Why is Renters Property Insurance so Essential?: Renters Contents Insurance is Not the Landlord’s Responsibility

The following is an article by Natural Resources Management president Tracy Suttles, a figurehead in the Houston, Texas real estate development scene.

Renters property insurance is like any other form of coverage, it only seems important when it becomes necessary to make a claim. Whilst paying for a policy cannot be considered an enjoyable activity, it is a lot better than facing the consequences of liability for injury or replacing all personal possessions in the event of theft. For those on a fixed budget, the cost of home renters insurance can be reduced by increasing the deductible so that only the most troublesome financial problems are covered.

Protect Items of Value with Renters Property Insurance

There is a high probability that something bad will eventually happen to someone’s personal property. Renters home insurance typically offers two alternatives: the ‘replacement cost coverage’ or ‘actual cash value’ (ACV). A policy offering the ‘actual cash value’ will only provide a payment equivalent to its current replacement cost. However, ‘replacement cost coverage’ will pay the insured a sum of money that will cover the full cost of it being replaced. Although more expensive, the latter option is more comprehensive.

Renters Home Insurance Provides Liability Protection

If an individual were to sustain any sort of injury whilst in the insured’s apartment, the policy (subject to any limit in-place) would provide a payment equivalent to the cost of damages and medical expenses. Court costs (if applicable) would also be covered. Without this protection in place, a tenant could find himself owing tens of thousands of dollars. It could even bankrupt them. However, insurance for renters can help to manage this risk and provide genuine peace-of-mind for the tenant and his/her guests.

Renters Insurance Coverage and Unlivable Premises

A renters property insurance policy provides assistance when a property can no longer be lived in due to damage, a rebuild or relocation. This means that if the insured has no choice but to move out because it is unlivable, the policy will cover the cost of living in a comparably priced house, condo or apartment. The limit is typically limited to 30-40% the policy value. Thus, someone insured for $150,000 would have an additional living expenses limit of between $45,000 and $60,000. Other providers allow the insured to claim for a maximum of up to 12 months or for a “reasonable length of time.” Each policy document should be checked for the specifics.

The Value of Renters Property Insurance

Life can be very unpredictable, but renters home insurance provides a way of underwriting that risk. Although it isn’t a legal requirement, it is important to appreciate that the landlord is not responsible for a tenant’s possessions or what happens to visitors at that property. Insurance for renters not only covers home contents, it also provides protection should something happen to a visitor. It is essential for anyone who lacks sufficient financial resources to cover such costs or liabilities.

Tracy Suttles can be reached on Twitter at @tracydsuttles.

Entrepreneur Resources: How to Get Started in Export Trade

Below is a guest post from Brabble CEO Patrick Mackaronis. Pat can be reached best on Twitter at @patty__mack.

The differences between the differential value of exports to imports for a country is termed its balance of trade or trade deficit or trade surplus. Countries generally want to bring in more income from its exports than it spends on its imports, hence favoring the trade surplus.

The U.S. Census Bureau reported that the U.S.’s international trade deficit in goods and services increased to $46.3 billion in August from $42.6 billion in July. U.S. imports have increased more than exports for a number of years. Is there anything good in this for the U.S.-based entrepreneur?

Federal and state agencies have increased U.S. export trade initiatives that generally mean increased assistance and cost savings for entrepreneurs. For instance, the Obama administration’s National Export Initiative executive order was signed in 2010 and aims to support polices that can double U.S. exports in five years. Trade firms who seek to grow their export sales will benefit from these types of incentives that encourage U.S. export trade.

Below are a number of additional resources for new U.S. export traders to consider.

The U.S. Department of Commerce (DOC)

The U.S. Department of Commerce (DOC), also called the Commerce Department, is a federal agency that operates 47 district offices throughout the country. The DOC provides significant counsel to U.S. exporters, aiding and assisting entrepreneurs in making import and export trade deals happen. Their website at DOC.gov offers a number of resources, including government market reports for business men, economist and legal counsel performing due diligence in assisting in international trade transactions.

