Friday, October 25, 2019

Active versus passive real estate investing

By Dan McDermott

Individual private investors who are looking for a reliable stream of income often turn to real estate and face an age-old question: Is it better to be an active or passive real estate investor?

Given real estate investments inherent ability to provide steady passive cash flow from rents or loan payments plus some very generous tax benefits, it is not a wonder why they are a popular investment vehicle.  Additionally, there may also be a worthy prize at the end too; the potential to realize capital appreciation and possibly double or even triple your investment. This combination produces higher returns than traditional passive income sources such as bonds or dividend-paying stocks.

When investors decide whether to pursue real estate investing on either an active or passive basis, they need to consider the pros and cons of each strategy. In order to determine which investment strategy is best for you, you should first understand the main differences between the two.

Active investing is when an investor directly purchases a property for rental cash flow or to fix and flip for a profit. The property could be anything from a commercial building to a single-family house or a large multifamily property. The investor will personally manage all aspects of the investment process. This includes finding the deal, negotiating the deal, securing the financing, closing the deal, and managing the investment. The process of identifying a suitable market, property, financing can be time consuming and complicated.  However, it can also be very rewarding and if the investment goes well, the investor will get to keep the largest share of the profits.

Passive investing is a hands-off approach which allows an investor to place one’s capital into a real estate vehicle – more specifically, an apartment, commercial, or self-storage syndication – that is managed entirely by a management company. Investing passively in real estate means the investor outsources the acquisition and management of their real estate investment to a management company.  The management company pools together many investors capital and buys larger or even entire portfolios of properties. The management company is responsible for the day-to-day operations of the properties and charges a fee for their services. The investors will then get a monthly or annual share of the profits earned from the rents collected on the property or portfolio of properties.

Based on my experience in working with active and passive real estate investors, I think there are many important factors to consider when deciding which investment strategy is right for you. One of the most important factors is control.

Most investors consider an investment to be either active or passive depending on the level of control you have.  As a passive investor you are opting to relinquish most of the control to an experienced management company who will use your capital to acquire and manage a portfolio of properties. When you give up control, the investor is putting a lot of trust in the management company to execute the goals/business plan of the investment.

As an active investor, you can directly control the nature of the investments you make. You decide which investment strategy to pursue. You decide the type and level of renovations to perform. You decide the quality of tenant to accept and the rental rate to charge. You determine when to refinance or sell. With passive investing, all of the above is determined by the management company.  

Normally from an investment fit an investor is either active or passive, but not both, and it usually comes down to whether the investor wants to have control or not.

Conclusion:
In the end there are many ways to become a successful real estate investor. Not all strategies are the same, so it's important to understand the pro's and con's and to identify which path (active or passive) is best for you.  If you have any questions or are interested in learning more real estate investing, please contact me today at 207-712-3152.


Friday, October 18, 2019

Buying or selling a home with unpermitted work

By Nicole Foster, Broker/ REALTOR®

Maine is home to much of our nation’s oldest housing stock, which is evident when you look around. As real estate professionals we are seeing daily the building trends of years gone by and how they have either stood the test of time or not at all as well as everything in between. Would you rather purchase a home constructed in the 1920’s or the 1970’s?  Ask a local REALTOR® and they can help by explaining some of the current market inventory distinctions and their most common upgrades.

Homeowners are held responsible
Any change or improvement to a property’s original size or condition other than very minor upgrades (i.e. new sink faucet, interior paint) requires a permit from your local municipality, regardless if the homeowner is doing the work themselves or hiring a contractor. You or the contractor doing the work will need to complete the application and pay the required fee (if curious about permit costs then you can view the fee schedule online for most municipalities). When interviewing contractors to do home renovations do not just assume that they are pulling the required permits that YOU the homeowner are required to. Ask them if they will handle this and then take a moment to confirm that they did by either calling the Code Enforcement Officer or looking in the file yourself because you, the homeowner, are the one responsible, not the contractor.

http://locationsinmaine.com/I’ve recently seen a very expensive home using a high end, professional contracting company who
simply forgot to pull the necessary permits on a kitchen remodel and the seller was not made aware until they were selling. Also, recently I learned of a local case where a homeowner was denied an
insurance claim after experiencing a fire due to an electrical issue after it was confirmed the electrician they hired forgot to get the necessary permits for a small job.

Reasons homeowners do not get a permit
It is possible that the homeowners do not want to have their property taxes increased and if they can keep the improvements unknown to the Tax Assessor then they can continue to pay the same amount. Sometimes the homeowners are concerned that the work would not be allowed how they want it to be done or that the requirements will be to a standard they do not want to have imposed on them.

