What is Fractional Ownership in Real Estate?

Fractional ownership in real estate is a concept where property ownership is divided among several investors. Instead of buying an entire property, investors buy fractions of that property, which are usually between 1/8 and 1/2. The notion of shared ownership allows a single investor to afford high-value real estate without the large financial upfront costs normally required for owning an entire property. 

Basically, it’s sharing expenses and benefits that come with owning a property. Each investor owns a share of the property directly proportional to each invested amount. Ownership interest does not confine itself only to shares in the property but extends to its usage rights, rental income received, and appreciation. The structure of fractional home ownership is different, but most of it includes a formal agreement spelling out the rights of each owner, duties, and terms of usage.

Key Elements of Fractional Ownership

Fractional ownership real estate allows someone to invest in prime properties and diversify a real estate portfolio without committing the full finances toward purchasing an independent property. This formula combines personal use with an excellent potential for income generation, hence an investment alternative attractive to your lifestyle and investment purposes. Here are some key elements of fractional ownership homes: 

• Ownership share: An investor gets a certain specified percentage of the property on top of a share of equity, usage rights, and income.
• Usage rights: Generally, owners have the right to use the property for a certain number of days or weeks per year. Again, this would depend upon the fraction of ownership interest and terms specified in the contract.
• Income and expenses: The owners share any income from the property, including any rental income, based on their proportional interest in the property. Likewise, expenses such as maintenance, property tax, or management fees are shared proportionately.
• Management and maintenance: The property is usually managed by a professional management company, which takes care of everyday operations, maintenance, and other administrative tasks, relieving owners of those responsibilities.
• Exit strategy: An owner may sell their share in the property after an agreed-upon holding period. In some fractional home ownership schemes, there is a secondary market through which shares can be traded, and the investors achieve liquidity.

Pros & Cons of Fractional Ownership

Fractional ownership has its own set of advantages and disadvantages. Understanding these can help investors understand if this investment model supports their investment goals and preferences. Here are the key pros and cons of fractional ownership:

Types of Fractional Ownership Models

Fractional ownership comes in many forms, all of which are targeted at different investor preferences and goals. Knowing about these models will help investors invest in the best form that suits their needs. Whether you’re looking for personal use, investment returns, or a mix of both, a fractional ownership model covers each of these preferences. Here’s how to break down the primary types of fractional ownership examples:

Equity Shares

The investors have a percentage of equity share in the property. Emphasis is placed on investment returns through property appreciation and rental income. A deeded interest in the property is included with the ownership. In this model, the investors have an opportunity to share both the usage time of the property and its financial performance. This can be clearly noted in luxury vacation homes wherein the investors can personally use the property while reaping its financial benefits.

Use-based Shares

This fractional ownership is based on the right to use the property for certain days or weeks per year, emphasizing personal usage other than financial returns. Ownership is often paired with a contractually agreed-upon right of usage and direct ownership. This is often used with vacation properties where owners can take regular vacations.

Syndicated Shares

In syndicated shares, investors pool their resources to acquire larger properties, typically managed by a professional syndicator. This model combines usage and financial return and focuses on larger-scale investments. Investors own a share of the syndicate, which holds the title to the property. 

Common examples include commercial real estate or multifamily apartment complexes managed by a syndication company. This model enables an investor to acquire a share of high-value property with professional management and share in usage and financial benefits.

How Fractional Ownership Compares with Traditional Real Estate Investments

Fractional ownership, like any other form of traditional real estate investing, has differences that make it more or less appropriate for specific investors. We’ll break down how fractional ownership differs from the traditional model below:

Timeshares vs Fractional Ownership

While timeshares and fractional ownership are often confused with one another, they meet different needs and provide different advantages. Timeshares are basically for holiday or vacation use. They grant the purchaser the right to use a property for a specified period, usually a week, every year. Normally, most of the timeshares do not grant an ownership interest in the property, so there is little or no possibility of financial return from property appreciation or rental income. 

On the contrary, fractional real estate ownership is an investment and usage model. While both models provide a kind of shared use of high-value properties, fractional ownership combines the advantages of personal use with real estate investment benefits, hence making it more versatile and potentially highly lucrative compared with timeshares.

Tips for Investing in Fractional Ownership Real Estate 

Fractional ownership is a strategic way to invest in real estate without many burdens associated with outright ownership. That means diversification into a portfolio and the potential return on appreciation in value and rental income make it a great investment opportunity. Success in fractional ownership requires careful planning, just like any other investment. The following are some of the essential tips to consider when handling fractional ownership:

Tip 1: Thorough research

Research the property and the market conditions before you get involved in investment. Investors need to understand the fractional ownership structure and specifics of the property and its location. This will assist in making an informed investment decision and enable an investor to project the returns that may be generated through the investment.

Tip 2: Assess management

Ensure that the property is managed by a reputable and experienced management firm. Professional management impacts the property’s maintenance and profitability. Look for firms with a good track record managing similar properties.

Tip 3: Understand the costs

Clearly mention all ongoing expenses, including maintenance fees, property tax, or management fees. These could reduce your return on investment, so make sure to incorporate these into your financial planning.

Tip 4: Review legal agreements

Go through all the legal documents concerning the fractional ownership arrangement. These documents will specify your rights, duties, and usage constraints. Consulting a real estate attorney can add more assurance to your interest protection.

Tip 5: Exit strategy evaluation

Be aware of the terms for selling your share and the restrictions involved. Some fractional ownership arrangements will have a secondary market for trading shares, while others might require holding your share for a certain amount of time before selling. Knowing your exit options will help you plan for any kind of liquidity or future financial needs.

Tip 6: Consider the investment horizon

Consider the investment time frame and goals. Fractional ownership can be long-term and should align with your financial objectives and time horizon. Ensure that the property and market conditions support such an expected investment duration.

Tip 7: Diversify your portfolio

Diversification reduces risk and increases returns. To balance out the potential risks and rewards, consider investing in a few different properties or in several types of real estate. The reduced capital requirement for real estate fractional ownership makes diversification much easier to achieve.

Tip 8: Staying current with the trends in the market

Keep yourself updated with respect to real estate market trends and economic factors that can possibly impact your investment. Noting the market condition regularly will help you decide at the proper time whether to hold, sell, or acquire more shares.

Frequently Asked Questions (FAQs)

Is fractional ownership a wise investment?

What are some drawbacks of fractional ownership?

Why invest in fractional ownership?

Bringing It All Together

Fractional ownership real estate provides access to valuable real estate investment opportunities without the high financial commitment and management responsibilities. Investors can benefit from expanded diversification, rental income, property appreciation, and professional management. 

However, it comes with its own set of trade-offs, like reduced control over property decisions and possible difficulties in selling shares for liquidity. Ultimately, fractional ownership is very good for those who want to break into the real estate market without the full issues that arise from traditional property ownership.

The post What Is Fractional Ownership in Real Estate (+ Investor Tips) appeared first on The Close.

What Is Cash Flow in Real Estate?

Cash flow in property investment simply refers to the difference between the money you take in and what you spend. Positive cash flow means your income exceeds your expenses, and negative cash flow indicates the opposite. 

It’s a very simple concept but fundamental to real estate investment practices. A positive cash flow will provide an investor with continuous income and financial stability to reinvest in more properties. Understanding cash flow from real estate will help you make informed buying, holding, and selling decisions regarding property.

Why Do Investors Care About Cash Flow From Real Estate?

Cash flow is the lifeblood of real estate investing. It will dictate whether the property will become a financial liability or an asset. Consistent cash flow can provide for mortgage, maintenance, and other expenses. This padding in your bank account will help safeguard against market downturns or other cost surprises. High cash flow properties will also appreciate over time and increase your overall portfolio. The objective of anyone diving into real estate investing is to get the highest return on their investments. 

How to Calculate Cash Flow in Real Estate

Any serious real estate investor must learn to calculate cash flow. The investor will use these equations to understand the property’s profitability and thus be able to make a decent investment decision accordingly. Beyond the cash flow formula, you can use other valuable calculations to enhance the analysis: the CAP rate and the 1% rule. Here are the formulas for the necessary calculations: 

Real Estate Cash Flow Formula

This formula helps determine the profitability of a property by calculating the net income after all expenses.

Cash Flow = Total Rental Income − Total Operating Expenses (Operating Expenses + Vacancy Costs + Repair Costs)

Example of positive cash flow: Imagine you own a rental property that generates $3,000 per month in rental income. Your monthly operating expenses, including mortgage payments, property taxes, insurance, maintenance, and management fees, total $2,000. 

Using the cash flow formula:

$3,000 − $2,000 = $1,000 (Cash Flow)

In this example, the property provides a positive cash flow of $1,000 monthly, indicating a profitable investment. 

Example of negative cash flow: Let’s take the example above with a property generating $3,000 per month in rental income, but now the monthly operating expenses are $4000 because this property has a higher property tax and additional maintenance that must be paid for monthly. 

Using the cash flow formula:

$3,000 − $4,000 = -$1,000 (Cash Flow)

This example showcases a negative cash flow that indicates this wouldn’t be a profitable investment. 

1% Rule Calculation

The 1% rule is a guideline for a quick and easy way to check that the rental income will more than likely pay off most expenses, indicating some possible positive cash flow. Keep in mind that it is an estimation. Here’s how to calculate it:

• Determine the purchase price: Find out the total cost of the property, including any closing costs and necessary repairs or upgrades.
• Calculate 1% of the purchase price: Multiply the purchase price by 1%.

Purchase Price × 1% (0.01) = Estimated Cash Flow

Example 1% rule calculation: Suppose you are considering buying a property for $200,000. To apply the 1% rule:

1% of Purchase Price = $200,000 × 0.01 = $2,000 (Estimated Cash Flow)

According to the 1% rule, the property should generate at least $2,000 monthly rental income to be considered a good investment. If the expected rental income meets or exceeds this amount, the property will likely provide positive cash flow, making it a potentially sound investment.

Cap Rate

Using the cap rate formula, also known as the capitalization rate, will be beneficial when comparing the potential return on investment among different properties. This calculation is more complicated and involves a few extra steps. 

Net Operating Income (NOI) / ​Purchase Price = Cap Rate 

Step 1: Determine net operating income (NOI): Calculate the annual rental income and subtract all operating expenses.

Total Rental Income − Total Operating Expenses = NOI

John owns a rental property that generates $3,000 monthly in rental income, totaling $36,000 annually. His annual operating expenses, which include mortgage payments, property taxes, insurance, and maintenance, amount to $1,000 per month, or $12,000 per year. Calculate his NOI below: 

$36,000 (Rental Income) − $12,000 (Operating Expenses) = $24,000 (NOI)

Step 2: Determine Purchase Price: Find out the total purchase price of the property. The total purchase price can include the property cost, closing costs, inspection fees, and necessary repairs or renovations.

$250,000 (Property Price) + $15,000 (Closing Costs) + $34,600 (Repairs/Renovations) + $400 (Inspection Cost) = $300,000 Purchase Price

Step 3: Calculate the Cap Rate using the above formula (NOI / Purchase Price = Cap Rate)

$24,000 (NOI) / $300,000 (Purchase Price) = 0.08 or 8% (Cap Rate)

In this example, the property has a cap rate of 8%. This percentage means the property generates an 8% return on investment based on its net operating income. A higher cap rate generally indicates a more profitable investment.  

What Factors Affect Cash Flow? 

