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A real estate attorney is required at closing in many states. Even if your state doesn’t demand that a real estate lawyer appear, having a legal professional representing your interests is usually a good idea.

When you’re investing in real estate, finding the right lawyer is essential. Your real estate attorney assists you in navigating every aspect of the process. If legal issues arise in real estate transactions, you have someone who knows real estate laws fighting for you.

What Is a Real Estate Attorney?

As with doctors, lawyers have their own areas of specialization. While some attorneys are generalists, when buying and selling property, you should hire a true real estate lawyer to advise you and protect your interests. Such an attorney is well-versed in property law concerning state laws.

If you are considering investing out of state, look for attorneys licensed to practice in other states.

What Does a Real Estate Attorney Do?

A real estate attorney represents you in all matters related to real estate law. Your real estate attorney’s role may include the following tasks:

Legal documents preparation

Even simple real estate transactions can involve substantial paperwork. More complicated situations only increase the sheer volume of legal documents.

For instance, a real estate lawyer arranges with a title company to conduct a title search. The property must have a clear title with no third-party claims. Once the title company provides a report, your real estate attorney reviews it and works with your mortgage lender or other relevant parties if any title issues exist.

Ensuring all legal documentation is correct is a primary role of real estate attorneys. Real estate is likely your biggest investment. Working with a licensed attorney is critical.

Contract review

During the review process, your lawyer should catch any errors in closing and other documents involved in the real estate transaction. The start of the deal is the real estate contract.

Often, a real estate agent draws up the initial contract. Real estate lawyers must review the purchase contract carefully, as it sets forth the buyer and seller’s obligations. The attorney then drafts riders, also known as amendments, for their clients’ needs. These amendments may involve financing and appraisal contingencies, personal property included or excluded, and unique provisions affecting the property in question.

Dispute resolution

Real estate transactions don’t always run smoothly. Perhaps there is a lien on the property, a title issue, or a boundary question. Your real estate lawyer works to resolve these disputes so you can move forward with your real estate transaction.

Business formation

Using the right business formation for investment properties protects you from liability. Your real estate lawyer will work with you to determine whether an LLC, partnership, or some other type of business entity is best for your legal needs.

Financing and refinancing

 A real estate attorney may advise you on mortgage financing and when to refinance your mortgage loan. They may work with a mortgage lender or commercial real estate lender to help with financing.

Real estate attorneys also guide you on related legal matters, such as tax implications when selling property.

Equity and debt investment structures

Real estate lawyers assist clients in the structure and management of their equity and debt, focusing on maximizing their returns.

Drafting tenant leases

Your real estate lawyer should draft a strong lease agreement for tenants to avoid potential disputes. All parties benefit from a clear lease agreement that protects their interests.

You could simply use a boilerplate lease agreement and save some money as a landlord. That’s a penny-wise and pound-foolish, as a professional with a thorough knowledge of real estate law ensures your real property is as fully protected as the law allows.

Dealing with tenant complaints

When a tenant complains, you must know whether that complaint is legitimate according to the terms of the lease or applicable local, state, or federal law. Your lawyer will explain landlords’ and tenants’ legal rights and responsibilities and whether the complaint breaches the lease agreement.

The attorney will act to resolve the complaint before it escalates into costly litigation.

Property tax advice

Real property ownership means paying property taxes. Your current property taxes may not reflect the realities of the market. Your lawyer can advise you about filing a property tax appeal to fight an overvalued assessment.

Benefits of Partnering With a Real Estate Attorney

When you partner with a real estate attorney for your investment properties, they can handle virtually all of the process. That leaves you, as the investor, more time to concentrate on obtaining a good return on the investment.

If problems arise before, during, or after the purchase of a property, you can rely on your real estate lawyer to sort them out.

Real estate attorneys will advise you about backing out of a deal and avoiding a costly mistake.

The bottom line is that the real estate attorney you hire is always working to protect your best interests.

How Much Does a Real Estate Attorney Cost?

A real estate attorney’s services may be inexpensive, but remember, you get what you pay for. How much you can afford in legal fees is one of the first things you should determine when considering hiring a lawyer for your investment team.

A real estate lawyer may charge you hourly or flat rates. Remember that while a more experienced real estate attorney will charge higher fees, their expertise is worth it.

How To Find a Real Estate Attorney

You can always find a real estate attorney online. Googling is a great way to get started, but the goal is to find a good real estate lawyer, not an average attorney.

Your best bet is often asking for recommendations from those in the real estate industry, such as a real estate agent or fellow real estate investor. They know the best real estate attorneys in your area. Friends or family with real estate experience are another good source of advice.

Look for lawyers with experience in your particular field. For instance, if you’re investing in commercial property, look for attorneys specializing in that domain. Some real estate lawyers are generalists, doing whatever real estate work comes their way. Because the various realms of real estate investing are so different, these attorneys are more likely to make mistakes. They are not necessarily experts in real estate law.