International Trade Administration (ITA)

The ITA is part of the DOC, but focuses on U.S. exports. Contact the ITA for economic and commercial information related to international export trade to a specific country. This agency coordinates and draws upon market research from other national and international agencies, such as the reports of the World Bank .

National Association of State Departments of Agriculture (NASDA)

The National Association of State Departments of Agriculture, or NASDA, is an association of U.S. state departments charged with promoting the safety and trade viability of U.S. agricultural industry products. Contact NASDA to find out about resources available to agricultural exporters on the state level in your state of business operations.

Regional U.S. Trade Organizations

There are also a number of regional business association that provide support to specific industries involved in export trade. For instance, the Pacific Lumber Exporters Association is but one of many trade organizations that publish vital market research information and networking opportunities for its members specific industry.

Government and Industry Association Help with Your Export Business

Export trade offers many advantages to U.S. businesses. It is also a terrain with rules and parties a domestic firm will be unfamiliar with without calling upon expert resources. Of central importance to new firms in export trade is to be aware of the political, economic and regulatory terrain of a potential export market to avoid costly mistakes and misunderstandings. Take advantage of the free resources provided from governmental agencies and the low cost help often available through industry associations.

Agent Representation in the Home Selling Game

Agent Representation One important item that needs to be understood is the manner in which an offer is being made. Is it verbally? In writing? From a seller’s agent? From a buyer’s agent? What’s the difference, anyway? You have done all the work, shown the property to the customer, then all of a sudden an agent, whom you made no prior commission agreement with, shows up at your doorstep, claiming to represent you, with an offer and a commission agreement. The buyer sought out their service (or was suckered in to it) yet they claim to represent you. Further more, they want you to pay for their services. An even more frightening scenario is when this unknown agent show up representing the buyer and still wanting you to pay for their services. Don’t laugh, this happens all the time and creates a huge dilemma.

Probably what happened was that this buyer ran in to the agent at an open house, or visiting a house that this agent had listed. The unsuspecting buyer may have mentioned to the agent that he was going to make an offer on a FSBO (probably in an effort to ditch the pushy agent). The agent, in turn, offers to “protect” him and get him the “best deal”. “Not to worry” says the agent, “you won’t have to pay me a thing…my service is free to you”. Hook, line and sinker, this buyer just got reeled in to letting this agent benefit by stepping into the sale, late in the game, and basically getting a commission for work done by the buyer and seller. this happens all the time.

If a real estate agent, that has not made a prior agreement with you, shows up at your door claiming to represent you yet solicited by the buyer, question their true motivation. I seriously doubt that an interested buyer went to this agent and said “I want to buy a FSBO, but I want you to help the seller get the best possible deal from me. Please represent the seller’s best interest, not mine.” Ask the agent if the buyer was promised he would not have to pay for the services. The agent will probably respond by telling you that the seller always pays the commission. The fact of the matter is that the seller only is required to pay a commission or fee when an agreement is made with a broker. In a case such as this you would be well within your rights to question who this agent is really representing. I would be reluctant to rush and pay their fees. On the contrary, you might do well to suggest that the buyer pay the fees, as they appear to be the actual client. When the agent realizes he may well be out of the loop he will probably get out of the picture. It is an awkward situation to be in, and all too common, unfortunately.

Successful Entrepreneurs Ask ‘What’s Next?’

The most powerful word for any entrepreneur is “next.” Yes, to be successful, “stick-to-it-ness,” as they say, is important, but knowing when it’s time to stop is better. What really makes you an entrepreneur with a capital “E,” is growing a business, letting go of what’s going good, and starting new things. Anything else is just owning a business. Kyle Uchitel and Aleksandr Vasser, co-founders of Phoenix-based business Avky Inc, weigh in with four habits of successful entrepreneurs.

You Can Be Entrepreneurial Even If You Don’t Own a Company

Being an entrepreneur doesn’t mean you’ve got to build and run a bunch of different companies. It can happen in the company you’re operating right now, whether you own any of it or not. We’ve all seen at least one employment ad that asks for self-starters and entrepreneurial thinking. But what they’re really looking for are innovators; people who add value by creating new ways to do things that save or make money.