Several factors may impact cash flow in real estate investing, so it will be important to understand the variables to maintain positive cash flow. Here are the critical elements that influence cash flow most:

• Expenses: Large negative cash flow items include operating expenses like mortgage payments, property taxes, insurance, maintenance, utilities, and property management fees. Other current and nonrecurring expenses that impact your profitability might include major repairs or emergency maintenance.
• Rental income: How much you can charge for rent depends on location, property condition, and market demand. High vacancy or high turnover rates lower rental income, hurting cash flow.
• Rental vacancies: The more vacant a property is, the less rental income will be collected. Effective tenant retention strategies and rigorous screening processes will help minimize vacancies and keep cash flowing.
• Market conditions: Economic conditions, interest rates, and local real estate markets drive rental rates and property values. Shifts in these can negatively or positively affect cash flow.
• Property management: Good property management keeps rent collection, maintenance, and tenant relations in check to provide steady cash flow. Poor management increases vacancies and raises expenses, which will cut profit margins.

By keeping these factors in control, investors can have an inflow of cash to make real estate investing profitable and sustainable.

Baselane’s rent collection platform is an excellent avenue to stabilize your rental income. Baselane provides automated payment reminders and seamless online payment options to minimize late or missing payments. This ensures timely reception of your rental income every single time. The platform also provides detailed tracking and reporting features that allow landlords to monitor payments and manage finances more efficiently. 

Baselane will help property owners maintain consistent income, reduce administrative work, and focus more on growing real estate investments.

Tips to Increase Cash Flow

Increasing cash flow in real estate requires raising income and reducing expenses. Having a strategic approach to managing your properties as a part of your investing business plan can radically improve profitability. Here are some hands-on tips for maximizing the cash flow of your real estate:

• Increase rental income: Renovate the property, add amenities, consider short-term rentals, and adjust the rent to make it more marketable.
• Reduce vacancies: Enforce tenant screening and incentives for lease renewal, and maintain good relations with tenants.
• Lower operating expenses: Check insurance rates, compare property management fees, maintain the property, and invest in energy-efficient upgrades.
• Optimize financing: Refinance your loan, pay off that high-interest debt, and find alternative ways to finance your purchases.
• Increase efficiency: Implement real estate management software, preventative maintenance, and monitor cash flow regularly.

Frequently Asked Questions (FAQs)

What is a good cash flow ratio in real estate?

How do you make sure a property's cash flows?

What type of real estate has the most cash flow?

Bringing It All Together

Positive cash flow in real estate is considered the central factor in any successful property investment. After all, the objective of investing is to make money, right? Every investor must take time and perform due diligence before investing in any property. That includes performing market analysis, properly calculating potential income and expenses, and considering improvements needed for the property to gain a higher rental value. 

Look for properties with potential for solid cash flow, such as multifamily units or short-term rentals in hot spots. Run those properties professionally, tracking their financial performance closely to adjust your strategy as you go. Keeping an eye on financial performance and tweaking your plan as needed will help keep that cash flowing to ensure your real estate ventures are not just profitable but can also provide you with some enjoyment.

The post Cash Flow in Real Estate: Overview, Definition & Calculations appeared first on The Close.

What Is the BRRRR Method?

“BRRRR” is an acronym for buy, repair, rent, refinance, and repeat. It can be done by anyone who can purchase a property, allowing investors to build equity immediately after renovating or repairing it by doing a cash-out refinance. Plus, the exact process can be repeated over and over, massively increasing your equity and investment portfolio.

The price of rent has jumped 30.4% nationwide between 2019 and 2023, so renting out a property is likely to be profitable. However, learning as much as possible before diving into any real estate investing strategy is always important. To find out if BRRRR is right for your next project, check out Kiavi’s free Breaking Down BRRRR e-book below. It covers the method’s pros and cons, tips for getting the right loan for your project, and even the best home rehab trends to attract high-income tenants.

Why the BRRRR Method Is an Excellent Investment Strategy

BRRRR investing enables you to build a portfolio without buying properties in cash. Because you will do a cash-out refinance once the property has been renovated and leased, you’ll make a quick profit that you can use to reinvest in another property while enjoying the advantages of owning a rental. 

When done correctly, the BRRRR method can grow your net worth, generate passive income, and eventually lead to financial independence by enabling you to own and rent real estate uniquely and continuously. Here are some of the more specific pros and cons of using the BRRRR strategy to invest in real estate:

How to Use the BRRRR Method

Let’s take a closer look at the BRRRR, meaning going through it step-by-step. While the process is relatively simple in theory, finding the right property, renovating, financing, and managing a rental can be challenging—even for experienced real estate professionals. Let’s dig into each part.

1. Buy

For the BRRRR method to be profitable, you have to find the right undervalued property. Look for homes you can do low-cost improvements on to increase their value, which will increase your equity in step 4. The more discounted a home you can secure, the more equity you’ll have at this step in the process.

Also, look for properties likely to rent out easily and quickly. For example, condos or apartments near a university will be in high demand. Once you’ve found an undervalued property, it’s time to consider the best option for financing. The typical finance options for the BRRRR method are as follows:

• Hard money loans: These loans are typically short-term and come from a private, non-bank lender. The application process for hard money lenders differs from a typical mortgage; the lender will prioritize the property’s investment potential over your credit. Interest rates are generally much higher than a typical mortgage, generally between 10% and 18%.
• Cash: This means that you would not use any financing and would simply pay for the property entirely in cash. 

Rule of 70%

A smart investment rule of thumb is the Rule of 70%. This rule says you should only spend 70% of the property’s after-repair value (ARV) minus repair expenses. For example, if you’re looking at a $400,000 investment property that requires $80,000 of repairs and renovations, you shouldn’t spend more than $200,000 on it. Ideally, the remaining 30% can be used on closing costs and realtor commissions while still leaving a healthy profit leftover.

2. Rehab

The rehab or renovation part of the process is the part that requires the most elbow grease—but not necessarily your own! Focus on renovations and repairs with the lowest costs that will make the property attractive to tenants. You should know how much you have to spend on repairs after purchasing the home.

The rehab process has three main parts:

• Finding a trustworthy contractor: You’ll need a professional contractor with experience with the types of repairs and renovations you need. Ask other investors and realtors for their recommendations, and then build a relationship with a contractor you can (hopefully) use again.
• Staying on schedule and on budget: Renovations always take time and money. Plus, the longer a renovation takes, the higher your carrying costs. Keeping your project on track is possible, but it takes plenty of work.
• Maximizing your ROI: Make sure you choose the renovations that will have the best ROI and set the property up for long-term success.

3. Rent

If you were doing a fix-and-flip, this is the time you would sell the home. However, with the BRRRR method, this is when you turn your property into a cash-generating asset by finding tenants and renting it out.

You will have to move relatively quickly here because, at this point, your expenses will likely be chewing a hole in your wallet. Make sure you analyze your cash flow thoroughly as you price your new rental. You could hire a property management company to market your property and screen renters, or you can do it yourself with the sales, finance, and communication skills you’ve learned as a real estate agent. 

4. Refinance

After your property has been refurbished and leased, do a cash-out refinance to turn the equity in the house into cash. This moment is when the BRRRR method literally proves its worth in profits! Not only does this save you money, but cash-out refinances also have a lower interest rate than a home equity loan or line of credit (HELOC). Plus, you can deduct the interest from your taxes.

5. Repeat

If you want to build a real estate investment portfolio, you can use the money from the refinance as a down payment on your next BRRRR property. This time, you’ll have more expertise, a growing network of contractors, and a cash-generating rental property under your belt. You might even use the BRRRR method to create a large rental portfolio. By choosing smart properties and the right renovations, the sky’s the limit.

Frequently Asked Questions (FAQs)

What is the 70% rule for BRRRR?

What are the disadvantages of BRRRR?

Is the BRRRR method worth it?

Bringing It All Together

The BRRRR method is an excellent real estate investing strategy that can help agents become investors, build equity, and scale their investment portfolios quickly. However, it takes a lot of time, research, and effort to do it successfully. Make sure you thoroughly research and plan each step of the process using our guide to be successful. Good luck!

The post What Is the BRRRR Method & How Does It Work in Real Estate? appeared first on The Close.

• Baselane: Best for the free subscription and accounting tools
• Hemlane: Best for an all-in-one solution and intuitive interface
• PayRent: Best for secured online rent collection
• TenantCloud: Best for mobile app
• Avail: Best for next-day rent payment feature

The Close’s Top Picks for Best Online Rent Payment Services

Online Rent Payment Software	Best for	Starting Monthly Price	Learn More
	Free subscription and accounting tools	Free	Visit Baselane
	All-in-one solution and intuitive interface	Free	Visit Hemlane
	Secured rent collection	Free	Visit PayRent
	Mobile app	$15.60 (billed annually)	Visit TenantCloud
	Next-day rent payment	$0 per unit	Visit Avail

Online Rent Payment Software	Best for	Starting Monthly Price	Learn More
	Free subscription and accounting tools	Free	Visit Baselane
	All-in-one solution and intuitive interface	Free	Visit Hemlane
	Secured rent collection	Free	Visit PayRent
	Mobile app	$15.60 (billed annually)	Visit TenantCloud
	Next-day rent payment	$0 per unit	Visit Avail

Baselane: Best for Free Subscription & Accounting Tools

Pros

• Offers tenant portal
• Is mobile-friendly
• Has automated reminders and late fees
• Allows tenants to enroll in auto-pay
• Directly deposits payments within 2-5 days

Cons

• Lacks rental applications
• Lacks mobile app
• Requires a fee for applicant screening
• Lacks 24/7 customer service

The Close Score

4.9

Pricing:

5.0

General Features:

3.7

Advanced Features:

4.5

Ease of Use:

4.5

Help & Support:

4.5

Customer Rating:

4.2

Expert Score:

4.5

out
of

5

Why I Chose Baselane

• Baselane Pricing: Free for banking, online rent collection, and bookkeeping

Baselane ranked first as the best online rent payment service for its free subscription with no monthly fees or minimum balances. Not only does it send automated payment reminders to tenants, but it also deposits payments directly into your bank account within 2 to 5 days. I also love that tenants can pay rent on any device through ACH bank transfer or debit or credit card and easily enroll in auto-pay. On top of that, Baselane provides real-time cash flow, performance tracking, and auto-generated financial and tax reports.

Additional Features

• Baselane checkbooks: Order checkbooks directly for any Baselane checking account, eliminating the need for third-party providers. Each order includes 80 high-security checks.
• Create and e-sign lease agreements: Baselane and Rocket Lawyer team up so you can easily make, save, and sign lease agreements in Baselane. You can also invite others to sign.
• Send checks online: Securely pay vendors and bills from your Baselane checking account by sending checks directly. Just enter the payment amount, recipient’s name, and address, and Baselane will print and mail the check for you.

Hemlane: Best for All-in-One Solution & Intuitive Interface

Pros

• Has comprehensive property management software
• Offers 14-day free trial
• Has flexible pricing
• Has rental advertising feature
• Has applicant tracking and tenant screening tools

Cons

• Lacks mobile app
• Lacks live chat and 24/7 customer support
• Has limited scalability

The Close Score

4.8

Pricing:

5.0

General Features:

5.0

Advanced Features:

4.5

Ease of Use:

4.5

Help & Support:

3.0

Customer Rating:

4.5

Expert Score:

2.8

out
of

5

Why I Chose Hemlane

• Hemlane Monthly Pricing (based on annual billing, monthly billing available at higher rate):
  • Free Forever
  • Basic: $30
  • Essential: $48
  • Complete: $96

Hemlane provides a one-stop solution, including online rent collection service, maintenance coordination, tenant screening, and financial reporting. With its easy-to-use interface and flexible pricing, including a free plan, Hemlane is ideal for landlords prioritizing efficiency and peace of mind. What’s more, Hemlane enables online rent payments through ACH and credit cards, ensuring timely payments with automated reminders and late fees. Landlords receive payments directly deposited into their accounts without any deductions.