Rather than go with a larger firm, check out smaller practices. You will work directly with one attorney rather than being delegated to less experienced associates at larger firms.

What To Ask a Real Estate Attorney

Conduct interviews before deciding on whom to hire as a real estate attorney. You seek a long-term professional advisor, so you must know exactly what to expect. Ask the following questions:

• What is your fee schedule? Do you charge a flat fee or an hourly rate?
• Where did you go to law school?
• What is your experience with either residential, commercial, or industrial real estate investing?
• How many real estate transactions have you closed?
• Do you go to court regularly to handle evictions?
• Do you have any potential conflicts of interest?

Save Money in the Long Run With a Real Estate Attorney

Legal fees aren’t cheap, but they are far less expensive than losing a property due to an avoidable legal problem. After all, real estate investing aims to maximize profits while reducing risks. The right real estate attorney helps to fulfill both objectives.

By hiring a real estate attorney as part of your investment team, you should save money over the long term.  That’s because the work of the attorney you hire can limit future problems.

Once a real estate attorney is hired, you have someone to advise you on every aspect of your investment strategy while protecting your interests. Smart investors know how valuable the services of a lawyer are when dealing with complicated legal matters pertaining to property.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Although filling out IRS tax forms each year isn’t any fun, it is a necessary part of real estate investing. Thankfully, the tax forms for rental properties aren’t complicated. If you are investing as a member of a partnership or as an S corporation, you will need to report your earnings on Form 8825.

Making sure you fill out Form 8825 correctly is vitally important. Accurate financial reporting is required and could help you determine if you qualify for certain tax deductions.

What Is Form 8825?

IRS Form 8825 is a special tax form specifically for reporting the rental income and expenses of a partnership or S corporation. The form allows you to record the financial information for eight different properties. If you have more than eight, the additional properties can be reported on a second Form 8825.

Form 8825 is not to be used by sole proprietors or single-member LLCs. If you are filing as a sole proprietor or single-member LLC, you will record your rental real estate activities on Schedule E (Form 1040), which is used to report supplemental rental real estate income and expenses.

Who Uses Form 8825?

Form 8825 reports the rental income of partnerships or S corporations in the United States. Suppose your S corporation owns two apartment buildings, a self-storage facility, and three single-family rental homes. In that case, you will need to include the income and expenses of each property on the form.

If you are reporting partnership income, Form 8825 should be attached to Form 1065 (U.S. Return of Partnership Income). If you report S corporation income, Form 8825 should be attached to Form 1120S (U.S. Income Tax Return for an S Corporation).

It’s important to point out that Form 8825 can be used if your partnership is an LLC, but it doesn’t have to be used for all LLCs. A single-member LLC, for example, would use Schedule E (Form 1040).

What Type of Expenses Go On Form 8825?

The IRS only taxes rental real estate activity on the net income earned. Net income simply refers to gross income less expenses. To derive the taxable net income, Form 8825 includes lines to enter certain expenses, which include:

• Advertising
• Auto and travel
• Cleaning and maintenance
• Commissions
• Insurance
• Legal and other professional fees
• Interest
• Repairs
• Taxes
• Utilities
• Wages and salaries
• Depreciation
• Other

If you aren’t sure whether a particular operating expense qualifies, check the Internal Revenue Service website. You can also consult a tax professional like a CPA to clarify the issue.

How Do You Fill Out Form 8825?

Although IRS form 8825 may appear somewhat intimidating when you first look at it, it’s not complicated. The form is logical and easy to follow. The required information for each line is clearly labeled, and the instructions are included when you download the form.

1. Enter your name and employer identification number (EIN). It’s important to ensure you include this information on all the tax forms you submit. This will help to prevent errors or delays if a form is lost or misplaced.
2. List the physical address of each property you own. You must also include the property type (multi-family, single-family, short-term rental, etc.). You will also need to indicate the number of days the property was rented and the number of days it was used for personal use (if any).
3. Enter the gross income for each property. Be sure to match the right income to the right property. For example, the income you list in column A must match the property you listed in row A.
4. Enter all of your expenses for each property. If you have any expenses not listed, you can include them in the section labeled “Other.” Add all of your expenses for each property to determine the total. You then subtract the total expenses from the gross income for each property to determine the income or loss.
5. Add your gross rental income (line 2, columns A-H) and gross rental expenses (line 16, columns A-H).
6. Enter the net gain or loss from the sale of rental real estate property. This information is found on Form 4797, Part II, line 17.
7. Enter your net income or loss from any rental real estate activity that is from a partnership, estate, or trust where the S corporation or partnership is a beneficiary or partner. This information is obtained from Schedule K-1.
8. Enter the names and EIN of the partnerships, estates, or trusts from the previous step.
9. Determine your net rental real estate income or loss. This is done by adding everything in steps 5-7. You will then enter the amount either on Form 1065 (for partnerships) or Form 1120S (for S corporations).

