An easier way to understand real estate
This site is aimed at helping you understand real estate finance
We will show you how in the easiest way possible how to comprehend numbers that get thrown at Home Buyers and position yourself to not have surprises when buying real estate
The Elements of a Mortgage Payment
The Elements of a Mortgage Payment
Mortgages are in essence a loan for a property whereby you as a Buyer get the right to own a piece of property while someone has the legal rights to take it back from you if you fail to pay back the loan you promised to pay. You will pay two parts back. First you pay back the Principal, (the original amount of the money borrowed) and secondly the interest(the extra money) for the right to get a loan and let the person / entity who lent you the money make some extra.
There maybe add on’s in addition to the mortgage and interest payments and generally some form of insurance:
1) An insurance policy if you don’t pay / default on the loan.
2) An insurance policy in case you lose your job, die or get sick.
Beyond these bits and pieces, sometimes the mortgage company will tack on the property taxes, with the yearly tax divided into monthly payments on top of your loan.
Before you get a loan, compare at least three (3) different companies. Some may be more favorable to your needs or circumstance. It is NEVER a situation where all banks or mortgage companies will offer the exact same interest rates or charges.
Here are the top items you need to avoid:
1) Relatives - Like some body parts, everyone has an opinion and they mostly stink. Never take advice from someone who has only purchased one property one time 40 years ago. The market completely changes every few months and sometimes drastically daily. Avoid the relative, relative trap and get you a good Real Estate Agent who understands you and what you intend on buying.
2) Points! Points translated means more money out of your pocket bottom-line. You don’t want points ever because you can lose some of your bottom. Points can be 1% or more of whatever the loan amount is and added to your mortgage payment. Always ask for interest rate quotes…say after me “What’s you interest rate with NO points and NO origination??” I don’t care what the mortgage person’s response is but keep asking that over and over again like a rabid dog so you can clearly compare one bank to another.
3) Banks that say they lend but they don’t. There is a new game in town since 2008 in America. Its called, “pin the tail on the customer” You, the bank customer however is the one being blindfolded and then “ouch!” you spend 3 months talking to someone in a bank to discover they rarely loan money to anyone and just “take your application” then cannot ever close a loan. Remember, banks don’t need to lend money.
Understand Insurance Do's and Don'ts !
1) Trusting they will be fair. Insurance companies are in the business of making money. They don’t make money by handing you over a check when damages occur. They lose money when you have a claim. They have to answer to stockholders and you AIN’T one of them! Don’t expect to be treated fairly. Being treated fairly is an exception to the norm, and the bigger the incident, disaster or otherwise the harder to get a fair share.
2) Believing the insurance company will pay in a timely manner. Just like in Item #4, (how to go broke in real estate), when a claim situation occurs, take a deep breath and understand the scope of damages and get a timeframe to repair or replace. The insurance company banks on people reacting. Their goal is to delay responding to you as long as possible…either with sending an adjuster out to see the damages or writing you a check to adequately cover the damages. There are exceptions to this, but not so much. As a homeowner it is your responsibility to stay on top of the whole situation, calling, putting everything in writing and following up.
3) Not knowing what you really have. Take time to take pictures at least once a year of your property and take an inventory of what you own. Take those pictures and put it in the cloud somewhere and email all to a friend. If you know what you have, and the condition of what you have it is a lot easier to avoid troubles when it comes time to collect your money.
4) Not looking closely at one's deductible once a year. The deductible money is the part you have to come out of pocket for before the insurance company starts paying anything. If you buy new furniture, or acquire items of significant value it pays to take time to inventory what you own in your property. Next, you may want to adjust your deductible up or down.
WHY NUMBERS MATTER
You as a Buyer need to be comfortable with a few numbers and have it part of your subconscious so when you decide on buying or leasing a place, you will use your senses to see, smell, touch a place.
Then sleep on it and while you sleep, the inner workings of your mind will process a series of numbers and the next morning you will make your best decision possible about what to do next.
These numbers are the primary numbers you need to learn for any and all properties you are considering to Buy, Sell or Lease.
KNOW UNITS of MEASURE!
1) What is the Unit measure per a certain area? In the United States, this is “What is the Price per Square Foot?” (In the rest of the world it is “What is the Price per Meter?”)
To understand how big a square foot or meter is, make your own interpretation.
Take your foot and measure it one way, then turn toe to back of foot at a 90 degree angle and measure the other way.
YOU ARE the BEST UNIT OF MEASURE - be your own scale!
Make your own personal scale. This is SO easy!
YOU ARE the BEST UNIT OF MEASURE
Remember the price per square foot reasoning? Well sometimes a lower price per square foot means nothing. What is most important is:
“How well can I actually use a space? Inside, outside, on the roof?”
This means to best interpret #2 and #3 you need to think about how you will use the space, how it feels and then how anyone else in that space will feel.
You take that feeling about the spaces to really interpret the $/square foot. The real value is in how the end user will utilize the space. So here put a value on the space.
Many people have get rich schemes. Everyone has an opinion. Life decisions should be carefully considered.
How to go Broke in Real Estate
Some people make millions while others go broke. It is really a very simple process with both processes following the same path but using different mindsets to get there.
These are the steps to making sure you go completely broke in real estate:
1) Don’t have a plan. Having money doesn’t mean you can make money in real estate. If you do not have a written plan with a timeframe of when you are going to buy, how long you will hold, and when you are getting out” you might as well just throw your money up in the air like some crazy guy in a strip club and scream “eyyy!” a lot inappropriately. No plan on time means no plan on anything else. Time is the most valuable resource always.
2) Pretend its “only an emotional decision” This is how young married couples get in serious debt in the name of “Love” or as I call it “loooo-v.” When you spend money and time to buy anything it is an investment. It is not just a place to live, raise a family or have a dog, it is an investment of your time and money. To the bank lending you money, to the insurance company charging you too much, they assume the risk of lending or disasters to hopefully make money off your investment.
When people don’t respect themselves enough they transfer that lack of self-respect to not respecting their money or time and it leads to a life of strife and debt.
3) Buying beyond ones means. If the bank says you can afford “x” dollars in real estate, take that number and deduct at least 10% and that is what you should be looking for. Why? Because buying real estate is the same as buying into a business. A business needs to be managed. This means upkeep, constantly until the end of time. If you don’t manage your business, it will destroy you, your family and everything else. Allow 10% at least of your budgeted money to maintain your house, your home, your investment property.
4) Reacting spontaneously. We are emotional creatures all things bright and beautiful because whatever God we believe in or not created us or not. Alas, stuff happens and life happens. The land however has been earth for a long time and will still be here long after we sit on the ant buffet in the coffin. As such we should mentally prepare and be ok for when things break or bend. Many deals are struck when owners get filled with angst and grief when “normal life events” occur and they don’t take time to take a deep breathe and take stuff in stride. React spontaneously to buy or sell and you lose time, money and the ability to consider 1-3.
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My entrepreneurial journey started in 1985, when I was laying on a beach in Barbados. I was working as a journalist and an architect and took off on assignment. As I sat on a beach watching the sunrise, I thought to myself I needed to do more. So began my quest to do everything I could to learn about my passion which was real estate.
Now, I want to share what I have learnt on this ongoing path of our lives and hopefully make yours a little easier.
Ian helped me buy my first house. He was awesome!
Ian clearly understands the needs of the average Joe
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