Additional Features

• Maintenance Coordination: The platform has a 24/7 service for managing maintenance requests. Hemlane’s team handles tenant repair requests, works with preferred service professionals, and ensures clear communication and timely solutions.
• Financial Reporting: It helps landlords track income and expenses and generate detailed financial reports. It also integrates with accounting software for seamless financial management.
• Marketing and Listing: Hemlane promotes rental properties on popular listing websites like Zillow, Trulia, Hotpads, and Zumper. This increases property visibility and helps attract potential tenants.
• Tenant Screening: Hemlane thoroughly screens potential tenants, including background checks, credit reports, and eviction history. This helps landlords choose reliable tenants.

PayRent: Best for Secured Online Rent Collection

Pros

• Can collect security fees or deposits
• Has automated late fee assessments
• Has online rental applications and tenant screening
• Sends rent reminders and past due notices

Cons

• Lacks mobile app
• Lacks third-party integrations
• Can’t generate leases
• Lacks 24/7 customer support

The Close Score

4.8

Pricing:

5.0

General Features:

4.2

Advanced Features:

5.0

Ease of Use:

3.7

Help & Support:

4.0

Customer Rating:

2.5

Expert Score:

4.2

out
of

5

Why I Chose PayRent

• PayRent Monthly Pricing:
  • Pay-As-You-Go: $0
  • Do-It-Yourself: $19 (try free for 7 days)
  • Go-Like-A-Pro: $49 (try free for 14 days)

Keep your transactions secure with PayRent’s safe payment methods. Easily accept credit cards or bank transfers from any US-based bank or credit union without having to share your personal information with your tenants. With RentDefense, effortlessly collect rent while enjoying exclusive payment controls and protections. Plus, the platform offers convenient features like recurring payment options and direct deposit into your bank account, ensuring that you receive timely and reliable rent payments.

Additional Features

• Account balance tracking: Renters can easily check their account status using PayRent’s online rent payment services. They can see how much they owe, upcoming charges, and payments. Landlords and renters can access these digital records to ensure agreement about the account status.
• Split payments: Tenants can divide their rent payments between multiple payment methods.
• Tenant applications and screening: Landlords can get critical information about potential renters and their backgrounds through one of our in-app application partners. This includes personal and household details, employment and income, residential history and background, credit score, criminal history, and evictions.

TenantCloud: Best for Mobile App

Pros

• Allows you to add multiple bank accounts
• Allows you to manage refunds and discounts
• Has autopay for tenants
• Has rent reporting to credit bureaus
• Has maintenance management

Cons

• Lacks live chat and 24/7 customer support
• Has no individual owner portal in starter and growth plans
• Has team management tools only in business plan

The Close Score

4.8

Pricing:

3.5

General Features:

5.0

Advanced Features:

5.0

Ease of Use:

5.0

Help & Support:

3.0

Customer Rating:

4.1

Expert Score:

4.5

out
of

5

Why I Chose TenantCloud

• TenantCloud Monthly Pricing (based on annual billing, monthly billing available at higher rate):
  • Starter: $15.60
  • Growth: $29.30
  • Pro: $50.40
  • Business: Contact for pricing

Check out the TenantCloud mobile app for iOS and Android—it’s completely free! With this app, efficiently manage your dashboard, team, rent collection, and tenant screenings without constantly logging in and out of your account. TenantCloud makes it easy for landlords and tenants to manage rent payments online. It offers direct bank transfers, ACH payments, credit/debit card options, and payment tracking. I also love that tenants can set up Auto Pay, and landlords can customize payment settings, late fees, and payment allowances.

Additional Features

• Rental accounting: Store, organize, find, and summarize financial information. You can easily track property transactions and balances, schedule invoices, late fees, and receipts, apply deposits, refunds, and discounts, and export all your account data to a ZIP file.
• Financial reports: Landlords can use Schedule E and other tax reports to manage their taxes. They can also generate and send 1099 tax forms to recipients digitally through their accounts. Additionally, they can synchronize income and expense transactions with QuickBooks for better task management.
• Rental applications: Tenant applicants can send their applications to your TenantCloud account. Then, you’ll review and approve the applications. Modify the application form to ask about basic things like living and work history, income, and references. You can also ask for an application fee and check their background and credit to make the process faster.

Avail: Best for Next-day Rent Payments

Pros

• Does not require technical skill to launch the platform
• Has free and budget-friendly pricing per unit
• Has rental application screening tools
• Has a user-friendly platform
• Offers comprehensive and customizable tenant screening reports

Cons

• Lacks third-party integrations
• Lacks mobile app
• Lacks 24/7 customer support
• Offers limited plan only
• Lacks free trial for the paid subscription plan

The Close Score

4.7

Pricing:

3.0

General Features:

5.0

Advanced Features:

5.0

Ease of Use:

3.7

Help & Support:

4.0

Customer Rating:

4.3

Expert Score:

5.0

out
of

5

Why I Chose Avail

• Avail Monthly Pricing:
  • Unlimited: $0 per unit
  • Unlimited Plus: $9 per unit

Experience the convenience of Avail FastPay, where landlords can receive funds as quickly as the next business day. With Avail’s online rent payment services, you’ll enjoy specialized deposit and fee collection, automatically generated payment receipts and confirmations, and seamless setup for recurring payments. Landlords can also set up rent reminders and notifications, auto-assess late fees (one-time or recurring), and allow rental payments to be reported to credit bureaus with CreditBoost.

Additional Features

• Property accounting: This feature allows landlords to track their finances accurately. Landlords can see how much money their rental properties make and their running costs. Avail’s system will automatically populate your dashboard with payments and maintenance expenses.
• Maintenance tracking: Avail’s maintenance tracking feature includes instant messaging for tenant communication in the app and automatic email notifications for landlords or contractors when maintenance requests are submitted. It also provides status updates on maintenance tickets and allows landlords to add expense details for better financial organization.
• Leasing agreements and online signatures: Avail offers state-specific lease agreement templates that comply with landlord-tenant laws. The system converts your preferences into a binding contract and allows for digital signatures from tenants. Other features include locally generated clauses, unlimited document attachments, and print and PDF lease generation.

Methodology: How I Chose the Best Online Rent Payment Services

I evaluated the best online rent payment services by using a weighted rubric created by our team of licensed real estate professionals, writers, and editors. Our team spent hours researching dozens of companies and assessing each based on the most impactful elements for landlords, tenants, and property managers. Here are the criteria we used for our evaluations.

• Pricing (25%)
  • I looked at the average price per unit or month for subscription plans and if the software offers a free trial.
• General Features (10%)
  • I evaluated each company’s main features, like rental listing management, rental applications, applicant screening, generating leases, maintenance requests, and tenant portal.
• Advanced Features (30%)
  • I assessed whether the platforms offer direct deposit, autopay, free ACH, collection of security deposits and pet fees, and accept payments via debit/credit card or bank account. I also evaluated if each software features automated payment reminders, automated late fees, and the ability to accept partial payments. Additionally, I checked if each platform has payments available the next business day, payment tracking and reporting, and personal vs. business expense tracking.
• Ease of Use (10%)
  • It is based on how easy it is to navigate the provider interface and whether it provides hassle-free transactions and communication between property owners and tenants. It also considers if the platform offers a mobile app, third-party integrations, and an automated system.
• Help & Support (10%)
  • We looked into the convenience and attainability of customer service for technical and customer support.
• Customer Rating (10%)
  • I read software reviews after taking it for a test drive to evaluate others’ experiences compared to my own. I take that additional feedback into account when assessing any software. 
• Expert Score (10%)
  • I give extra credit for any standout features not covered in the above categories. 

Your Take

Online rent payment services offer landlords the tools for seamless rent collection. With secure online payments, automatic reminders, and detailed reporting, landlords can improve their rental management experience. It’s time to take the hassle out of rent collection and elevate your landlord game.

Share your thoughts in the comments section—let’s make rent collection a breeze!

The post 5 Best Online Rent Payment Services for 2024 appeared first on The Close.

What Is Project Management in Real Estate? 

Project management is an essential element of successful businesses in practically every industry, but there are specific skills and tasks for project management in real estate. Real estate project management refers to coordinating, planning, and overseeing a project from start to finish. Of course, real estate projects can vary drastically for sales agents, brokers, construction projects, or investors.

For example, a few types of real estate projects include the following:

• Acquiring commercial property for development
• Basic residential building construction
• Interior design remodeling projects
• Building commercial properties such as retail, medical facilities, or factories
• Building multifamily homes
• Developing raw land

Importance of Project Management for Real Estate 

Think of all the ways that a typical real estate deal can fall through, then multiply that number by 10. The potential is endless! Commercial real estate projects inevitably have construction setbacks, communication snafus, permitting issues, and so much more—especially without the guidance of a PM.

There were approximately 919,000 construction sites across the US in the first quarter of 2023. With such a high number of ongoing projects, the need for property project management is higher than ever—just think about the impact that such a large number of real estate developments could have on the economy.

What Are the Duties of a Real Estate Project Manager? 

Not all brokerages or companies have a dedicated real estate PM, but it can be an incredibly valuable role. A PM wears many hats to oversee each project’s progress. A few of their primary duties are as follows:

• Project planning: A PM should identify a project’s goals and objectives to create specific tasks, checklists, and timelines. Planning is particularly important in commercial real estate project management.
• Resource management: Budgeting and proper resource allocation are essential to project management real estate success. A PM establishes a budget from the beginning and ensures that all expenditures throughout the project stay on track.
• Schedule management: Construction projects are notorious for missing deadlines and taking longer than anticipated. A considerable part of a PM’s job is to track a project’s progress and ensure deadlines and milestones are met on time.
• Collaboration and communication: A PM is, by nature, the go-to role between investors, brokers, bankers, contractors, and all other parties involved. It’s important for them to have good communication skills to effectively communicate between all parties and ensure everyone is consistently looped in. Most PMs benefit from using real estate apps to help them manage collaborations.
• Data collection: Since PMs typically work on multiple projects and the same types of projects, having data is absolutely essential. PMs should be skilled at gathering, interpreting, and applying real estate data analytics, such as competition, costs, housing market trends and changes, and relevant industry trends.

Tips & Tools for Project Management in Real Estate

A real estate PM is ideal for large teams and companies but isn’t always possible for growing agents and brokers. If hiring a PM role isn’t in the cards yet, plenty of options exist to help with your project management tasks. Here are the most essential tips and tools to manage projects for individuals and teams.

Tip 1: Set Clear Expectations

Since project management in real estate varies so much and encompasses various tasks and roles, a successful PM will immediately set clear expectations. Expectations include communicating with all parties and creating solid legal contracts. Project managers don’t need to be legal professionals, but they should do plenty of due diligence to prevent major issues before, during, and after the project.

Tip 2: Establish Clear Communication Channels

Communication is one of the primary roles of a PM. Since many different parties are often involved in each project, the manager should create one or two places where parties can communicate with them or with all involved parties. This involvement prevents missed messages, wasted time, and miscommunications.

Tip 3: Build a Strong Team

Real estate project management connects to every part of a project, from finances to construction to sales. If team members aren’t carrying their load, the project management tasks can become overwhelming for even the best manager. It’s important to have strong experts in each area of the project so the manager can focus on keeping the wheels running smoothly—not on trying to compensate for lacking areas.