What Does a Practical Example Look Like?

The best way to understand how to fill out Form 8825 is with a practical example. Let’s say you are in a real estate partnership that owns the following properties:

• One multi-family property
• Three single-family homes
• Two self-storage facilities

Because you are in a partnership and your rental real estate activities are not from a sole proprietor or single-member LLC, you must complete Form 8825 to report your rental real estate income.

After filling out the name and EIN number on Form 8825, you will enter each property’s physical address and the number of days it was used as a rental in rows A-H. Be sure to list each of the single-family homes and self-storage facilities separately.

You will then enter your gross rental income and expenses for each property in columns A-H to obtain your net gain or loss. Next, enter the income or loss from Schedule K-1 on line 20a. Enter the name of each partner and the EIN, and then combine lines 18a-20a. You will then enter the result on either Form 1065 (for partnerships) or Form 1120S (for S corporations).

That’s all there is to it. Although many tax forms have earned reputations for being difficult and time-consuming, Form 8825 is simple and easy.

How Do You List LLCs on Form 8825?

Many real estate investment partnerships form limited liability companies (LLCs) to protect their personal assets in case they are sued. If someone slips and falls in a rental unit, the owner’s bank accounts, homes, and other personal assets are protected if the suit is successful. LLCs can be either single-member (one owner) or multi-member.

Because Form 8825 is only for partnerships or S corporations, you will only list LLCs on the form that are either partnerships or S corporations for tax purposes. If you have a single-member LLC, rental income will be reported on Schedule E (Form 1040).

Is Form 8825 the Same as Schedule E?

Form 8825 and Schedule E (Form 1040) are similar insofar as they are used to report rental real estate income. They are, however, two separate and distinct forms.

The primary difference between the two forms is that Form 8825 is used if you declare on behalf of a partnership or S-corporation. On the other hand, Schedule E is used to report an individual owner’s earnings. Schedule E is also used to report other forms of supplemental income.

The process for reporting rental real estate income and expenses on Schedule E is similar to Form 8825. You must include the physical address of each property and its type and the number of days it was used as a rental. You will then enter your gross rental income and itemize your expenses to determine your profit or loss for each property.

What Is Schedule K-1?

Schedule K-1 is a form you will need to fill out to obtain important information included on Form 8825. The form determines the net income or loss from rental real estate activities from partnerships, estates, and trusts. Instead of reporting the full income or loss, Schedule K-1 determines each partner’s share.

Let’s assume a partnership has four members and earns $200,000 annually. Each partner will complete a Schedule K-1 to report $50,000 in individual earnings (assuming the profit is split evenly). This amount is then transferred to line 20a of Form 8825.

The Bottom Line

If you are a sole proprietor or a single-member LLC, you don’t have to worry about Form 8825. If your rental real estate activities are part of a partnership or your business is an S corporation for tax purposes, however, you must include the form when submitting your income taxes.

Thankfully, Form 8825 isn’t complicated or difficult to understand. It can be filled out in just a few minutes, which allows you to finish your taxes and get back to doing what you do best—closing more deals and growing your portfolio.

Dreading tax season?

Not sure how to maximize deductions for your real estate business? In The Book on Tax Strategies for the Savvy Real Estate Investor, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year—but to also prepare an ongoing strategy that will make your next tax season that much easier.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

In the dynamic corporate landscape of that will be 2024, leaders’ and founders’ roles have evolved significantly. Leading a company is more than just about managing teams or bottom-line growth. Leaders must exhibit adaptability, resilience, and an empathetic understanding of their teams while maintaining mental and emotional health. Their responsibility to their mission, vision, and team goes far beyond their profit

Seeing the Future

Leaders today must navigate a world transformed by global uncertainties, technological advancements, changing business models, increased regulatory scrutiny, and a renewed focus on sustainability and corporate social responsibility. Leaders have a lot of minefields to navigate today. However, these challenges also serve as catalysts for personal growth, leadership development, and increased resilience, equipping executives with the necessary skills to thrive in complex environments.

These challenges are coupled with the pressure of maintaining a company’s financial health and employee well-being, which can often have significant implications on an executive’s mental and physical health. Executives and leaders often feel the pressure to maintain an image of strength and competence, which can lead to reluctance in acknowledging or seeking the help and support they need. For all of these components to be on their shoulders, our leaders must have the resources, skills, and knowledge to thrive and adapt in our ever-changing future.

10 Areas of Focus for Survival

1. Prioritize Your Mental and Physical Health: Leaders must prioritize their mental health and physical health to stay resilient. According to the American Psychiatric Association in workplace statistics, employers throughout America lose $44 billion because of insufficient resources for mental health problems. Regular exercise, balanced nutrition, sufficient rest, mindfulness practices, and consultations with mental health professionals can improve stress management and overall mental well-being.