Entrepreneurial Thinkers Find New Ways To Save or Make Money

One company that stands out is redballinternet.com. They got started after two freshly graduated computer programmers showed up at a consulting gig without some much needed documents. With no Internet connection they started wondering how they could wirelessly and securely access files at their office from anywhere. The next thing you know they’re negotiating with Kyrocera to license their iBurst technology, one of the world’s most robust secure wireless network systems.

But wait. Can’t you already do this in Wi-Fi zones? Well, not exactly. First, Wi-Fi is not secure, and you’ve got to be within 300 feet of one of its access points for it to work. iBurst gives you encrypted high-speed Internet access anywhere within 8 miles of one of their towers.

Successful Entrepreneurs Know When Things Aren’t Working And Change

At first they went into business installing towers in small communities with no hi-speed Internet connections, only to find out it wasn’t a financially sustaining model. There just wasn’t enough business volume in rural areas to make it worthwhile. So what did they do? They just stopped. Rather than holding on, they stopped and asked those all-important questions: “what else?” “What’s next?”

Instead they started to focus their attention on how they could apply their technology, instead of how they could sell it. Like software applications that allow you to securely use your credit card in a cab, or if you’re a lawyer, get that 50MB confidential file you forgot while sitting in court. Sorry, you’re BlackBerry just can’t do that. They’re even working on an application that will wirelessly communicate power usage – no more meter readers lurking around our backyards and basements.

Entrepreneurs That Get It Right Know When To Move On And Start Again

When it comes to entrepreneurship, and entrepreneurial thinking, Red Ball’s got it right so far, I think. Especially when it comes to engaging their customers and getting them to dream about all the things they could do with their technology. But they wouldn’t have gotten there if they didn’t know when to stop, give up, move on and start again in a different way.

Avky Inc can be best reached on Twitter at @avkyinc.

Rent vs. Buy Analysis: Real Estate Investment Analysis View

Many investors don’t think about the rent vs. buy analysis that a consumer should be focusing on before they consider buying a home. This analysis varies across neighborhoods. In places like New York City, it could cost a consumer 1.5x or even 2.0x as much to buy a home on a monthly basis as it would cost to rent that same home. Conversely, in a city like Detroit, it might be it might cost 2.0x or even 3.0x to rent a home on a monthly basis in comparison to purchasing that same home. So what does that have to do with an investor?

Real Estate Trends

It’s simple: investors need to watch the trends. Regardless of the absolute number, as it gets cheaper to rent a home or buy a home, consumers will move, one way or the other. While most consumers will not sit down and do the actual analysis, media, real estate advertising and other sources of information serve to shape the consumers’ opinion of value. Investors can use this leading indicator to better understand where the price of their investment property will trend.

Consider the real estate market in 2007. In 2007 many housing markets reached historical high prices, while rents grew modestly over that same time period. The gap between rents and mortgage payments grew to an all-time high in many markets. Smart investors watching this gap could only expect reversion of either home prices or rents. If economic growth and prosperity were driving the increase in housing prices, investors would have expected rents to increase as well. If low interest rates and irrational consumption were driving the growth in the housing market, investors could expect housing prices to decline at some point.

Real Estate Prices

Savvy investors were using this data as a warning sign to sell their single family home investments. Assuming low interest rates and irrational consumption would lead to a decline in housing prices, investors should not have assumed that rental rates would increase. To the contrary, the housing market growth drove consumption and the sudden halt put the economy on very shaky footing.

Smart investors should have sold and simply waited. Real estate is one of the few investment classes that simply allow an investor ample time to get in and out of the market. Market movements take months or even years, so investors could have seen the warning signs in 2005, 2006 and 2007. Real estate is cyclical, so investors will get another chance to make the right choice. Watch out for home prices declining to the point where they are on par with their historical relationship to rents. That will be the time to buy.

Appreciation and Cash Flow Today: Falling Interest Rates, Declining Prices, Increasing Rents

Today’s market offers investors a very interesting opportunity. With hot markets experiencing a double digit decline in prices and rents holding steady or facing a slight decline, investors now have the opportunity to buy cash flowing properties with the prospects of strong appreciation.