Tip 4: Strategically Choose the Right Project Management Tool

Since residential and commercial real estate project management includes such a wide variety of tasks, choosing the right tools will be instrumental. From using a customer relationship manager (CRM) for follow-ups and communication to using predictive analytics tools to market to new leads, the software is vital for dedicated PMs or individuals who need support to manage their tasks.
A few of the best real estate software for project management include the following:

Platform	Best for	Key Features	Starting Monthly Price	Ready to Purchase?
	PMs or agents who want a user-friendly interface with a free plan	Built-in project and resource management tools Collaboration features Various third-party integrations	Free	Visit ClickUp
	New PMs or small teams wanting an affordable option with basic management features	Affordable pricing Various automation Customizable Gantt charts to keep your timeline organized	Free	Visit Zoho Projects
	PMs and agents wanting an all-in-one CRM to organize and manage contacts	Lead scoring & routing Built-i n team collaboration tools Over 250 third-party integrations	$58 per user	Visit Follow Up Boss
	Professionals wanting a real estate-specific CRM with visual calendars and pipelines	Easy-to-use platform Customizable onboarding and automation Detailed planning and reporting tools	$24 per user	Visit Pipedrive

Platform	Best for	Key Features	Starting Monthly Price	Ready to Purchase?
	PMs or agents who want a user-friendly interface with a free plan	Built-in project and resource management tools Collaboration features Various third-party integrations	Free	Visit ClickUp
	New PMs or small teams wanting an affordable option with basic management features	Affordable pricing Various automation Customizable Gantt charts to keep your timeline organized	Free	Visit Zoho Projects
	PMs and agents wanting an all-in-one CRM to organize and manage contacts	Lead scoring & routing Built-i n team collaboration tools Over 250 third-party integrations	$58 per user	Visit Follow Up Boss
	Professionals wanting a real estate-specific CRM with visual calendars and pipelines	Easy-to-use platform Customizable onboarding and automation Detailed planning and reporting tools	$24 per user	Visit Pipedrive

Frequently Asked Questions (FAQs)

How do I break into real estate project management?

How do you manage a real estate development project?

What is the difference between a real estate developer and a PM?

Bringing It All Together

When most people hear about real estate project management, they just raise their eyebrows and think, “What is that?” Even though it’s not a well-known or well-understood role, PMs are essential for keeping real estate projects on time and within budget. Using the project management tips suggested above or working with a dedicated PM, you can complete projects (almost) seamlessly.

The post The Complete Guide for Real Estate Project Management appeared first on The Close.

What Does a Property Manager Do?

Generally, a property manager manages rental properties, which can include either commercial or residential properties or units. Property management is extremely important and is often the core of what makes a rental successful for the investor and the tenants. Property managers are usually employed by property management companies or real estate firms, and they handle many properties and units simultaneously.

The responsibilities of a property manager include: 

• Marketing and advertising vacant properties
• Screening potential renters
• Developing lease agreements
• Showing the property or units to potential renters
• Coordinating move-in and move-out inspections
• Handling communications between the tenant, maintenance teams, or owners
• Collecting rent payments and deposits
• Maintenance and repairs of the property

Pro Tip: Since property management is a salaried position you can get with a real estate license, it can be a great option for new real estate agents who don’t have the financial cushion to focus on real estate sales alone. You can be a part-time real estate agent and a part-time or full-time property manager. Although the positions are very different, you can learn a lot about the real estate investment industry by getting into property management.

How Much Do Property Managers Make?

The average salary of property managers in the US is around $50,000 to $55,000. However, like most jobs, the salary can range significantly depending on the location, your experience, and the type of property management you do. However, here are the averages found from a variety of reliable sources: 

• ZipRecruiter: US average of $58,335, with a range of $28,000-96,500
• Glassdoor: US average of $53,889, ranging between $47,000-75,000
• Payscale: US average of $55,831, with a range of $36,000-82,000

Another interesting fact about becoming a property manager is that many companies offer bonuses for specific criteria that ensure the properties stay profitable with high occupancy and renewal rates. This benefit of property management could make it an ideal real estate side hustle. These bonuses can be offered per lease, quarterly, or annually. One study reported that the average property management bonus rate is 12.9%.

Steps of How to Become a Property Manager

If you’re wondering how to get into property management, the process varies slightly from state to state. Interestingly, some states require official licenses, like a real estate license and/or a property management certification, and other states have almost no requirements. Here are the general steps to learn how to become a property manager.

1. Learn About Each Type of Property Management Certification

The first step to answer “How do I become a property manager?” is to understand the different types of management certifications available. Not all positions require a certification, but knowing this information will help you figure out how to become a property manager.

A few of the most common property management certifications and niches are:

• Certified Property Manager (CPM): This is the most well-known certification for general property managers who want to handle a variety of residential and commercial properties.
• Accredited Residential Manager (ARM): This certification, specifically for residential property managers, is ideal for getting a job or improving your skills quickly when you’re new to the industry.
• Certified Apartment Leasing Professional (CALP): This certification is for experienced property managers who want specialized education in leasing and managing apartment complexes.
• Master Property Manager (MPM): This is the most advanced certification available for property managers. It requires at least five years of consistent property management experience. Property managers with this certification are typically the industry leaders and the highest earners.

There are even more property management courses and certifications that will help you increase your success in the real estate industry. Check out national associations like the National Association of Realtors (NAR), the National Association of Residential Property Managers (NARPM), the Institute of Real Estate Management (IREM), and the National Apartment Association (NAA).

2. Define the Key Qualifications to Become a Property Manager

Learning how you become a property manager can be confusing because each state and property management company has different requirements and qualifications. However, a few general requirements are similar to getting your real estate license.

Some of the most common requirements to become a property manager are:

• Being at least 18 or 21 years of age
• Having a minimum of a high school diploma or GED equivalent
• Being a legal US citizen or permanent resident
• Passing a criminal background check
• Completing a certain number of hours of real estate license coursework and a passing score on the Real Estate Licensing Exam (although there are exceptions; see section below for more info!)

3. Complete Your State’s Requirements

The requirements to become a property manager vary drastically from state to state. In many states, property managers must have a real estate license and/or a property management license—this includes managing short-term rentals like Airbnb and VRBO. 

However, in four states (Idaho, Vermont, Kansas, and Maine), the only requirement is being over 18 and having a high school diploma. In addition, many states won’t require you to be licensed if the property you manage is a property you own (such as an Airbnb). Here are a few examples of requirements across different states:

4. Find a Property Management Position

Once you have the requirements to become a property manager, celebrate! It’s time to start applying for positions. One of the best ways to find a property management job is by connecting with local real estate brokers, agents, and investors. Even if you want to start your own property management business, you may want to learn the ropes inside of a company at the beginning of your career. Other than using your connections, property management positions are almost always posted on job listing sites like Glassdoor, Indeed, and LinkedIn.

Keep in mind that your first property management position doesn’t have to dictate your entire career. If you decide to go out on your own, switch brokerages, or go for a different property management position, you can do that with no penalty.

5. Find the Right Property Management Software

Whether working for a brokerage or independently, having the right software is essential for growing your real estate business. Many property management tools offer features for everything from marketing to lead management to accounting.

For example, TenantCloud includes tenant screening, rent collection tools, communication portals for maintenance and communication, and easy-to-read marketing and financial tracking reports. It may be the all-in-one tool you need to be a successful property manager.

6. Stay Up to Date

The best way to flourish in the property management industry is to stay educated about industry trends, regulations, and best practices and to continually improve your skills. There are plenty of resources for property managers, like networking events, seminars, and continuing education courses. Plus, taking courses and earning certifications is a great way to stand out and increase your success and earnings even if you stay at the same company.

You might also consider joining a local professional organization for property managers, such as the National Association of Residential Property Managers (NARPM) or the Institute of Real Estate Management (IREM). These organizations will give you access to training, resources, and networking opportunities to help you grow in the business. 

Bringing It All Together

Overall, learning how to become a property manager is doable for anyone interested in real estate and willing to put in the time and effort. It’s a great career that can help you learn more about the industry and provide consistency for aspiring real estate agents.

The post How to Become a Property Manager in 6 Easy Steps appeared first on The Close.

The key for investor-friendly agents is to find the right real estate investors who will consistently close deals in any economic conditions and in your local market. It isn’t easy, but if you develop the skills needed to work with investors, you could position yourself to close 50 deals a year or more.

To help you get started, here are my six favorite (and proven) strategies I use to find a pipeline of real estate investors and close up to 10 deals a month.

The 6 Best Ways to Find Real Estate Investors in 2024

1. BiggerPockets 

• Cost: Free—$39 a month for the forum; $150 per lead for the Recommended Agent program
• Best for finding: Small private investors and small multifamily investors

BiggerPockets is the most popular real estate investing community in the nation, with a reputed million-plus members. Investors love to hang out on BiggerPockets for a couple of reasons. It’s a great place to get educated, find resources, and connect with other investors with whom they may partner or close deals. Also, the platform makes it easy to join and connect with others. 

How to Find Investors on BiggerPockets

There are two playbooks you can follow here: paid and free. I’ll explain the paid option first, where you buy monthly leads. 

1. Join the Featured Agent Program

BiggerPockets offers an agent promotion product that gives agents increased exposure on the site and allows investors to connect directly with a local investor-friendly agent recommended by BiggerPockets. It’s a steered lead program like Zillow Premier Agent.

The challenge is that the platform is so popular that the Recommended Agent product has become quite expensive. Not Zillow Premier Agent expensive, but starting to get there! Your budget will be around $3,000 per month for about 20 leads. At an estimated $150 a lead, you need to work every one. 

Tips for Converting Recommended Agent Leads

Here is a quick rundown of the strategies I use to convert leads from the Recommended Agent program:

1. Capture the prospect’s full contact details, including social profiles. BiggerPockets will send you this info in the lead form, but you need to confirm it and open the door to contacting the lead by phone, text, email and on social media.
2. Set up a Zoom or coffee meeting ASAP and turn your prospect into a warm customer or client.
3. Create a full investment profile and pre-approval mortgage application so you understand your client’s financial position and real estate investment goals.
4. Execute a buyer agency agreement and start visiting and touring potential deals.
5. Listen. Listen. Listen. Find out what your client really wants from their real estate investments. You’re in the people business and your client is a real living person with hopes and dreams. Think of each one as a long-term client who you will represent throughout their entire real estate investment and retirement journey.

If the client isn’t ready to buy, add them to a customized, low-touch drip campaign. Remember that no one wants to be “dripped on,” so take the time to segment your contacts and only deliver highly relevant content.

2. Network With Investors on The BiggerPockets Forum 

The free playbook on BiggerPockets is similar to how you would find real estate investors on a social network like LinkedIn. 

Tips for Finding Investors in BiggerPockets Forums

Give yourself a goal to meet five new investors a week. That’s an easy goal on BiggerPockets, and it will give you a warm lead list of around 100 quality new investors each year. Here’s how to get started.

• Connecting with investors on BiggerPockets is a long-term play. Build relationships slowly on a one-by-one basis.
• Spamming doesn’t work. If you promote yourself and add links in your posts, you will be kicked off the platform.
• Build out your profile to clearly identify yourself as an investor-friendly agent and local market expert.
• Include a professional profile photo or headshot.
• Include your contact details and links to your website and social profiles.
• Upgrade to their Pro membership ($39 a month) if you want to add contact details to your signature and profile bio.
• Add your business details to the business directory.
• Follow and connect with investors.
• Engage, comment, and add value to other investors’ posts on the forum. Make sure you don’t spam and make sure you get notified of each additional comment to the post thread. The post thread is a warm connection to other members who posted on the thread. Target posts with long reply chains as all commenters will see your comment. 
• It is easier to now message them directly and start a conversation about what they wrote on the thread.
• Publish your own posts in the forum and follow up with everyone who comments. BiggerPockets is “gamified” and rewards posts with engagement and “votes” by members.
• Set a keyword alert in the form and get notified of any new posts with that keyword. Focus on investors looking for investor-friendly agents and keywords for popular and specific real estate investment niches.