2. Embrace Continuous Learning: With technology rapidly transforming business operations and models, leaders must commit to lifelong learning. Carving out time each day to stay up-to-date with industry trends, emerging technologies, and evolving consumer behavior is no longer a luxury—it’s a necessity. Aside from daily news feeds, Online courses, industry-specific webinars, workshops, and professional networking events are essential resources.

“The important thing is not to stop questioning. Curiosity has its own reason for existing.” —Albert Einstein

3. Cultivate Emotional Intelligence: Emotional intelligence is crucial for effective leadership. It allows executives to perceive, use, and manage their emotions as well as their team members’ emotions. EQ is so effective that the overall success of the business can improve by 37.2% within the first year. Therefore, fostering an environment of empathy, trust, and effective communication directly impacts the bottom line. Regular introspection, mindfulness practices, and emotional intelligence training can enhance these skills.

4. Promote Diversity and Inclusion: A diverse and inclusive work culture promotes innovation and strengthens the company’s reputation. Leaders should strive to create a work environment where employees of all backgrounds feel valued and heard. Training on unconscious bias, implementing fair hiring practices, and promoting diverse voices in decision-making can enhance inclusivity.

5. Foster Innovation and Agility: In a rapidly changing business environment, leaders must foster a culture of innovation and agility within their teams. Encourage creative thinking, be open to new ideas, show vulnerability, and facilitate an environment that sees failures as opportunities for learning.

6. Invest in Employee Well-being: Employee well-being is intrinsically linked to company performance. Executives should promote initiatives for physical health, mental health, and work-life balance. Flexible work schedules, wellness programs, and open dialogues about mental health can contribute to a healthier, more productive workforce.

7. Prioritize Sustainability and Corporate Social Responsibility (CSR): Leaders should incorporate sustainability and CSR into their business strategies. This enhances the company’s global influence and reputation, risk mitigation, attracts elite performers, and appeals to modern consumers and investors who prioritize companies with firm commitments to sustainable practices.

8. Nurture a Robust Network: Building a strong network of trusted peers, mentors, and advisors can provide critical support and guidance. This network can be a breeding ground for synergy and ingenuity as well as a sounding board for ideas, a source of valuable insights, and a form of reassurance during challenging times.

9. Develop Crisis Management Skills and Plan: If we have learned anything over the past few years, being prepared for a crisis of any magnitude is critical. Crises are inevitable in an uncertain business climate. Companies that do not have a crisis management plan run the risk of harming employees, reputation damage, financial loss, and legal issues. Leaders must develop robust crisis management skills, focusing on proactive strategies, effective communication, and recovery plans.

10. Be Proactive on Social Issues: Weave your corporate values and mission around your position on today’s social issues before you are forced to take a position publicly. In other words, take a position on DEI. Take a position on Climate Change. That way, you can refer to your company’s values/mission/policies and not make up a position when under fire. Taking the time to develop policies and positions that align with your values and that your employees can support will save you time and energy in the long run.

The Corporate Ecosystem’s Role

The corporate ecosystem plays a critical role in an executive’s survival. A supportive organizational culture that encourages work-life balance, professional development, and open conversations about mental health creates a more resilient leadership team. Mental health days, flexible work schedules, professional development opportunities, and accessible mental health resources can significantly contribute to maintaining a leader’s mental and emotional health.

Leading a company in 2024 will be a demanding yet rewarding venture. Executives can skillfully navigate their challenges by adopting this comprehensive survival guide—emphasizing continuous learning, emotional intelligence, diversity and inclusion, innovation, employee well-being, sustainability, networking, crisis management, and mental health.

Leadership in the modern corporate world is not just about guiding teams—it’s about setting the right example of balanced success. And to thrive in this ever-evolving landscape, executives must prioritize their company’s progress and personal well-being. If you take these recommendations to heart and give them focus and attention you can not only survive this year but thrive.

Contributing to this article: Mandy Morris and Elizabeth Hocker

The loan-to-value (LTV) ratio is a key metric mortgage lenders use to assess their risk of lending you money. Most lenders use the LTV ratio, credit score, debt-to-income ratio, interest rate, and property value when processing your mortgage application. The loan-to-value ratio affects the amount of down payment the lender requires.

Simply put—the lower your LTV ratio, the better your chance of getting finance approved at a competitive rate.

This article is a complete guide to understanding LTV ratios and how they can help you make wise property investments. You will also find out how to calculate LTV ratios. Additionally, you will get key insights into securing cheaper financing terms.

What Is LTV (Loan-to-Value) Ratio in Real Estate Investing?

The loan-to-value LTV ratio is the difference between the property’s appraised value and the loan amount you want to borrow. The LTV ratio is expressed as a percentage and helps lenders determine your eligibility for a loan. This percentage figure is used for all conventional, home equity, FHA, and car loans.

