Smart Ways to Plan for Better Investment in Real Estate

Real Estate is a great source of investment provided that you do it the right way. The returns are not low; there are no interest rates to deal with and there are hardly ever any unpredictable elements involved. So why not make the most out of this almost perfect scenario and use it to your advantage? Just one issue in all of this; the situation will favor you only when you invest as required in a really smart manner.

There are several ways in which you can invest, but not all of them may be successful. Prior to indulging in even one of them, you need to make sure your goals are attainable and that you researched extremely well. All along, keep in mind that location is of utmost importance and in many cases has been the single key to a strong investment portfolio. Keeping all this is mind, here are the topmost plans which you can try out if you are interested in real estate investment.


Flipping has been practiced since eons in the real estate market, and is still just as popular. Though you can implement it independently, a better idea is to use it with a combination of other investment options. Conduct a though search, find an extremely rundown house and purchase it at the lowest possible price. Now fix or upgrade the property as deems appropriate and sell it back again at a price that takes into account the original price at which you purchased as well as the costs that were incurred in retrofitting.


Foreclosures are a widely used investment source in those markets that are characterized by property backlogs. Generally, the value of a house shows a notable increase only after a few years have passed. With a foreclosure, the effect is demonstrated in just a year or so, allowing you to enjoy really impressive profits.

Judgment Purchases

Compared to other plans, judgment purchases are slightly more complicated. You will have to buy a lien or a court judgment which a plaintiff will be holding against a debtor. The purchase of lien does allow you to invest in real estate, but the entire process is rigorous and takes time as well. Until you locate the liens and file all the paperwork at the courts, you will not get through.


There are many builders who have yet to sell off their properties and recover their losses somehow. All these builders often organize auctions to sell unused homes or offices. Do your homework, utilize effective biding strategies, and you might make a good enough profit particularly when you put in another investment option into the same picture.

Long Term Holding

Just as simple as long term holding is, it can be as successful as well. Buy a piece of land and hold onto it for several years. As time passes, the value will increase, and when you are ready to sell off the property, you will be able to gain a significant profit. During this time, you can either rent, lease or live on the property

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Role of a Real Estate Appraisal

A real estate appraisal is a monetary evaluation of your real estate property. You can either use it for determining a suitable market value for your home or the price at which you should sell it. An appraisal can be both formal and informal depending on whether it has been performed by a professional company or real estate agent.

In order to determine an appraisal value for your home, an appraiser would analyze the interior and exterior of your house, focusing on improvements which can be made and upgradations that have become a necessity. The appraiser would also observe the sales trends for other house in your area and in similar localities for a comparison. The results of this extensive study are then combined into a single factor in the form of your appraisal value, which is then used in several situations.

Though there are many scenarios in which appraisals are important, their role is most evident when it comes to mortgage loans, refinancing and buying or selling your house.

Whether you are thinking about refinancing your current loan or whether you want to avail a new mortgage plan, the appraisal value of your real estate has a key role to play in terms of approval from the lender. If your home appraisal value is low, it would just imply that your market value is not that high, and you will probably not be able to refinance a loan in such a situation. Similarly, if the home for which you are interested in acquiring ownership of does not have an impressive appraisal value, you will have a hard time in finding a lender who would approve your mortgage.

Selling Real Estate

If you are interested in selling your home, you will need the appraisal value to determine a listing price for your home. Contact a real estate agent and he would be able to do it for you. He would observe the price of other properties in your area that are similar to your house and were sold off in the last one or two years. Following this, the agent would account for other factors into the value, and come up with a suitable price. As an example, while a fence can increase your home value, leaking pipes will just bring it down.

Buying Real Estate

When you offer a price on a property and show your interest in buying it, you will have to have it professionally appraised. This would ensure your chosen lender that your selected property is worth investing and would favor him in the long run, provided he loans you the amount.  Moreover, this would also let your verify that your agreed upon price for the property is fairly reasonable. As such, there are many buyers that mention a contingency clause in the agreement stating that the sales is contingent only when a loan is approved which is further dependent on the appraisal value.

Refinancing the Loan

Appraisals have to be performed again when you apply for a mortgage refinance. The purpose remains the same which is to insure that the property is worth an investment.