Always have a co-operative and sharing attitude. If you participate and give value, you will build your network and you will also be noticed by the admins and moderators on the site. At some point you may be invited to moderate or speak on a webinar or at an event.

2. Real Estate Investing Clubs

• Cost: Free to $200 a year
• Best for finding: Small private investors, niche private investors, and building your investment team

Your local real estate investment club is usually hands-down the best place for you to start networking and attracting new real estate investor clients. 

When I first moved to the Denver area, I was a networking superhero. I went to every real estate investment club meeting I could find and spent all my time in the lobby meeting investors instead of listening to the speaker (who was usually trying to sell me something). 

Within a period of about six months, I had a database of over 1,000 investors who closed about 10 deals a month with me. Building my database was one of the most important things I did to grow my real estate business.

Where to Find Local Real Estate Investing Clubs  

The best way to find local real estate investing clubs is to google “real estate investing clubs near me.”

3. Real Estate Investing Meetups

• Cost: Free to $30 a month
• Best for finding: Niche local private investors and new investors

In most urban areas, there are real estate investing meetup groups that focus on general real estate investing within a specific geographic area as well as specialized groups that focus on a niche investing strategy.

Most meetups are social events at a local coffee shop, restaurant, or brewery that you can attend free of charge (and often with a free beverage thrown in by the organizer). 

There may be a short education presentation, but usually it’s a meet-and-greet social networking event.  

Join multiple groups and start attending all their events. It’s a slow and time-consuming way to network, but one deal makes it all worthwhile.

How to Use the Meetup Model to Find Local Investors

The best way to build an investor list on Meetup is to start a group and serve as the admin. You will need an upgraded pro account, which costs $30 per month. As the group owner, you get to establish yourself in a position of trust and authority. You’ll also get help from Meetup as they will promote your group to members of other groups with similar interests. This is a huge growth driver as it gets your group in front of other real estate investors.

Group owners (with a pro account) can also harvest email addresses. It’s one of the easiest and cheapest ways to build a real estate investor list with contact details.

Don’t be afraid to start a more specialized or niche group. The five types of meetups that have enjoyed a lot of success are:

• Local area meetups like the Denver Real Estate Investor Meetup
• The BRRRR Meetup
• The House Hacking Meetup
• The Short-term Rental Meetup
• The Military or Veterans Meetup

The Meetup Model is basically the same for all groups. Meet, connect, get contact details, and convert attendees into clients.

4. Real Estate Investing Conferences

• Cost: Expensive
• Best for finding: Small multifamily investors, proptech investors, and institutional investors

There are numerous virtual and physical real estate investing conferences. The larger conferences attract thousands of investors and can last several days. It’s a great place to network and connect with real estate investors. Local investment conferences attract smaller audiences but are target-rich environments with serious local investors. You need to go where your investors go. 

How to Find Investors at Real Estate Conferences

I attend numerous conferences every year and have a whole playbook for how to find investors. Here is my proven 10-step checklist for networking at these types of events.

1. Come prepared: Before attending the conference, make sure you have business cards (or a digital card), look professional, and possess a clear idea of what you want to accomplish. Be prepared to introduce yourself, share your areas of interest or expertise, ask other attendees about their business, and have a 30-second elevator pitch prepared (but never use it until asked by the other person). 

2. Download the app: If the event has an event specific app or social media group, immediately join it and start researching and connecting with fellow attendees. This is a very powerful tool that can take your investor networking and database building to a completely different level, especially if the group is active and the conference organizer allows the sharing of contact information. It’s the closest you’ll get to a list of attendees. If an investor is willing to spend the time and money going to an event, they’re usually a strong and motivated lead. 

3. Start networking before the event: I create a database for every event. Build your lists and reach out to other attendees. If there is no event app, you can usually identify an attendee by joining the event social media group or following the event hashtag on social media. Set up meetings at the conference before you arrive.

4. Attend the right sessions: Look for events at the conference that are specifically designed for networking, such as cocktail parties, meet-and-greets, and roundtable discussions. These sessions are often less formal and offer a greater opportunity to connect with other attendees. 

5. Surf the lobby: The more experienced investors usually surf the lobby or the area just outside the presentation rooms. Most experienced conference attendees are worn out by educational seminars and can be found doing deals outside the seminars.

6. Partner with networkers: Identify the influencers and networkers in the room and do deals to share and combine your stacks of business cards and event databases. This will double and triple your contact list. The networkers are invaluable contacts, and tend to be influencers who know how to build lists.

7. If there is an expo, try to piggy-back off an existing exhibitor: Exhibitors pay a lot of money to be there, so find one with a popular table but no plan to collect visitor contact details. Then offer to pay for a raffle prize, like an iPad, for any visitors who share their contact details (like a business card). You pony up for the prize and the exhibitor (who paid for the booth) shares their contact list.

8. Be approachable: Smile, make eye contact, and be open to starting conversations with other attendees. Don’t be afraid to introduce yourself and ask questions about the other person’s background and interests. Wear a cap or T-shirt that invites other attendees to say hello to you. You’re there to promote yourself to investors, so don’t be afraid to guerilla market (without upsetting the organizers, of course).

9. Always offer value: When meeting other investors, try to find ways to help them with their business. Perhaps you have connections in a certain area or can offer advice on a particular topic. By offering value, you can build a relationship that may lead to future collaborations or deals.

10. Always follow up: During and after the conference, be sure to follow up with anyone you met. Send a brief text or email immediately after meeting an investor and again after the conference, thanking them for the conversation and suggesting a follow-up call or meeting. And always be sure to promptly send them any info you promised at the conference. Tag new contacts on social media and send out friend requests.

You need to be disciplined and follow this checklist for every event. Unless the event attendee list miraculously falls into your hands, you’re stuck doing the grunt work to connect with investors on a one-on-one basis.

My Recommended Conferences 

Two of my favorite real estate conferences are BPCON (for private mom-and-pop investors) and Blueprint (for proptech and institutional investors).

I also highly recommend and prefer local conferences. The best way to find them is a google search for “real estate investing conference near me.”

5. County Real Estate Records 

• Cost: Usually free (except in California)
• Best for finding: Small private investors, private lenders, wealthy investors, institutional investors, and proptech investors

Almost every county in the nation has created and maintains a database of every real estate parcel in its jurisdiction. County records provide a wealth of real estate data that can be useful by property investors, real estate agents, and other professionals in the industry.

Few agents truly understand the power of local real estate data. It’s my secret sauce for finding real estate investors and growing my investor-friendly real estate business. You can drop me off in any city and within a few hours, I’ll have a database with a minimum of a physical address for a hundred active investors.

Building Your County Property Database

Here are the types of data that are typically available from county records and will be particularly useful in your database:

• Property ownership: Owner’s name, property street address, owner mailing address and sale history
• Property characteristics: Physical characteristics of a property, including its size, number of bedrooms and bathrooms, age, and other features
• Property value: Assessed value of a property, which can be useful in determining its potential worth
• Tax information: Property taxes, assessed value, amount of taxes due, and the due date
• Deed information: Sales and legal transfer of property ownership, including the date of the transfer, names of the buyers and sellers, purchase price, and the owner mailing address
• Mortgage information: Mortgages or liens on a property, amount of the mortgage, and the identity of the lender
• Zoning information: Zoning laws and regulations that apply to a particular property
• Building permits: Data on building permits that have been issued for a property, which can be useful in understanding the history of any renovations or improvements that have been made

How to Use Property Data to Find Investors

I’m a huge fan of free public property data. It’s an invaluable resource for finding and working with investors. I maintain my own private property database, originally built from the public county database, for all the markets where I sell real estate. My private database includes all my notes and insights about every home and homeowner. It’s the source of my deep local market knowledge and expertise. Here’s how you can use public data to find real estate investors:

Step 1. Download the complete data set from your local county assessor or treasurer’s office. It is usually available from the county website, though they may charge a fee for the data. The data will come in an Excel or CSV spreadsheet. You now have a database that includes all the inventory in your town, plus all the potential sellers in your market. 

Step 2: Convert the list into a direct mail campaign using the mailing address and the property owner’s name. 

Step 3: Identify and highlight any potential investors. 

OK, so how do you know which homeowners are also investors? It will take you a minute to get a feel for who is an investor, but it gets much easier over time. Remember that every homeowner is by default also an investor. They are all candidates for your home wealth adviser services. Here’s what to look for:

• Homeowners who own more than one home: It’s a simple search to find duplicates on your spreadsheet to identify multiple owners. 
• Homeowners who paid cash or who have no mortgage: They may not be investors, but they have the financial ability to invest in your deals.
• Homes with mortgages from known private and hard money lenders. 
• Homeowners who hold title in a private trust or an LLC.
• Homeowners who have a different street and mailing address, especially an out-of-state mailing address.
• Pay special attention to small multifamily, condo, and townhome owners. It’s not uncommon for investors to own 25% to 40% of condo and townhome complexes.
• Start paying attention to rental websites. Set up alerts for all new rental listings and cross-reference each rental listing with your real estate database. Every rental is owned by an investor by default.
• Start paying attention to free licensing and permit data from your county. License data may be in a different dataset than the general property database. Look for rental, short-term rental, and accessory dwelling unit (ADU) permits and licenses. In my town of Boulder, all rentals require a license, so that’s an incredibly valuable database of 10,300 rental properties, all owned by investors.

Step 4: Work on getting contact details for all potential investors. This is the most difficult part of the action plan. You can do it gradually or you can develop marketing campaigns with lead magnets to capture contact details. Prioritize their cell phone number and email address as these are the cheapest ways to communicate with new prospects. You already have their street address, but direct mailers are expensive. Social media also works, but it is less effective. The goal here is to find a cheap and instant way to communicate with homeowners. It’s the holy grail of marketing—the ability to reach every homeowner for free at the push of a button.

How to Find Your County Database 

The county database is usually maintained by the county assessor or treasurer. It can also sometimes be accessed through the land planning department or their geographic information system (GIS) data engineer. If there isn’t a free way to download the full database, or you are limited to a few parcel searches, contact the county directly and ask for a copy of the database (in Excel or CSV format).  

6. FreedomSoft

• Cost: $197 per month
• Best for finding: Niche investors, out-of-state investors, vacant homes, foreclosed homes, private lenders, hard money lenders, and corporate investors

You can download raw property data from your county assessor and treasurer departments, but you can also subscribe to data services that will apply market analytics to enhance and organize the data into lead lists and marketing campaigns.

There are several specialized real estate data companies that are built to service the real estate investment industry. I like FreedomSoft because it allows you to search and organize data by recognized categories of investors. This includes:

• Known investors
• Out-of-state investors
• Vacant homes
• Foreclosed homes
• Cash buyers
• Private lenders
• Hard money lenders
• Trust and corporate owners
• Proptech investors
• Institutional investors

FreedomSoft also helps you set up skip tracing and marketing campaigns to contact each owner. Campaigns include direct mail, email, and text communications that flow to customized landing pages with lead capture and follow-up automation.

How to Vet Real Estate Investors  

The best way to determine the quality of potential investor leads is to look at their track record. The easiest way to do this is to look at public records to figure out what properties they own, together with how they financed the property. 

Another way to vet investors is to introduce them to your mortgage broker and financial planner and get them prequalified for deals. 

This step is important because you need to cut your losses and move on from investors who may be willing but are unable to invest. I’ve met investors who have told me they have been “investing for 10 years,” but when pressed, will admit to never having closed a deal. They tend to be conference and meetup junkies who want to invest but are too afraid or don’t have the resources to close on a deal. 

Working With Real Estate Investors 

Investors are tough clients as they require a higher level of attention and expertise in the marketing and financial side of real estate. You may spend a lot of time and money working on a deal that falls through due to no fault of your own. 