The LTV compares the mortgage loan amount to the home’s value or equity. In the eyes of lenders, a higher LTV ratio means your risk of default is greater. Therefore, the lender may increase mortgage costs, like the down payment size and interest rates. On the other hand, a lower LTV increases your chances of securing favorable loan terms. Lenders have more confidence that you will make the monthly mortgage payments.

Understanding the Loan-to-Value Ratio

Calculating the LTV ratio is essential to the mortgage loan application process. Lenders use it to determine the terms of buying a property, refinancing an existing home loan, or approving a home equity loan. Lenders view you as a greater risk if you apply for a loan close to the property’s market value.

Money lenders use the loan-to-value ratio to reduce their risk of losing money in case of a default. For example, in the event of a foreclosure, the lender may be unable to sell the home for a price that covers the outstanding mortgage balance.

The three primary factors affecting LTV ratios are the following:

• Appraised property value
• The amount of the down payment
• The sales price

What Is a Good LTV?

The ideal LTV ratio when applying for a mortgage or home equity loan is 80% or lower. Therefore, your down payment would be 20% of the purchase price. When you have a good LTV, you can expect lenders to offer you the lowest interest rate. You can also avoid paying private mortgage insurance—potentially saving thousands of dollars over the loan term.

How to Calculate LTV

It is easy to calculate the LTV ratio by dividing the loan amount by the value of the asset you are borrowing against. For a mortgage, this means dividing the mortgage amount by the property’s value. To get a percentage figure, you multiply the result by 100.

Here is the formula to calculate LTV:

([Total loan amount] ÷ [property’s appraised value]) x 100 = LTV ratio

For example, suppose you plan to invest in a property with an appraised value of $230,000, and you have $60,000 for the down payment. Therefore, the total mortgage amount is $170,000. This means that your LTV ratio would be 74%. Here is the LTV calculation:

$170,000 ÷ $230,000 = 0.74

0.74 x 100 = 74%

By looking at the calculation, you can see that you could lower the borrowing amount and achieve a lower LTV ratio by making a larger down payment.

It’s important to note the difference between the purchase price and appraised property value. Lenders typically assess LTV based on their appraisal. However, your LTV will be based on the appraised value or the purchase price, whichever is the lowest.

How Lenders Use LTV Ratios

The loan-to-value ratio is one metric that lenders use when assessing mortgage loan applications. Other factors that can affect eligibility for a loan include credit scores, DTI, employment history, the value of the property, and the down payment. However, the LTV ratio will greatly impact borrowing costs regarding higher mortgage rates.

Although the ideal LTV is generally 80%, you can secure a mortgage with a higher LTV ratio. However, you will be faced with higher borrowing costs. Higher interest rates and private mortgage insurance are two ways a high LTV ratio can impact the total mortgage amount.

Let’s see how these factors affect the amount you must repay.

• Require private mortgage insurance (PMI): An LTV ratio higher than 80% may mean you must purchase private mortgage insurance. Depending on the product, this can add between 0.5% and 1.0% to the total loan amount annually. However, the payments are typically necessary until the LTV ratio is below 80%.
• Charge higher interest rates: The LTV affects mortgage rates. Lenders typically charge higher interest rates on a primary mortgage with a high LTV ratio. In some cases, this could be a full percentage point higher than a borrower with a lower LTV.

It’s good to note that if you must purchase insurance on your mortgage, you can get closing costs and the cost of PMI added to your mortgage monthly payments.

Depending on other factors, the mortgage lender may use the loan-to-value ratio to decide that you are ineligible for a conventional loan to buy a home. These factors could include your credit history, insufficient income, or a high DTI ratio.

How Lenders Assess LTV and DTI Ratios

Apart from the LTV ratio, your debt-to-income (DTI) ratio is another vital factor lenders use during the home loan application. Lenders must be convinced you can pay your home loan monthly. To do this, they assess your front-end ratio and back-end ratio.

• Front-end ratio: This figure is the portion of your gross monthly income you spend on housing expenses. These include mortgage payments, taxes, homeowners insurance, and other housing-related expenses.
• Back-end ratio: This figure is the percentage of your income to cover all your debt obligations. These can include a car loan, credit card debt, and other debt that shows up on your credit report.

Why LTV Ratio Matters to Real Estate Investors

The LTV ratio is a crucial real estate metric investors must understand. It helps you know when and how to secure affordable financing for savvy real estate investments. However, it also helps you assess the relative strength of your position in the market. Therefore, the LTV ratio can help you make key decisions when buying, selling, or refinancing a property.

For example, understanding the LTV is useful when deciding to sell or refinance a real estate asset. A low LTV ratio clearly signals that the property has a lot of equity. Therefore, you may want to redirect some of that equity into new investments. This means you can come to the table with a higher down payment, thus reducing the LTV ratio for your next loan. 

What is Combined Loan-to-Value (CLTV)?