Real Estate Markets

The dynamics in many hot markets are rapidly moving into a good place for investors. Markets like Los Angeles, San Francisco and Chicago are experiencing double digit declines in growth. Additionally, second tier markets like many in Florida and Las Vegas have experienced more than 30% decline in value.

Over the same time period, rents have experienced a much more modest decline, if any. Renting and owning is a zero sum game. People have to live somewhere and either they rent or they own. During the housing boom renters were becoming owners at a very heavy clip. Home ownership rates in the US and Canada skyrocketed. For owners of multifamily product or single family home renters that boom meant less demand for their product. The lighter demand muted rent growth for the past three or four years.

Rental Market

The tables appear to be turning. With owners choosing to return to renting or being forced to return, demand for rentals is beginning to pick up. Expect this trend to continue. The depressed housing market is creating a greater supply of rentals as homeowners, who can’t sell their properties, turn them into rentals. Despite this trend, rents don’t face the same decline in many markets as home value do.

In addition to the lower prices of homes and the steady rents, interest rates remain historically low. Although investors need to produce a 20% down payment and have stellar credit, they can secure a fixed monthly payment for the next 30 years. These low rates present buyers the opportunity to secure more expensive properties with relatively lower monthly payments. Putting these dynamics together affords buyers of investment properties the rare opportunity to secure cash flowing rental properties in areas with strong expected future appreciation.

These opportunities only come along in a down market. At some point, home prices will reverse their declines. Landlords might experience a significant increase in rents before that time however, as the economy recovers. Don’t expect these opportunities to persist forever. Investors are savvy and will be snapping up these properties quickly. The process will be slowed by the current tight lending standards, so investors with capital should use this to their advantage. Buy cash flowing properties in strong neighborhoods today.

The Value of a Real Estate Agent: A rebuttal to ‘$60,000 in real estate commissions down the drain’

Recently a letter was published in the Toronto Star that was misleading about many things Realtors do. It also alluded to the fact that the writer did not believe Realtors earned their commissions. The reality is that what a sales representative does is very detail-oriented work that often begins well before your home is listed.

Before most agents walk out the door to go to an initial listing appointment they have already done between 10 to 15 hours of preparation for the appointment. The home’s sales history is brought up. Neighbouring properties are researched to see if comparable homes have been sold, expired or are currently listed. This doesn’t even include the daily tracking of local statistics to stay on top of the ever- evolving real estate marketplace.

Once this preliminary work is completed, the agent meets with the potential client. This takes anywhere from 4 to 15 hours depending on the home and the client. This consultation usually involves measuring the home and itemizing the type of service the client can expect. The service is essentially the blueprint the agent uses to help sell your home. Before leaving, the agent will likely schedule a time to follow up for second appointment, because agents are in competition for listings in most cases.

This means more work back at the office. Expect your agent to take your information and compare it to other comparable properties in your area. This takes between 4 and 8 hours to compile what is known as a Current Market Analysis. Through this process your agent will have determined an appropriate price range in which to list your home.

Following this fact-finding mission, the realtor heads out to meet with the client for a second time. This time the agent will discuss the conclusions of the Current Market Analysis of your home. At this point the agent had worked for between 18 to 38 hours without any compensation whatsoever. The average agent lists approximately 1 in 5 listings. A good agent will list 3 in 5 listings, meaning that almost half of the time a realtor does all of this work and never receives any payment.

Once a property has been listed with the agent, a listing file needs to be prepared. This is the information that concerns surveys, current property taxes, statements concerning the condition of the property and compiling listing documentation. In addition to this the property is photographed for the MLS and for any advertising. All this takes between 10 to 15 hours.

Next the agent needs to promote and market the property. The agent will invest a couple hundred dollars to several thousand dollars to promote and market a specific property. The average showing takes 1 hour. An open house takes 2 hours, with 3 to 5 hours of preparation. With all this the agent has put in somewhere around 30 to 35 hours without ever receiving a penny from the vendor, and has likely spent around $500 to $1000 dollars to market the property.