But there’s also a huge opportunity here in terms of the amount of commission you can expect to earn. Good investor agents will earn a high six-figure income. When compared to working with the traditional homeowners, unless you are a top 1% listing agent, there is so much more financial opportunity and so much less competition.

Here are five reasons to work with investors:

1. You May Only Need One Client

You only need one whale—a prolific client who can set you up for life. That client can be a wealthy private investor, a successful builder, an REO lender, an institutional investment fund, or a disruptive proptech startup with an innovative new real estate model.

Over the past decade, Wall Street-backed institutional investors have quietly snapped up hundreds of thousands of homes and now own and operate large property portfolios. Wouldn’t you like to be the agent on their deals?

2.  There Are Hundreds of Serious Investors in Your Market

There are serious real estate investors in every real estate market, including yours. Your challenge is to find them and convert them into clients. And now that you’ve read my guide, you know it’s surprisingly easy to do so. 

3.  There’s Less Competition

Most agents don’t have the mindset or skill set to work with investors. They only know how to work with traditional buyers and sellers, where they compete with hundreds of other agents on price and service.

But only 5% of investor-friendly real estate pros have the expertise to work with investors. This is the blue ocean where you get to fish with little competition, and where you don’t need to discount commission or overspend on lead generation.

4. Investors Are Serial Buyers & Sellers

Investors like to buy and sell houses—lots of them! And they buy in all market cycles. For investors, it’s always a good time to buy or sell. You also have an opportunity to represent your investor clients on both the buy and sell side of the deal.

They buy and sell more frequently than the average homeowner, often within months of acquiring and rehabbing the property. It’s not uncommon for private investors to buy and sell multiple homes every year. Proptech and institutional investors may buy hundreds of homes a year. They want and need investor-friendly agents to bring them quality deals that match their investment buy box.

5. Agents Are Also Investors

Investor-friendly agents develop the expertise and experience to identify great deals and invest in their own properties. The same expertise and experience you use to work with investors can also be used to execute your own real estate investment plan and build your own property portfolio (and maybe even an empire). 

Hello, future mogul!

Over to You 

Have a strategy to find investors that I didn’t cover here? Let me know in the comment section.

The post How to Find Real Estate Investors to Work With (in Any Market) appeared first on The Close.

Conducting accurate, consistent CMAs isn’t easy, and most agents aren’t taught this skill in their prelicensing real estate classes. The key to a good CMA is, above all, thorough research. Let the data guide you, along with your keen real estate eye. Our team has put together hundreds of CMAs—and we’ve developed a bulletproof process we’re sharing with our readers.

If you want to follow along, make a copy of our free CMA worksheet template and fill in each section as you move through this comprehensive guide.

How to Do a Comparative Market Analysis in 5 Steps

1. Do Your Research & Gather Your Data

The first step to creating a CMA is to gather all the information you can about the property you want to evaluate as well as other properties that are similar to it. If you want to determine a home’s value, much less sell it, you need to be an expert when it comes to every detail. The more you know about a property and how it compares to the rest of the market, the easier time you’ll have arriving at the perfect price range.

Start With Public Records for Historical Data

These sources tend to have the most accurate data and usually offer the easiest way to build the foundation of your CMA. Most MLSs connect to a public records database, like Corelogic’s Realist or another software like Propertyradar, that will provide you with all of the public record info.

You’re looking for background data to set your foundation. Think homeowners association (HOA) fees, property taxes and—in certain states—even mortgage information (which gives you an insight into equity). Having this information can help you stand out from the competition with your CMA. This foundation sets you up to compare the property taxes and HOA fees to the comps to easily see how your subject property stacks up. 

Gather Your Information on the Subject Property

Start with the data you can find on the subject property. For example, when was it last sold, how long was it on the market, and what was the selling price? Does the current seller have equity to roll into another property? All of this info enables you to paint a picture of the subject property. Don’t forget to view the pictures—don’t just work on raw data alone. 

You’ll need to be able to explain the data to your clients, so you’ll need to have the full picture for yourself. Preparation is key. Here’s a list of items to include and why they matter:

• Location: Try to select comps that are in the same building, subdivision, or neighborhood. If you’re not able to find comps nearby, try to use an area that shares the same school district, crime rate, and proximity to local amenities like a recreation center. 
• Year built: Architectural design and building materials tend to change every few years. Developers use different firms to design their homes. Ensuring that your comps are within the same age is important to establishing the price. 
• Square footage: This is especially important in urban markets where price per square foot (PSF) is a top factor. If the square footage seems off, check for annexes on the lot. Also, make sure you’re  comparing apples to apples for all your comps. You might see three different square footage totals. Total square footage means something different than liveable square footage—for example, an unfinished basement is not considered liveable square footage. 
• Bedrooms: Bedrooms matter, but keep the type of bedroom in mind. After all, primary bedrooms with a five-piece en suite bathroom are more valuable than a standard bedroom. You can be a bit flexible here, but do use the number of bedrooms to help narrow down your comps. This is where the art of the CMA comes into play. Let’s say you’re narrowing down your comps and need to pick between two properties that are off by one bedroom but in the same building or neighborhood. Your rule of thumb is to match bedrooms if at all possible. 
• Bathrooms: Again, you need to compare apples to apples. Use precision here: A half bath is a toilet and a sink, a three-quarter bath has a standing shower (but no tub). A full bath is not the same as a full five-piece en suite with double sinks. 
• Special features: We’re not talking about a gold toilet here. Although I’ve heard those are pretty cool. Special features that actually add value might include fireplaces or high-end landscaping. 
• Condition: In an appraisal, a property is usually listed in great, good, decent, or poor condition. Some appraisers will use a matrix to determine this. Agents generally use the photos to suggest the condition. After all, a picture is worth 1,000 words—especially when it comes to real estate. 
• Property taxes: Property taxes can rise quickly over the course of just a few years, especially in areas that are booming. Check the taxes of your comps and make sure they’re similar—they are a component in every buyer’s budget, whether they finance the purchase or not. 
• HOA (if applicable): Like taxes, HOA fees and regulations usually only increase. And if there’s a special assessment on the property or on the horizon, that could add hundreds of dollars to the monthly payment. Take a look at some of the closest comps in the building or neighborhood to see if they have any special assessments noted in the listings. 
• Lot size (if applicable): If a lot is twice as large, the property taxes will be higher. However, a small home on a larger lot means there might be room to expand the house itself, which can be a boon—especially to investors. 
• Basement (if applicable): Don’t just gloss over a basement; it can add a lot of liveable square footage to a home, especially if it’s finished or partially finished. However, in many markets, when a basement is unfinished, it does not count as square footage. Keep this in mind if you see discrepancies in square footage on your comps. 
• Garage (if applicable): If the subject property is a condo, make sure to note if a parking spot comes with the unit. In those cases, garage spots can be valued at $50,000 or more. And in a location with harsh winters, people want to know they’ve got a safe and warm place for their car. 
• Time on market: This can tell you a lot about the pricing trends of your comps—especially expired listings. If the average time on market for the area is only 15 days and you find a comp that was on the market for 40 days, dig into that listing to find out what happened. Maybe it fell out of contract, or maybe it was just overpriced. 
• Price adjustments: If a comp went through three price cuts before it sold, that’s good information to have. It helps to make your case when illustrating the pricing range you present to your clients. 
• Closing price (and concessions): This can differ from list price—sometimes in the tens of thousands of dollars. If you see a major change, you should make a note of that. Once a listing has closed, the MLS will tell you if a concession was made. If so, you can try to dig in to investigate why. For example, if the list price was comparatively high, the sellers may have made a price concession during appraisal to keep the deal moving.
• Date of sale: Seasonal changes play a part in real estate too. In general, the market is hot in the spring and slows down in the fall, when people get settled into school districts and start their holiday planning. A home sold in the dead of winter in the Midwest might have fetched another $20,000 depending on timing. 
• Price: Keep in mind that prices fluctuate and can even vary week to week. Clients are counting on you to have the most accurate data possible to ensure they’re getting top dollar (or not overpaying, if they’re buyers). 

2. Gather & Select Your Comparable Properties

Now we need to find comparable properties that are as close to the subject property as possible. Active listings are great to see the current market, but the sold properties will give you an insight on real pricing trends. 

We’re going to work backward here—I see agents try to sniff out an exact comp on the MLS, but instead of sifting through tables of data, let’s start with the map drawing tool in your MLS to sketch out the area where you’re going to pull your comps. This way, you won’t pull your hair out trying to find an exact match. Once you’ve drawn your lines, use a filter to narrow down the number of bedrooms and go back six months. This should return a decent number of results. Now you can filter down by number of bathrooms, then go down to three months to narrow your list. 

The balance here for your comps is a match as close as possible, without going too far back in time (usually three to six months). As most agents know, pricing data tends to be hyperlocal. If you’re looking at neighborhood trends, you might have to go back up to a year to find some good comps. However, if you’re too picky about an exact match and you go back too far, you’ll actually be providing less accurate data—always consider the fluctuation in the market. 

Make a copy of our free CMA worksheet template and fill in the blanks on the second tab:

Selecting Comparable Properties Is an Art, Not a Science 

Thinking outside the box is important here. You have all the data at your fingertips to make the most informed decision possible for your client. Don’t select the first three properties you see that sold on the street in the last month. Take the time to really curate a great selection of about five or six good choices. Dive into the details that make each property unique to ensure you’re selecting quality comps. Mix in a couple of active listings to paint the picture for your clients of how the market is currently performing. 

When you’re selecting comps, it’s more than just crunching numbers or ticking boxes on properties that match the number of bedrooms. Appraisers often don’t consider updated kitchens or high-end furnishings when considering the value of a home—but clients do. These features can significantly influence the perception of the home (and how much potential buyers are willing to pay). Choose comps that highlight the property and provide realistic expectations.

3. Make Your Adjustments

Sometimes finding good comps is a challenge. You’ve zoomed out on your map view and gone back a year, but still can’t find more than two comps. In situations like this, you’ll need to make some value adjustments relative to the subject property. Time to roll up our sleeves and do some napkin math. 

Let’s take a look at what an adjustment might look like where a subject property has one less bedroom than the comparable property. You need to adjust the price to estimate what that comp would have sold for without that extra bedroom.

Empower & Enlighten Your Clients Through Your Adjustments

This is a chance for you to showcase your skills to your clients to illustrate why you made the adjustments. Speak to the local trends and what you’ve seen in the market from your research. Nearly every CMA is going to have some properties that aren’t an exact match to the subject property. After all, every single home is different. It’s best to note these differences and make a suggestion on the price adjustment. However, you should empower your client to draw their own conclusions when you present your CMA. This is especially important if you haven’t yet seen the subject property for yourself.

4. Conduct Your Market Trend Analysis & Find Your Range

Once you have all the information you need at your fingertips, it’s time to consider trends. After all, if they just wanted a list of comps, your clients could find that themselves on Zillow. 

Let’s say there’s major road construction down the block from the subject property. Despite an overall trend of price increases improving in the neighborhood, this micro market trend may drive down the final number on your CMA. 

While agents need to be informed on what’s happening week by week, it’s (admittedly) impossible to stay updated on everything. After all, there are more than 18,500 neighborhoods in the United States, and they aren’t just divided by ZIP codes. You’ve pulled the data—now it’s time to interpret it to see how your findings line up. 

Try using a tool like market reports from Altos Research to help back up the local trends you’re seeing from the comps you’ve researched. The picture should start falling into place now. For example, now you can see how the number of days on market has been steadily increasing for weeks, which can help inform your pricing recommendation.