A homeowner may not want to spend the extra money on the cost of the permit fees, or they may feel that welcoming the Town into their home could reveal other potential violations so want to avoid a visit. Some just don’t realize that they were supposed to get one.

How do you recognize if work was done without a permit?
There are instances where it is quite apparent that work was done “on the cheap” and you can assume that you will not find the permits for it in the Town’s file at first glance. However, there are other properties where the quality looks like or is professionally done but the permits were never pulled, either intentionally or accidentally, so it can be quite difficult to recognize. Often, we compare what we see visually to what is reflected in the public records for the home. A professional and well-seasoned building inspector can help to identify areas that you should be concerned about but may not always be able to determine if work was permitted or not by visual inspection necessarily.

Buying or selling
Work closely with a local real estate professional who can provide you with a steady stream of information regarding what options exist for your particular situation and then advocate strongly for your best interests through this complicated process.

Sellers are required to disclose any work which was done without a permit during their ownership to prospective buyers when selling.  Buyers may be unable to obtain their financing from their bank if unpermitted work is flagged either by the underwriter or appraiser.

Each Town has their own approach and fee structure for how they deal with work after it’s already been completed and depending on the scope of the work can be cooperative or punitive. Unpermitted improvements may not bring the increase in valuation and appeal that competitive homes with all the permits will.

Nicole Foster is a real estate broker with Locations Real Estate in Falmouth and a Windham resident who loves people and real estate.

Friday, October 4, 2019

Getting your home ready for the cold season

By Mel Oldakowski

The cool autumn air and changing colors are upon us! This serves as a reminder to start prepping for the cold season ahead. Yes, it’s coming! Imagine, on the coldest winter day, you get out of bed and realize you can see your breath. You check the thermostat, only to realize the furnace has stopped working. That’s why fall and winter home maintenance is so important! Letting it go until it’s too late can lead to bigger problems and big-time headaches. Here’s a few things you can tackle while the weather is still nice.

Service your heating system. 
Early fall is a great time to beat the rush and have a heating specialist come out to look at your furnace. To keep your furnace from failing when you need it most, you should have it serviced at least once a year. These tune-ups keep it running longer and can identify deadly carbon monoxide leaks. It’s always best to have a professional give your entire furnace system an overview. Don’t be a jack of all trades!

Have your fireplace and chimney cleaned professionally. 
A chimney should be cleaned after each season—ideally before summer hits, because humidity plus the creosote can damage masonry. However, if the chimney wasn’t swept last spring, make sure it’s done before you use it this winter. A dirty, blocked, damaged, or improperly built chimney can result in CO poisoning, which can be deadly. 

https://www.bhgre.com/Better-Homes-and-Gardens-Real-Estate-The-Masiello-Group-10865c/Mel-Oldakowski-4962147a?utm_medium=referral&utm_source=internal&utm_campaign=agent&utm_term=a4962147&referredByAgent=a4962147Replace screen doors with storm doors. 
Storm doors are typically made of aluminum and strong glass and are designed to create a tight seal. This seal will prevent heat from escaping, improving your home’s energy efficiency.

Add attic insulation and check for gaps in existing insulation.
Proper insulation is one of the most important ways to keep the heat inside your home where it belongs. Gaps and thinning areas of insulation occur naturally over time. Attic insulation keeps heat inside the house (lowering energy bills), keeps temperature consistent between rooms, and helps prevent ice dams.

Insulate hot water pipes.
Unfinished basements, crawlspaces, and attics typically don’t get heat from your central heating system. This makes any pipes running through these spaces susceptible to heat loss and freezing. Install simple foam pipe insulators to keep them warm and conserve energy.

Add or replace weather stripping. 
Weather stripping blocks outside airflow through cracks on moving components, such as doors and windows. Blocking this airflow can help reduce energy loss and lower your energy bill by as much as 20+%.  If you already have weather stripping installed on your doors and windows, now is a good time to check it out and replace where necessary.

Take care of your gutters. 
Once the leaves have fallen and before the first snow, take time to make sure your gutters are in good shape for the winter. They’ll need to be clear of debris, free of leaks, and strong enough to handle snow in order to be effective all season long.

Trim tree branches and remove brush. 
Dead or weak tree branches can pose a physical and financial risk if not taken care of before winter. Strong winds and snow can break susceptible branches, which could fall on your house, your neighbor’s house, or power lines. Clear any leaves, brush and piles from your yard, particularly around your foundation.

Don’t forget to stock up on supplies. 
Stock up on ice melt, candles, matches, flashlights, batteries, ready-to-eat food, and plenty of warm blankets for those times when the power checks out. Check your snow shovels and snow blower. Are all your tools in good working order? 

It is best to be prepared for a long winter ahead so you can enjoy the warmth inside.