The combined loan-to-value (CLTV) ratio considers second mortgage loans like home equity lines of credit (HELOCs), home equity loans, and other liens. Therefore, if you are applying for a second loan, you must calculate the combined loan-to-value ratio.

The LTV and the CLTV are based on how much equity is in the home compared to the total amount you want to borrow.

To calculate the combined LTV ratio, you add the current loan balance on your home to the amount you want to borrow. Then you divide the amount by the appraised value of your home. After that, multiply the result by 100 to know the CLTV ratio. 

How To Lower Your LTV

There are two principal ways to lower your loan-to-value (LTV). First, reduce the amount you must borrow. Second, look for a property with a lower appraised value or offer to buy the home for less. This way, you can lock in a lower monthly payment.

Make a larger down payment

The best way to reduce your LTV ratio is to save up for a larger down payment—ideally, at least 20%. This way, you reduce your LTV because you are borrowing less money. Ideally, it would be best to borrow no more than 80% of the home’s appraised value.

Look for a cheaper property

You can lower your LTV by looking for a more affordable property. Because you are borrowing less, your LTV will decrease accordingly, provided you can still make the 20% down payment. You can achieve the best borrowing costs by lowering your borrowing amount and negotiating a better sales price.

Loan-to-Value Rules for Different Mortgage Types

Although 80% may be the standard loan-to-value (LTV) ratio when applying for a conventional loan, the requirements depend on the mortgage program. Here are the loan requirements by loan type.

Conventional mortgages

A typical mortgage requires an LTV ratio of at least 80%. The best mortgage lenders may have additional requirements for mortgage loans with a higher ratio.

Mortgage refinancing loan

Getting the best mortgage rates when refinancing a loan requires an LTV ratio of at least 80%. Therefore, if you are refinancing your mortgage based on your home equity or have multiple loans, you must calculate your combined LTV ratio.

FHA loans

Home loans backed by the Federal Housing Administration have less stringent requirements. A home buyer can typically qualify for an FHA loan with high LTV ratios—sometimes up to 96.5%. However, taking out mortgage insurance on FHA loans is a requirement, regardless of the down payment size.

VA loans

Government-backed mortgages like VA loans don’t require any upfront payment. If the home buyer meets the requirements, they can qualify for a 100% mortgage. Apart from the VA appraisal fee, they must also pay additional costs on this type of loan, like closing costs.

USDA loans

The USDA loan program allows buyers in rural areas to get a home loan without making a down payment. Therefore, the LTV ratio can be as high as 100%.

Fannie Mae and Freddie Mac loans

Government-backed mortgages like Freddie Mac and Fannie Mae allow would-be homeowners to secure a mortgage with an LTV ratio of 97%. However, these loans require mortgage insurance until the LTV ratio drops to 80% or below. Additionally, home buyers must meet credit rating requirements.

LTV Ratio—In Conclusion

The loan-to-value (LTV) ratio is a crucial metric in real estate investing. The figure measures the appraised market value of the home you want to buy compared to the amount you need to borrow. The LTV ratio helps lenders assess your borrowing risk. 

Reducing the LTV ratio as much as possible generally results in lower mortgage costs. With a percentage figure of 80%, lenders can offer better interest rates, waive the need for mortgage insurance, and offer you better borrowing deals.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

By YEC

Negotiating contracts and terms with clients is a critical aspect of any business engagement. Whether you’re a freelancer, a small business owner, or work for a large corporation, understanding and implementing effective negotiation strategies is crucial for achieving mutually beneficial outcomes.

To employ the best practices in contract negotiation—as well as safeguard your interests, foster productive client relationships, and ensure the smooth execution of projects—consider the following advice from members of the Young Entrepreneur Council.

When negotiating contracts and terms with a client, what’s one best practice to keep in mind? Why?

1. Maintain open communication

One best practice to keep in mind when negotiating contracts and terms with a client is to maintain open communication throughout the negotiation process. Be transparent about expectations, ask questions when necessary, and be willing to compromise when appropriate. By working together to find mutually beneficial solutions, both parties can feel satisfied with the final outcome. —Eddie Lou, CodaPet

2. Discuss boundaries upfront

Establish preset terms and guidelines. Let the other party know upfront what your dos and don’ts are, along with the rationale for each item. This sets the tone for the rest of the conversation since you are upfront with your non-negotiables. It’s not about making concessions at later stages, but being very transparent about what you need at the beginning. Then, you can start actual negotiations. —Firas Kittaneh, Amerisleep Mattress

3. Prepare to compromise

One of the most important things to remember is to communicate clearly and be prepared to compromise when necessary. This will ensure that both parties understand the terms of the agreement and are comfortable with its outcome. Furthermore, it will create an atmosphere of trust and respect, making it easier for both parties to reach an amicable agreement. —Kristin Kimberly Marquet, Marquet Media, LLC