Make an Informed Analysis Based on Your Client’s Situation

If you’ve been thorough and consistent in your market research, you should see a trend emerge from your comps. Because the fair market value for any given subject property tends to be subjective, I suggest providing a reasonable range.

You can get a small, informed range by organizing these numbers from lowest to highest to get a conservative, moderate, and aggressive market value for your subject property. This way, you can explain the numbers in a way your clients can easily understand.

5. Prepare & Present Your CMA Report

Now it’s time to whip up some magic. Your clients need a presentation, they need context, and most of all, they need to understand how you got to the answer you’ve provided. This is your chance to showcase your branding, your knowledge, and your authority as an agent. 

You can make a copy of our worksheet for buyer CMAs, but your CMA for sellers and listing appointments should include other elements, such as: 

• Your short bio and how to connect
• Subject property highlight (e.g., bedrooms, bathrooms, square footage)
• Your top three comparables
• Recently sold and under contract properties (showcase the differences)
• Neighborhood profile
• Market statistics (average days on market, price per square foot)
• Marketing plan
• Testimonials

Let’s take a look at some of our favorite examples and templates in the next section.

CMA Templates & Examples

CMAs are a lot of work, but they don’t have to be boring. Poring over a table of data is an easy way to lose your clients’ attention—you’ll see their eyes glaze over in record time. 

Software like Cloud CMA make it simple to design aesthetically pleasing CMAs. You can also whip up your own on Canva or use premade templates on Etsy. Here are examples that are comprehensive, clear, elegant, and sure to wow. Remember, keep it simple and focus on guiding your clients through the data. 

by Socialbinder 

by PetitelenaCreative

by CreateDigitalCo

by FourthStreetCreative

Comparative Market Analysis FAQs

Even though you’re now an expert in comparative market analysis, here are some questions I get asked about CMAs (and helpful answers).

What’s the difference between a comparative market analysis & an appraisal?

How many comparables should I use in my comparative market analysis?

What’s the most important property trait to consider in my comparative market analysis?

Where should I get my comps data for my comparable market analysis?

What if my property is vacant land?

The range of my three numbers is too wide. What should I do?

How do broad economic trends impact the value of my real estate CMA?

How can I effectively communicate the results of my CMA to my clients?

My results are different from my colleague’s results. What gives?

Bringing It All Together

Learning how to do a comparative market analysis isn’t easy, but now you have a thorough understanding of how to estimate the value of a property in your market. Take this information to make your sellers’ list prices more accurate and your buyers’ offers more competitive. Have any tips or specific questions? Leave them in the comment section below!

The post How to Do a Comparative Market Analysis: A Step-by-Step Guide appeared first on The Close.

If you want to work with investors, you need to know how to explain their complexities in plain English. To make your job easier, I put together this simple 1031 exchange rules cheat sheet to help you save your clients money at tax time. There’s a lot to digest here, so if you’re in a rush, you can simply download my 1031 Exchange Rules Cheat sheet as a PDF here: 

Download Your Free Branding Guide

Back to Basics: What Is a 1031 Exchange?

A 1031 exchange refers to section 1031 of the Internal Revenue Code, which allows a property to be exchanged for a “like-kind” property. The benefit of a 1031 exchange is that it defers the taxes that would normally be paid on the capital gains from the sale of a property. 

While everyone would like to save money on capital gains when selling their home and buying a new one, 1031 exchanges are only allowed on investment properties. If you don’t have any investor clients yet, check out my quick start guide to building the skills investors look for in Realtors here:

How 1031 Exchanges Work + Examples

A 1031 exchange is the process where a person sells one investment property and purchases another “like-kind” property (or multiple properties) of equal or greater value than the property sold. 

The first property—the one your client is selling—is known as the Relinquished Property, and the like-kind property they are purchasing is known as the Replacement Property. 

The proceeds from the sale may not be received by the seller. Basically, the money cannot hit their bank account. Instead, the money from the sale of their first investment property must be transferred to a qualified intermediary (known as a QI), who will hold the funds until the replacement property is identified and purchased.

When all of the proceeds from the sale of the relinquished property are used for the purchase of the replacement property, the sale is considered an exchange and is not a taxable event. The advantage to your client is that they will not have to pay capital gains tax on the uptick in value of the property they’ve sold. 

When Taxes Must Be Paid on 1031 Exchanges

Any proceeds from the sale of the relinquished property that is not used to purchase the replacement property is called “boot” and is subject to taxation.

Additionally, if the relinquished property has a mortgage loan outstanding on it, the replacement property must have equal or greater debt. If the debt on the replacement property is less than the previous debt on the relinquished property, the difference is called “Mortgage Boot” and is subject to capital gains tax.

This is important to note since many investors want to use their property sale proceeds to buy a lesser-priced property, and thus avoid having a mortgage on their newest investment. Doing so, however, will not satisfy the rule of replacing the value in a 1031 exchange.

Example of a 1031 Exchange

A client has a single-family investment property in Denver, Colorado. They want to sell their Denver property and purchase two duplexes in Chattanooga, Tennessee.

The home in Denver is valued at $600,000 and has an outstanding mortgage balance of $300,000. After the sale, they’ll need to pay the balance of the mortgage, in addition to the cost of closing the sale ($48,000), leaving them with $252,000. 

Since the proceeds from the sale may not be given to the seller, they must find a qualified intermediary to hold the funds until the purchase of the replacement property or properties (in this case, the two duplexes in Chattanooga) is complete.

The qualified intermediary will complete the necessary paperwork that the title company and IRS require to ensure the transaction is completed correctly.

Once the Relinquished Property sale is complete, the seller must identify three “like-kind” replacement properties within 45 days. In this case, the seller is exchanging the single-family home in Denver that they rent out for two duplexes in Tennessee that they will use to generate income through rent and appreciation. 

As such, their desired Tennessee properties qualify this as a “like-kind” transaction, eligible for a 1031 exchange. 

Replace the Total Value

To avoid taxation on capital gains, 100% of the value of the Relinquished Property must be replaced by property or properties of equal or greater value. Therefore, our seller must find properties with a total value equal to or greater than $600,000. 

In this example, our seller identified and contracted the two Tennessee duplexes for the combined sales price and replacement value of $640,000.

Once the properties are placed under contract, the purchase transactions must be completed within 180 days of the date of the sale of their Denver property. The seller must also use the full proceeds from the sale of their single-family home in Denver toward the purchase of the duplexes. Otherwise, any unused portion, or “Boot,” may be subject to capital gains tax. 

Since the proceeds of $252,000 from the sale of the home in Denver isn’t enough to cover the combined purchase price of $640,000 for the two duplexes, the investor will need to either secure a mortgage or bring in the additional cash to make up the difference.

1031 Exchange Rules in Plain English

While 1031 exchange rules can get a little complicated, being able to discuss the basic rules with your clients will help you come across as a true professional. Here is a quick rundown of 1031 exchange rules: 

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1031 Exchange Rules in Plain English

1. Both Properties Must Be Titled Under the Same Person’s Name
The property sold and the replacement property must be titled under the same name.

2. The Second Investment Property Must Replace the Value of the First
The value of the replacement property(s) being purchased must be equal to or exceed the sales price of the investment property being sold.

3. The Purchased Property Must Replace the Debt of the First
Any debt owing on the sold investment property must be replaced by a mortgage of equal value on the replacement property(s).

4. Must Use All the Proceeds
To avoid capital gains tax, all proceeds from the sale of the first investment property must be used toward the purchase of the replacement property(s).

5. Must Exchange for ‘Like-Kind’ Property (or Properties)
The replacement property(s) must be used for the same purpose as the sold property. For example, exchanging an investment property for investment property is allowed, but exchanging an investment property for a second home is not permitted.

6. Must Be Identified in Writing Within 45 Days
The replacement property or properties must be identified in writing within 45 days from the sale date of the investment property that has been sold.

7. Must Close in 180 Days
The purchase of the replacement property or properties must be completed within 180 days from the sale date of the sold investment property. Once the new property is identified, your clients have 180 days from their first closing to close on their replacement property.

8. Must Not Have Access to the Proceeds of the Sale
The seller (or exchanger) may not have access to any of the proceeds from the sale of their investment property until the 1031 exchange process is complete.

Answers to Common 1031 Exchange Rule Questions

No article can answer every question about 1031 exchanges. However, here is a short list of the most common questions your clients may have and how to answer them.

What Qualifies as a ‘Like-Kind’ Property for a 1031 Exchange?

One of the most important and confusing conditions of a 1031 exchange is the “like-kind” property rule. This states that the Replacement Property must be “like-kind” to the Relinquished Property.

The Internal Revenue Code defines a “like-kind” property as any real estate within the U.S. that is held for investment, trade, or business purposes. A “like-kind” property cannot be used as a principal residence or a vacation home for longer than 14 days in a given year.

To make this as simple as possible, think of like-kind property as what the intended use is from an investment mindset versus the intended use from a practical sense. A single-family home that is rented to produce income and appreciation is not similar in a practical sense to a farm that is producing income from selling crops. 

However, to the IRS, they are “like-kind” since their intended use is the same. They are to be used as investments.

Below is a short list of properties that can and cannot qualify as “like-kind” in a 1031 exchange.

List of Like-Kind Properties

How Much Does a 1031 Exchange Cost?

The cost for a typical 1031 exchange can range from $500 to $1,200. The main expense is paid to the qualified intermediary for preparing the required documentation and holding the proceeds from the sale until the exchange is completed.

Can You 1031 Exchange a Primary Residence? 

A 1031 exchange is used to defer the capital gains taxes on investments only. Principal residences, second homes, and timeshares are not considered investment properties to the IRS.

What Is a DST?

A Delaware Statutory Trust (DST) is a fractional ownership in larger investment properties, such as medical offices, industrial properties, or multifamily apartments. A DST provides more options for investors who don’t want to manage properties or desire more diversification. 

Finding eligible DST properties is also less time-consuming because investors are exchanging into existing investments that are already under management.

What Are the Disadvantages of a 1031 Exchange?

• Additional paperwork, regulations, and fees
• Meeting the 45-day rule
• Closing in 180 days
• Replacing the value of the Relinquished Property
• Replacing the debt load of the Relinquished Property
• The risk of greater tax liability if the capital gains tax rate increases in the future 
• Deterrent to some property buyers who may not want the added complexity impacting their transaction

Do You Ever Have to Pay Taxes on a 1031 Exchange?

Yes, a 1031 exchange is a way to defer taxes to another day in the future. Always advise your clients to speak to a CPA to discuss the benefits and risks of a 1031 exchange. 

How Long Must You Hold a Property After a 1031 Exchange?

To avoid a tax penalty for not purchasing a “like-kind” investment, you must hold the property and use it for the same purpose for two years after the purchase date.

How Soon Can You Move Into a Property After a 1031 Exchange?

The IRS is very clear that any property that is purchased as an investment may not be used as a principal residence for a minimum of two years. For properties purchased as short-term or vacation rentals, the exchanger may not use the property for personal use for more than 14 days each year.

Additionally, it is advised that if the intention is to move into the property and make it the exchanger’s primary residence (after two years), then the property should be held for a minimum of five years before reselling it. 

What Does a Qualified Intermediary Do?

The Qualified Intermediary holds the exchange funds in a separate bank account for the benefit of the exchanger until the funds are used to purchase the exchanger’s Replacement Property.

The Qualified Intermediary also prepares the documentation for the 1031 exchange. This includes the Exchange Agreement, Assignments of Purchase and Sale Agreements, Notices of Assignment to both the buyer and seller, the Replacement Property Identification Notice, and lastly, all the accounting and tax forms.

Who Can Be a Qualified Intermediary?