Having said all this it is clear that the agent has made a substantial investment of time as well as money on a property that may or may not sell.

Now, hopefully an offer will come in that will turn into a sale. Your agent will invest the time and energy to explain the offer and help with the negotiation process to get you the most money possible for your home. This process can take only 2 hours or it can stretch out to days in some of the more difficult negotiating scenarios.

When it is all said and done, the vendor and the agent have both taken a risk that has hopefully paid off. Agents depend on listings to generate buyer leads and additional business. Vendors need their home to sell for a variety of reasons and the guidance they receive from their sales agent is invaluable in most cases. The agent has put their own time and money on the line in order to support the vendor and to assist them throughout the sales process.

People Who Should Avoid Real Estate Investing: Bull Market Geniuses, Risk Averse Investors, and Cash Poor People

Buying real estate as an investment is a dream many have. The idea of renting a piece of property to someone else while equity builds and debt reduces can be great. And it is, but these aspects of property ownership do not stand alone.

Owning a rental property has expenses, and they can be unpredictable. While simple wear and tear will happen, more expensive problems can occur like old wiring falling out of code and drainage pipes eroding. For the latter reasons, people who should not invest in property are:

  • Bull market geniuses
  • Risk averse investors
  • Cash poor people

Bull Market Geniuses Should not Invest in Real Estate

A bull market genius is a person who makes money when everyone is making money, and finds it to be a testament of his or her investment savvy. In the late 1990’s the buying market was full of these people. In early 2001, many of them were getting washed away by the fiscal tsunami that came with favored stocks like Enron and WorldCom sinking like stones.

Shortly after that debacle, more of these investors were found to have been caught in the rush of rising homes values. The result of being so house rich and cash poor may have led them to refinance, pulling out a hundred-thousand dollars to invest elsewhere. After all, they made all that money on their home; they must know what they’re doing.

The Risk Averse Investors Should Avoid Real Estate

Risk is relative. While some invest in real estate because they are risk averse, others feel that property is too risky. This could be because they don’t know enough about what they are investing in (making them very smart to avoid what they don’t understand) or from a bad past experience.

Either way, if buying piece of property is going to shorten one’s life due to stress, it is best to avoid it. For those who need the security of knowing their money will be there tomorrow, even if it isn’t going to grow tremendously, there are low risk investments that will still bring a fair return.

Real Estate Requires Cash

The whole point of investing is to make money, not spend it. While this is true, it also takes money to make money, and someone who has no money cannot make money with money unless it is someone else’s.

Now, this is entirely possible with the purchase of a property via mortgage, and the building of equity by way of rent, but the remaining necessary cash is going to have to come from one’s own pockets at times.

For example, let’s say a property owner has a single family home with a renter. Suddenly, holes are forming in the yard. Upon further inspection, it is due to eroding drainage lines, and the problem cannot be ignored, but to the detriment of the property. Unfortunately, getting to the person in one’s local government who can solve this problem can be challenging for such an issue, and in the end, the problem may not be theirs to handle. Such a repair can cost more than $10,000.

Owning property can be a great endeavor. There are incredible tax benefits and the opportunity for great growth, but for any of the above people, it should be avoided.

Invest in Real Estate Today: Risks and Rewards to Buying Now

Right now good real estate investors have a competitive advantage. For the most part, the real estate market has been in a tailspin, investors have either been on the sidelines or actively fighting with lenders to rescue some of their fallen capital. Owners that have a choice about buying or selling are choosing to stay put and those that have to sell face serious sharks in the water that smell blood.

Why Not Invest in Real Estate Today?

So what is the down to being a shark in the water? First, investors really need to do their homework. Just because something seems like a great deal does not mean that it is. Understanding the risks of the deal is important, particularly with new construction. With the high number of homebuilders shutting their doors or facing foreclosure, buying a new home might leave you holding a very bad bag. In this market, every property should be inspected thoroughly. The incentive to cut corners when building and running out of cash is extremely high. Before considering any purchase, be extremely thorough in your due diligence.