4. Think about scalability

Keep scalability in mind. For example, ask yourself: Will the terms of the contract accommodate rapid growth? Is it written to allow for contract modifications if the scope expands? When trying to move a deal forward, don’t forget to think about the big picture. —Jack Perkins, CFO Hub

5. Stay mindful of your resources

When negotiating contracts and terms with a client, one thing to keep in mind is that you shouldn’t overpromise. It’s important that you carefully assess your current resources, evaluate them against the client’s requirements, and communicate clearly. This will make it possible for the parties to set clear expectations from the get-go and help them avoid unforeseen conflicts in the future. —Stephanie Wells, Formidable Forms

6. Approach negotiation with goodwill

What I’ve found helpful is to approach the negotiation as a problem-solving exercise, rather than a combative discussion. I don’t want to “win” the negotiation and get my terms only. Rather, I try to find common ground with the other party and find solutions that work for everyone involved. This leads to better outcomes and good relationships with clients in the long run. —Syed Balkhi, WPBeginner

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7. Look for the client’s top priorities

Try to put yourself in the client’s shoes and understand what’s most important to them. They won’t always tell you their top priorities or red lines upfront, so it’s helpful to ask. This can help break the ice and speed up negotiations as well. If you’d rather not discuss the client’s motivations for any reason, use past experience to make an educated guess about their priorities. —Andrew Schrage, Money Crashers Personal Finance

8. Strive for clarity and specificity

One essential best practice when negotiating contracts is to ensure clarity and specificity in the terms and conditions. Clearly define the scope of work, deliverables, timelines, payment terms, and any contingencies. This helps to mitigate potential misunderstandings or disputes in the future. —Jared Weitz, United Capital Source Inc.

9. Seek out an advisor if needed

Recognize when to ask for help and seek the advice of an advisor. Negotiations can be challenging and stressful, especially when significant stakes are involved. An advisor brings specialized expertise and a fresh perspective to the negotiation table. They can review the agreement objectively, navigate complexities, and help you negotiate fair and favorable terms. —Ismael Wrixen, FE International

About the Author

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most successful young entrepreneurs.

When investors set out to find a new investment, they’ll likely come across an HOA property. Unless you know exactly what an HOA property entails, you may be left asking yourself, “Should I invest in a property with an HOA?”

Investing in a homeowners association property requires significant effort because of the many oversights and restrictions. It’s a challenge, but it has benefits if you’re willing to do the work.

From fees to rental restrictions, we’ll dive into what to expect when investing in a property under a homeowners association.

What Is a Homeowners Association (HOA)?

A homeowners association, or HOA, is a self-governing organization in a “common-interest” community. When part of an HOA, homeowners pay fees to maintain the look and feel of a neighborhood. A resident runs a homeowners association within a community or a volunteer elected to a board of directors that oversees the whole association.

HOA Fees and Rules

Investing in an HOA neighborhood comes at a price. But, on the flip side, you also get to own property in a community where everything looks in tip-top shape. Why? The rules and regulations set by an HOA. Can you say Desperate Housewives style?

Rules

Although every community is unique, here are some rules that you’ll see in most communities:

• Landscaping control
• Decor for holidays
• Standards for property maintenance
• Noise complaint policies
• Home occupancy limitations
• Parking rules
• Pet size and amount limits
• Short-term rental restrictions

Wait, so let’s say you invest in an HOA and want to rebel against the rules. What happens? Not following HOA rules can carry legal and financial consequences. Enforcement policies may include warnings or fines. If you don’t pay the penalties, an HOA may place a lien on your home. However, most homeowners are quick to fix any penalty.

Fees

Each property owner has to pay a set amount of fees that cover the maintenance throughout the community of common areas. Typically in an HOA, you’ll see a community playground or picnic area, maybe even a swimming pool; whatever it is, HOA fees cover the maintenance.

Here are a few other examples of what HOA fees typically cover:

• Pickup of garbage
• Parking areas
• Shared utilities in common areas
• Security of community

So, what do typical HOA fees look like? Homeowners should expect to pay anywhere from $200 to $2,500 annually, but the total amount depends on the community’s offerings. Typically a property owner will pay monthly HOA fees or quarterly, depending on the homeowners association rules. So, if there is a community with all the fixings, there will be a higher fee.

Wait, there’s more? You bet. Aside from typical maintenance fees, homeowner association property owners must pay for assessments. Let’s say a tornado rolls through the neighborhood and does a lot of damage. It’s in an HOA’s power to impose a one-time fee to cover expenses.

HOA Rental Restrictions

There are several different forms of rental restrictions. For an HOA community, one of the primary goals is to protect property values, and part of that protection includes rental conditions.

Considering the overall picture, a renter will likely violate a community rule because they don’t have a vested interest in the property. The two most popular HOA rental restrictions include rental caps and lease restrictions.