While the IRS doesn’t require a person to have a license or certification to be a Qualified Intermediary, it does have specific exclusions for any person(s) who may have a conflict of interest with the parties in the exchange.

Any person who has acted as an employee, attorney, accountant, investment banker, investment broker, or real estate agent within the two-year period preceding the date of the sale of the relinquished property is treated as an agent of the Exchanger and is specifically disqualified from being a Qualified Intermediary. 

Additionally, children, parents, and siblings are also disqualified as Qualified Intermediaries.

Why Are Unused Proceeds Called ‘Boot’?

The 1031 exchange originated hundreds of years ago when property owners bartered for property. Farmers would trade land for land and livestock or an ox or money. These additional items of value were known as Boot.

The 1031 exchange in the United States originated in 1921 as the first like-kind exchange authorized as part of The Revenue Act of 1921, when the United States Congress created Section 202(c) of the Internal Revenue Code. 

Today, cash received or mortgage debt not replaced in an exchange is known as equity or mortgage boot.

Can You Use 1031 Proceeds to Make Repairs to Replacement Property?

The simple answer is no. Any repairs to the Replacement Property must be paid from additional funds or loans. In some circumstances, 1031 Improvement Exchanges do allow for repair, but they require much more planning and expertise than a typical 1031 exchange. 

Can 1031 Exchange Proceeds Be Used to Pay Fees?

The IRS only allows fees that are required to purchase the Replacement Property to be paid from the proceeds from the Relinquished Property. These fees include title fees, real estate taxes, property insurance, and escrow fees. 

However, property inspections, appraisals, surveys, and loan origination fees are NOT considered required and must be paid out of pocket in a 1031 exchange transaction.

Bottom Line

If you want to work with real estate investors, then you must know the in’s and out’s of 1031 exchanges. As real estate properties continue to rise in price, 1031 exchanges are going to become more common. Investors will need agents who can guide them through a successful 1031 exchange process.

The post How to Explain 1031 Exchange Rules to Your Clients (in Plain English) appeared first on The Close.

Over the past 27 years, I have invested in hundreds of properties. And I’ve helped just as many people with their first real estate investment. While it can seem daunting, don’t worry. I’ll walk you through my proven process for flipping houses—from doing market analysis all the way through financing, creating a budget, renovating, marketing, and selling your property. Let’s get started.

How to Flip a House: 10 Steps to Flipping Houses the Right Way

Real estate investing has been a passion of mine since I was a child. I learned how to start flipping houses the old-fashioned way—through plenty of trial and error. Since then, I have spent much of my real estate career coaching real estate agents and investors and advising them how to find, buy, fix, and resell real estate the right way.

While there are many different approaches to flipping houses, I prefer the simple one. My guide, which explains how to start flipping houses, is just that—a simple approach to finding and flipping real estate. It has served me well in my career, and I hope it works for you too.

The most common question I get regarding flipping houses is “Is the market right for fix and flipping?” or “Is my market right for flipping houses?” That’s why the first step to any successful flip is determining the direction of your local market.

1. Determine the Direction of the Market

It might sound like a cliche, but the market is always right for flipping houses. Yes, really. After all, you shouldn’t be worried about where your market is right now. Instead, your primary concern should be the direction the market is going and the pace at which inventory is selling.

Seller’s Market: Home Prices Are Rising

Buyer’s Market: Home Prices Are in Decline

How Smart Investors are Pivoting to Beat the 2023 Market 

Many people are saying this market offers nothing but doom and gloom for house flippers. They recommend changing strategies to try to beat it. With a perfect storm of soaring interest rates and softening prices, I don’t blame them. But smart investors who have been in the game for decades see it differently. How are they changing their strategy to beat this market? The answer might surprise you. They’re not.

In challenging markets the best investors don’t pivot. They double down on what works: The BRRRR method – the building blocks of a successful flip in any market. So If you want to create value in your local housing market this year, check out Kiavi’s free BRRR method guide below. It includes everything you need to know for a successful flip including tips for securing the best financing and the hottest new home rehab trends for 2023.

2. Find Fix & Flip Opportunities

Flipping houses involves buying dilapidated or outdated properties, remodeling them, and selling them for a profit. Fix-and-flip investors must have the skills to find undervalued real estate opportunities, evaluate them, and manage contractors to ensure their “flips” are completed on time and within budget.

Finding properties to fix and flip isn’t as easy today as it once was. For example, the properties listed on your MLS probably won’t have margins large enough to make a hefty profit—or any profit at all.

The secret to finding fix-and-flip properties today is to identify off-market homes and homeowners who are highly motivated to sell. These may be homeowners who are in financial distress due to circumstances beyond their control, such as foreclosure, divorce, job loss, or bankruptcy.

Once identified, savvy investors approach them with an offer to take the burden of the property off their shoulders. Some of these properties are distressed, neglected, or abandoned, so an “as-is” quick closing is very attractive to the potential seller.

Finding motivated sellers isn’t easy, which is why I offer a complete course on finding motivated sellers and off-market listings at The Close Pro called Survive & Thrive With Sean Moudry.

Visit The Close Pro

3. Evaluate Fix & Flip Opportunities

Once you have found a good fix-and-flip opportunity, you’ll need to evaluate the property to make sure you know what you are getting into before you buy it. It’s at this juncture that many new fix and flippers cut corners and make career-ending mistakes.

To prevent that from happening to you, check out my fix and flip risk assessment process and learn how to evaluate fix and flip projects like a pro in my recent articles. These should help to ensure you don’t make some of the most common mistakes even experienced house flippers sometimes make.

4. Establish the Right Offer Price

“You make money when you buy the property, not when you sell it.”

In other words, the price you pay for the property will determine the profit you will make when you sell. If you overpay, chances are you won’t make any profit at all. This error is more common than you might think.

Anyone who has been investing for a long time has made the mistake of overpaying for a property. I know I have, which is why I came up with my Fix-and-Flip Risk Assessment —a tool that will force you to slow down and focus so you won’t overlook property details that may cost you big money later.

My worksheet also creates a numeric risk score to help you narrow your offer price range to avoid overpaying for a property.

5. Negotiate the Price & Terms

Once you have determined your offer price on your fix-and-flip opportunity, you will need to negotiate the price and terms with the seller. For some people, negotiations come naturally, and for others, it may take a little practice.

I have found that the best way to negotiate the best price for fix and flips is to meet with the seller face to face and share your concerns about the property openly and honestly. Explain how much work it will take to get their property “resell ready” and emphasize that your profit is not guaranteed.

Next, remind them why your offer is the best one. Accepting your as-is offer that closes quickly will help the seller move on with their lives painlessly.

Lastly, bring the completed contract with you. I can’t tell you how many times I have come to verbal terms with a seller, only to have them get cold feet a few hours later. As soon as they agree to the terms, make the adjustments to your contract and ask them to sign the contract immediately to secure your deal.

6. Find the Right Financing

Fix-and-flip financing is different from other types of real estate financing. When you’re financing a home to live in, the lender puts most of the qualifications on the borrower’s ability to pay the mortgage back over 30 years.

We use “hard money” lending when flipping houses—which means short-term loans generally paid back within six to 12 months. This quick turnaround time means that hard money lenders will take a closer look at the property than at the borrower’s finances.

With the higher risk involved for the lender, they’ll charge higher upfront fees and interest rates. For a complete breakdown of how to choose a hard money lender and my top picks for fix-and-flip lenders, read my hard money lenders guide.

Cash Is King & Queen When Flipping Houses

Before you even consider making an offer on a potential fix-and-flip opportunity, you need to ensure that you (as the buyer) or your client has access to enough cash to close the deal. If you don’t have cash, Kiavi is a good option. They offer competitive rates, fund quickly, and work with brand-new investors, which not all hard money lenders do.

7. Create Your Renovation Budget

It may sound counter-intuitive to create your budget after you’ve made an offer, but the truth is, you often won’t have time or access to the property to complete an accurate budget beforehand.

Keep in mind that you haven’t closed on the property yet, and there is still time to back out of the deal, though you’ll risk losing your earnest money. You can also try to renegotiate if you find that your initial estimates fall short of the actual rehab budget.

Many project management software providers offer outstanding estimating software. However, I have found a simple spreadsheet like this one to suffice for most light remodel flippers.

Just remember “garbage in … garbage out,” meaning if your initial estimates are wrong, the spreadsheet will also be incorrect. If you are brand-new to remodeling and flipping houses, I highly recommend using a professional contractor to help you develop estimates for the work that needs to be completed.

8. Close on the Property

The big day has come, but don’t get too excited. Before you go into the closing and sign your name to your first flip, take a minute to review all the information you’ve gathered so far from each of the steps outlined here.

Did you investigate everything thoroughly? Did you get all your estimates back? Which issues, to the best of your knowledge, may come back and bite you later? This moment is your last opportunity to take a pause or walk away completely. Don’t take this step lightly.

Once you feel confident that you have your questions answered and the issues you are aware of can be managed if and when they arise, walk into the office and confidently sign the paperwork to buy your first flip.

9. Hire Contractors & Remodel the Property

Now the real work begins! It’s time to remodel the house.

One of the biggest mistakes new fix and flippers make is to try to do all the work themselves. Even if you are a professional contractor and planning on this course of action, you will still want (and possibly need) to secure quotes from other contractors. Lenders will require bids from several contractors.

It’s unlikely that you’ll be able to pay yourself for remodeling the property until after it sells, so you’ll need income from another job. But working on your flip in the evenings and on weekends isn’t going to cut it. You’ll need to get the home remodeling finished quickly.

One rule of thumb is to be in and out in less than five weeks—meaning from the day of closing to the day you put the home back on the market. Here’s why timing is so important: The longer you hold a property, the larger your finance costs.

The other reason is that time is money. If I spend a large chunk of my week renovating this property, I am potentially missing out on other fix-and-flip opportunities. Some of those opportunities will offer better margins, and as a result, will be snapped up quickly.

So get multiple written bids from contractors and plan on using them to finish the project faster and keep you focused on finding the next project. Trust me, the money spent on contractors will offer you the best return on investment (ROI) over the long run.

10. Market & Sell Your Fix & Flip for a Profit

Another common misstep fix and flippers make is cutting corners on marketing the home once it is completed. I know that after weeks of hard work, you’re probably excited to get your masterpiece on the market. But you can’t cut corners here. Any realtor worth their salt will tell you: Marketing and selling homes is hard work.

Before placing the for sale sign in the yard, you need to complete the full punch list and professionally clean the house. Selling a home is about getting a buyer excited about living in the home. If they see unfinished details, construction debris, or dusty and dirty windows, they’ll think you have cut corners in areas they cannot see.

Next, you will want to stage the property. It is a well-known fact that staged properties sell faster and for more money than vacant properties. A professional staging company charges between $1,000 and $4,000 to stage an empty home. If you don’t have room in your budget for staging, consider virtual staging.

Finally, if you’re not a licensed real estate agent, hire one. Many fix and flippers have their real estate agent license so that they don’t have to pay a commission each time they sell a home.

Hire an experienced agent who knows how to market your fix and flip and drive buyers to your door—and in some cases, multiple offers too. They’re worth their weight in gold. Having another real estate pro who can handle your sale for you will give you time to focus on your next fix-and-flip opportunity—without worrying about managing the details of a real estate transaction.

Bottom Line

Like Mike Tyson said, “Everyone has a plan until they get punched in the mouth.” Mike was right, and his advice applies to flipping houses. No plan is perfect, but I’m sure he would agree that some planning is far better than no planning at all.

So, before you get too excited and jump into your first fix and flip, take some time to review these steps and my fix and flip risk assessment process and worksheet. Otherwise, you are sure to get punched in the face by an otherwise avoidable mistake.

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