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Different Reasons that Can Lead to an Escrow Cancellation

Escrow is a process in which all the legal documents and paperwork are in possession of a third party that acts neutrally between the buyer and the seller.

The lender also has to create an account, so that the insurance premiums, property taxes and any other related payments can be paid off. This is done when an application for mortgage is approved and closed. The borrower is also required to pay off taxes, insurance premiums, hazard coverage, assessment, repair costs and other incurred expenses that cannot be paid at closing time on a monthly basis.

There are several reasons as to why an escrow account must be established. Certain governmental mortgage programs specify an escrow account as mandatory. In some regions, the law states that an escrow account is essential for tax collection. A few banks also require an escrow account if the borrower does not meet the eligibility criteria like a down payment that is less than 20%.

Whatever the reasons may be behind the formation of an escrow account, it can be canceled in the following ways.

Pay off your mortgage loan

If you pay off your entire mortgage loan, your escrow account will automatically be canceled. In all arrangements that are made, it is necessary that the escrow account has funds. When you pay off your loan, this clause is violated which leads to the cancellation. Your only responsibility then is to pay your taxes and your insurance payments. All other requirements of the agreement are satisfied and hence, the escrow account is canceled because there is no need for it any more.

Sell off your property

Your escrow account will be canceled without you not violating the agreement if you sell off your home. When you receive the full selling price, you have to pay off the remaining balance of your mortgage to the lender. Moreover, when you sell off your home, you are no more obligated to pay off property taxes, which is why a cancellation can occur.

Avail mortgage refinancing

Refinancing will also allow you to satisfy your loan agreement. When you refinance your mortgage, the new loan pays off your old and then an agreement is established. This does not exactly require you to create a mortgage account, but that is only so when your lender agrees to.

Banks can consider a mortgage plan without an escrow, but they may require about twenty percent of your home equity for refinancing. This is an expensive option, particularly because the closings costs pile up.

Please note that if your state laws deem it mandatory for all mortgages to be based on an escrow account, then refinancing will not lead to cancellation. You will have to consider another options in this case.

Establish a good payment history

Your lender may agree to cancel your escrow provided that you have made timely payments in the past.

Have an LTV ratio of less than 80%

Your escrow account may be canceled if your loan to value ratio is less than 80%. However, this solely depends on your lender.

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Hardship Impact on Your Credit and Real Estate Portfolio

Have to face a hardship? That is sure unfortunate, and you will have to bear with it. What makes the situation worse is the fact that any hardship is not a story of just the present. Unfortunately its effects are carried onto the future as well, and can significantly impact your real estate portfolio and credit rating. Whether you require a loan now or will need it later, a hardship is just going to make the approval phase all the more difficult for you than it already is.

When you go to a hardship, your credit rating plummets down. You can increase it but it requires a lot o time, several years in fact. As such, the best thing is to stay out of hardship because you will probably not want to face the consequences. Here is a quick look at just how damaging a hardship can be.

Credit History

A hardship can result in negative actions being recorded on your credit history while significantly reducing your score. You may have trouble in maintaining your debts, and so you might make late payments. In some cases, all this may lead to a continuous delay in your payments as a result of which your loan may be handed over to a collection agency. True, it is just one loan that you mismanaged, but it will still have multiple effects on your credit history. And the bad thing is, though you can improve your score in future, there is no way that you can wipe off what goes in your credit history.

Credit Score

Since a hardship puts a negative light in your credit history, your credit score also suffers because of it. For instance, assume that you default on a mortgage, and your lender decides to foreclose on your real estate property. The effect of this one act can reduce your credit score by anything that lies in between 130 and 230 points, which is quite a massive range. If along with this, you start delaying your payments or the like, your history will be devalued and your score will be further lowered.

There are certain specific situations in which you might be able to reach some negotiation terms with your lender. He may consent to changing the mortgage terms or providing you with an option that could somewhat better the situation. However, your credit score will still decrease

Real Estate

You might overcome hardship but it would take you eons to counter effect the consequences. You will have to spend several years before your credit score improves and information on your credit history will stay there or quite some time.

All this will affect your loans in the future and many lenders would not be keen to borrow you huge amounts. As such, it would be difficult for you to buy a new home or another real estate property soon enough. Most lenders refuse to provide you it a mortgage until the episode becomes two years old. For some others, you may have to wait even longer.

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