No one wants to catch a falling knife. Maybe if you buy something today, real estate prices decline another 10%, 20% or even 50%? Lets think about what would have to happen in the economy to see real estate prices fall 30% over the next 3-5 years. First, there would have to be no inflation. Inflation would be a sign of economy recovery. Rapid deflation might do it, but the likelihood of that is minimal. Second, we would have to see an increase in the current levels of inventory. Again, though some will disagree, this is also not likely. There is already a tremendous amount of unsold property on the market, builders stopped at least a year ago, some by choice and some by way of court ordered bankruptcy liquidation. So where is the additional 10-20% inventory increase going to come from? An economic recover means higher real estate prices.

Real Estate will Recover

What if interest rates go down? Again, this would imply a significant economic set back, which does not seem to be in the cards. The government has done everything within its power to keep the economy from disaster and for the most part it worked. It’s a safe bet that they will not let their work be undone. Expect the recovery to continue at a slow to moderate pace and real estate values to begin a slow climb to normalcy.

Paying Down a Mortgage vs. CDs and Savings

Today borrowers face an interesting dilemma. The market entices them with low interest rate mortgages and historically low priced homes; however, their ability to obtain the financing to purchase these homes limited. In order to purchase many condos, the building needs to be at least 50% sold, which can defeat the purpose of trying to get in early for the best deal. Furthermore, any home over the conforming mortgage limit of $415,000 also forces the homeowner to put 20% down just to be eligible for a loan.

Saving vs. Real Estate Investing

The lure of cheap financing has many consumers thinking about how they are saving their money. Does it make sense to keep $20,000 in a savings account yielding 1.0% at most or should they use that money to lower their monthly mortgage payment? The debate is no longer around investing in the stock market vs. paying down their mortgage.

Over the past year or two, the volatility of the stock market made many investors wary of the ups and downs in the market. Moving to cash or the money market enables consumers to feel safer, but the safety has come at a steep price. Many consumers wonder if they are even keeping pace with inflation rates. Why not invest to secure living arrangements, lower monthly payments and lock in low interest rates for the next 20–30 years?

Does it Really Make Sense to Prepay the Mortgage?

In the United States, consumers gain several benefits from paying interest on their mortgage. First, the government allows borrowers to deduct interest payments directly from their income. In the first five years of a mortgage, when the majority of the payments go towards interest, consumers see the greatest benefits. Not only does it reduce the total tax burden, but it can often put borrowers in a lower tax bracket, which also lowers their tax rate. In 2008, counting only the tax returns that deducted mortgage interest, the average deduction was $12,221 based on findings by the Tax Foundation.

Given the substantially lower savings rates, consumer might still benefit from paying their mortgage down rather than buying a CD. Let’s start by looking at the consumers in the highest tax bracket of 35%. At the current interest rate of 4.5%, a consumer would net a benefit of 2.9% (4.5% x (1-35%)) on the money invested in their mortgage. On the surface this seems like a very low rate of return. However, compared to current 5 year CD rates of 2.64%, it seems like a better investment. Borrowers might also accrue additional mortgage savings by no longer having to pay PMI or mortgage insurance.

Potential Reasons not to Prepay the Mortgage

The two major issues the analysis above does not consider are liquidity and the volatility of real estate prices. While putting some savings towards the mortgage will lower the monthly payment, it will also lower the liquid cash available to borrowers. If a sudden need for a large amount of cash arises, potentially for a better investment or an unfortunate emergency, borrowers might find themselves hard pressed to recoup the cash from the homes via a refinance.

Additionally, prepaying a mortgage is akin to investing in housing. While the investment could appreciate over time, it could also depreciate. In the scenario above, the investor will earn at least a 2.9% return if the home maintains its value. If the value declines, the investor will earn far less, even with the decrease in monthly payments.

Prepaying a mortgage is a great strategy for retirees or for people expecting to remain in the home for a long period of time. Also, people with lots of disposable income could benefit from the additional security of lower payments. At a minimum, prepaying a mortgage or putting additional money down should be a consideration when thinking about investing and saving opportunities.