Five Common Real Estate Expenses

When owning real estate you will find that there are a number of expenses taking away from your bottom line. A number of these costs are unavoidable and will vary depending on the location of your property or number of tenants, while others can be reduced or even eliminated. I have listed five of my most common expenses below, excluding mortgage payments.

• Real estate taxes; also known as property taxes, are assessed on the land and building value for your property. These expenses cannot be reduced or mitigated because they are set by the local government.
• Property insurance is integral for any owner because it protects you against damage to your real estate and any personal injuries that occur on the property. The cost to insure your property depends on a number of variables including but not limited to property value, building value, and number of families living on the premises. Try negotiating with a few insurance agents to get the best deal on property insurance.
• Repairs and maintenance  will vary from year to year ranging from minor expenses to major repairs. Annual costs will include cleaning of common areas, touch ups to the property at the end of lease terms, and general maintenance. Uncommon or extraordinary expenses include the replacement of major appliances, repairs to the building structure (for example the roof), or major renovations. It is a good tip to set a reserve of annual income to cover major repairs when they arise.
• Utilities are traditionally split between tenant and landlord with the former paying utilities related to personal living expenses. The landlord typically pays common utilities including water, sewer maintenance, and a portion of electricity. In certain situations; such as properties located in extremely hot or cold climates, landlords may opt to pay for a larger portion of the utilities.
• Administration fees occur when you hire a third party to handle the management of your property. The property manager collects rent, handles maintenance requests, leases the property, and handles other property management. Your costs will vary depending on how much of the management is handled by a third party. To save money, some or all of the management can be handled by the landlord.

Remember, this is just a guideline and your mileage may vary.

Technorati Tags: Banking, Commercial Lending, Real Estate Taxes, Property Insurance

The Costs: A Basic Rundown

So you have found your perfect property but outside of the purchase price, what are the other costs? Costs can be broken down in two subcategories; acquisition and financing. The former are incurred when completing a deal between you (buyer) and the seller, while the latter are incurred between you and your finance institution; if you require one.

Acquisition Costs

• If you are using a real estate broker, a fee ranging from 5.0% to 7.0% is usually charged and split between the buyer and seller.
• A tax known as a transfer tax occurs when title changes on real property. This tax ranges from 2.0% to 4.0% and varies by municipality. It is split between both the buyer and the seller.

Financing Costs

• The origination fee averages 1.0% but could be higher depending on the lender. It is also known for lenders to forgo an origination fee in favor of a higher interest rate.
• Interest rates vary depending on the length of your loan and the corresponding rate index. Indexes include but are not limited to the Wall Street Journal Prime Rate (Prime), the Five Year U.S. Treasury Rate (5-year UST), and the London Interbank Offered Rate (LIBOR). On top of the index, the Bank charges a spread in basis points; which are equal to 1/100th of a percent.
• Title insurance ensures that the property is owned by the seller, and that it is clear of liens for unpaid taxes, claims of ownership by third parties, and other issues which my damage your ownership in the property. Title insurance is purchased up-front at a rate determined by the loan amount, and is a requirement with a lender.
• Other small fees which may or may not be charged by your financial institution include an appraisal fee, analysis fee, and search fees.

For more information, the Zillow Real Estate Wiki offers great information, including how to save on closing costs.

Technorati Tags: Banking, Commercial Lending, Zillow

Buying a property? Need to do market research?

I came across trulia while completing market research for a potential customer. The site puts together a myriad of data in an easy to use format, that was previously difficult to find. Although the focus is for retail customers, there are a number of tools to aid your search of a potential investment property. My personal favorite is the “heat map” feature which compiles popularity trends on a state level to the neighborhood level for select cities. Data; whichincludes both actual prices and year-over-year percentage changes, can be sorted by average listing price, average sales price, median sales prince, price per square foot, and search popularity.

Technorati Tags: Banking, Market Research, Real Estate, trulia