where the landowner leases the land to another party, typically for a long term, while retaining ownership of the land.
What is a real estate bubble? A real estate bubble refers to a rapid and unsustainable increase in property prices, often fueled by speculation and excessive demand, followed by a sudden decline or burst.
What is a real estate wholesaling? Real estate wholesaling is a strategy where an investor enters into a contract to purchase a property, then assigns or sells the contract to another buyer for a fee, without actually closing on the property themselves.
What is a real estate syndication? Real estate syndication is a process where multiple investors pool their resources and capital to invest in large-scale real estate projects that they would not be able to undertake individually.
What is a lease-option agreement? A lease-option agreement combines elements of a lease agreement and a purchase option, allowing a tenant to rent a property with the option to buy it at a predetermined price within a specified timeframe.
What is a property flipping? Property flipping refers to the practice of purchasing a property with the intention of selling it quickly for a profit, often after makingrenovations or improvements.
What is a real estate capital stack? The real estate capital stack refers to the different layers of financing used to fund a real estate project, including equity, mezzanine debt, senior debt, and other forms of financing.
What is a real estate investment analysis? Real estate investment analysis involves evaluating the financial feasibility and potential returns of a real estate investment by considering factors such as cash flow, appreciation, and tax benefits.
What is a Section 8 housing? Section 8 housing, also known as the Housing Choice Voucher Program, is a federal assistance program that provides rental subsidies to eligible low-income individuals or families.
What is a real estate bubble? A real estate bubble refers to a period of rapid and unsustainable price growth in the real estate market, often fueled by speculation and excessive demand, followed by a sudden decline or crash.
What is a fair market rent? Fair market rent is the rental amount that a willing landlord and tenant would agree upon in the open market, reflecting current rental rates for similar properties in the same area.
What is a real estate pro forma? A real estate pro forma is a financial projection that estimates the potential revenue, expenses, and profitability of a real estate investment over a specified period.
What is a 1031 exchange intermediary? A 1031 exchange intermediary, also known as a qualified intermediary, is a third-party facilitator who holds the funds from the sale of a property and facilitates the exchange process to comply with IRS regulations.
What is a real estate purchase agreement? A real estate purchase agreement, also known as a sales contract or purchase contract, is a legally binding agreement between a buyer and seller that outlines the terms and conditions of a property sale.
What is a real estate due diligence? Real estate due diligence refers to the process of thoroughly investigating a property and its associated documents, financials, permits, and other relevant information before completing a transaction.
What is a real estate capital gain tax? A real estate capital gain tax is a tax on the profit made from selling a property that has appreciated in value. The tax rate depends on various factors, including the holding period and the individual's tax bracket.
What is a real estate market analysis? A real estate market analysis involves evaluating supply and demand dynamics, economic indicators, and trends in a specific market to assess its overall health and potential for investment.
What is a real estate bubble? A real estate bubble is a period of rapid and unsustainable price growth in the real estate market, often driven by speculation and excessive demand, followed by a sudden decline or crash.
What is a green building? A green building, also known as a sustainable or eco-friendly building, incorporates design, construction, and operational practices that promote energy efficiency, resource conservation, and environmental sustainability.
What is a real estate syndicator? A real estate syndicator is an individual or entity that brings together multiple investors to collectively invest in a real estate project, pooling resources and sharing the potential returns and risks.
What is a homeowners association (HOA) reserve fund? An HOA reserve fund is a portion of the HOA fees collected from homeowners that is set aside for future capital expenditures and major repairs or replacements of common property elements.
What is a leasehold improvement? A leasehold improvement refers to any alterations, renovations, or additions made to a leased property by a tenant to meet their specific needs or preferences.
What is a real estate wholesaler? A real estate wholesaler is an investor who contracts to buy properties at a discounted price and then assigns or resells the contract to another buyer, typically an investor, for a fee.
What is a land contract? A land contract, also known as a contract for deed or installment contract, is a financing arrangement where the seller retains ownership of the property until the buyer completes the agreed-upon payments, at which point the buyer receives the title.
What is a real estate investment trust (REIT)? A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate properties. REITs allow investors to invest in a diversified portfolio of real estate assets while receiving regular income distributions.