Rental cap

Rental properties continue to be all the rage. Who doesn’t want passive income? For an HOA, a rental cap limits the number of homes rented within a development in a certain period. The HOA board members usually approve rentals as they come along and have a waiting list if a certain percentage of homes are already rented.

For those looking to invest in an HOA, don’t be surprised if you must reside in the investment home for at least one year before renting. An HOA board sets the ground rules, which are often very strict for rental restrictions.

Lease restrictions

So, if you’re in the rental space, you’ll be familiar with this term, as imposing lease restrictions is popular amongst landlords. Lease restrictions are a set of rules included within a lease agreement. For example, one common lease restriction rule could be a minimum lease period where someone must rent the property for at least 60 days. Why? The HOA doesn’t want the community to look like party central.

Within these leases, it’s typical to see a renter’s compliance section allowing a landlord the authority to evict a tenant if they are not complying with the lease.

Benefits of Investing in an HOA Neighborhood

HOAs are strict. Homeowner associations are known for enforcing many rules, from parking to noise regulations to housing structure limitations. But, for those living within the community, it does come with its benefits.

Let’s explore a few benefits of investing in neighborhoods with homeowners associations.

Maintenance free

Okay, yes, an HOA doesn’t clean your house, but imagine a world where a shingle falls off your roof, pipes leak in the basement, or landscaping needs upkeep. Depending on your agreement, an HOA may cover those repairs. Sure, some enjoy the everyday maintenance tasks of owning a home, but let’s be honest; there are a few that don’t.

Awesome amenities

Clubhouse? Check. Sauna? Check. Golf course? Check. HOAs are a breeding ground for awesome amenities to ensure residents live their best lives.

Other amenities include a pool, a hiking trail, and a skate park, to name a few. If you want it, an HOA can likely make it happen. The icing on the cake? These common areas are maintained thanks to the HOA fees that residents pay.

Neighbor mediation

Do you have a neighbor obsessively watching you near the property line, or do they call the cops on you just because they feel like it? An HOA helps mediate problems between neighbors to help maintain peace throughout the neighborhood.

If you don’t want tension between you and a neighbor, contact the homeowners association and ask them to resolve the issue.

High property values

Don’t expect any old 1940s broken-down vehicles to pile up in an HOA community, that’s for sure. The appearance and maintenance of these properties is essential. HOA bylaws help prevent property values from going down, so upkeep is necessary. Overgrown lawn? Nope, you typically won’t see this in an HOA whatsoever.

Cons of Investing in an HOA Neighborhood

There are indeed some great reasons to invest in an HOA. However, there are also a few downfalls. For example, HOA fees can cut into income, and strict rules and regulations may disrupt your everyday goals.

The grass isn’t always greener on the other side, so here are a few cons when investing in an HOA neighborhood.

Cash flow losses

There are two options for a house project outside of an HOA community. Either you do it yourself, or you hire a contractor. Some people aren’t handy, so hiring a contractor is the best option. Let’s think about that, most of the time, people will get multiple quotes from different contractors.

So, now think of an HOA. Property owners pay out a flat maintenance fee every month. But what if you never have a leaky sink or a roof that needs repairing? By fronting all that money, you can experience a significant loss in cash flow. It’s like paying for something that you don’t need.

Rental interference

Most often, investors will do their due diligence on a property, including whether or not the home they are investing in is in an HOA. HOA rental restrictions vary, but it’s not uncommon for the purchaser to have to live in the residence before renting out the property or to have a set number of rental restrictions, like the length of a tenancy.

With so many restrictions at play, it’s not uncommon for an HOA investor to see gaps in residency.

Random assessments

No one likes a random bill, yet, an HOA can send community members one. Why? The HOA may decide that, as a whole, the driveways all need redoing. To help fund the project, the HOA dishes out $8k bills. With an HOA, what they say goes, so congrats, you’re getting a new driveway, and you may not even need one. Oh, and if you don’t pay up, you’ll be penalized.

FAQs on HOA Investments

Here are the most frequently asked questions when investing in homeowner association properties.

How do I find out the rules for my HOA?

Your association’s governing documents should have been provided when closing on the property. However, you can also obtain them by referencing the association’s website or public record.

Do associations have to disclose HOA rental restrictions?

Mostly, rental restrictions must be adopted in an association’s recorded declaration. The legality behind purchasing a property in the community is that the property owner has accepted the covenants in the declaration. A purchaser will find that many transfer deeds state restrictions, including rental restrictions.

Can an HOA restrict rentals?

Most of the time, homeowners associations will limit the number of rentals based on a certain rental cap. Once the community reaches a rental cap, no more rentals are allowed, and yes, including vacation rentals!

Will You Invest in an HOA Property?

The call is all yours! If you’re willing to accept the challenge of having multiple rules and regulations while enjoying the benefits of a maintenance-free, well-kept community, go for it! As with anything, it’s all in what you want.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.