Posts Tagged ‘real estate investing’

The Road Map to Achieve Your Financial Future

backyard wealth real estate resource center

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LEARN what you MUST know

to make SMART investments.


Upcoming seminars at the Long Beach Real Estate Resource Center:

First Time Home Buyers Seminar
August 26, Thursday
7:00pm to 9:00pm

Multi-Unit Investing Seminar
August 28, Saturday
9:00am to 12:00pm

Creative Investing Seminar
August 28, Saturday

1:00pm to 4:00pm

Reserve your seat today and get a FREE gift!

Investment: $39 each seminar

Backyard Wealth Long Beach



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How to Partner with Sellers to Make More Money

real estate partnerships

One of the most exciting advantage of real estate investing is the number of creative ways to make a transaction or a “real estate deal” lucrative for you and, better yet, for all parties involved.

The important questions to ask yourself before jumping in:
1. How creative are you?
2. How bad do you need the deal?
3. How motivated are your Sellers to sell?

Your goal here is to partner with the seller, assume control of the property and quickly resell the home for a large profit.

Below are important criteria for partnering with sellers on real estate deals:

Home requirements:  The property can be a mobile home or traditional site built home.  The property should have considerable equity (pull comparables in the area).  This technique works best with more desirable homes.  Perhaps the seller has not even marketed the home to properly attract buyers.  The property may have cosmetic eye sores.  Avoid homes that will require costly repairs, extensive curb appealing improvements, code violations, or other money pits.  The property may or may not have a preexisting mortgage.  Look for homes that you believe are just a few inexpensive fixes away from a retail sale.

Seller requirements: The sellers are very motivated to sell, but know the value of their home and demand a fair price.  Sellers will not have the liquid cash to cover the repair costs needed for a fast sale.  Owners may be living out of state.  The preexisting mortgage(s) or late payments may be in default, this could be a reason for the fast sale.  The sellers may NOT continue living in the property once you agree to help.  Sellers must be willing to wait until you re-sell the property for their payday.

The Process: Once you have established that the seller and property are good candidates for partnering, you must have a meeting of the minds.  A specific contract should be created to explain which parties will be responsible for which costs, how profits will be divided and how you will be compensated for your time and experience.  Due diligence should be performed before adding yourself to ANY property deed. Align yourself with a good title company that can research title for you.

I advise using a Warranty Deed to place the home into Land Trust or Personal Property Trust prior to adding yourself as equitable owner.  Using a Trust will not cause seasoning issues later down the road when your buyer is attempting to locate conventional financing.  It is important that you, or your trustee, are named on the deed before you place any money into the home or start marketing the home for sale.

At this point you should have only spent a minor amount of money adding yourself to the chain of title.  The sellers should be moved out of the home by now.  Bring the past due mortgage(s) current to insure the home does not slide into foreclosure while you are trying to sell it (try to split this cost with the sellers).  Remove, replace, and repair any cosmetic damages that may detour a potential buyer to pass on this property.  Spend a few hundred dollars increasing curb appeal, hire a Realtor, and start marketing the property for sale by yourself.

One important thing to remember is, by adding yourself as part owner you are not mistaking yourself as a Real Estate Agent and practicing without a license.  When writing up a partnering agreement always remember to clearly state that; YOU will be reimbursed for ALL expenses you made to property, etc. This total expense will be paid to you from the NET profit of the sale.  Only after you have been repaid all monies you have spent on the property, will this new total NET profit amount be split with your seller in any percentage you have previously negotiated.

Even good properties can make you money .  If you can risk only a few dollars to make thousands, how many many of these deals would you do?  Partnering with sellers allows you to control more properties without spending a large amount of cash to do so.


Source:  John Fedro (specializes in investing in mobile and manufactured homes)


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10 Big Mistakes to Avoid When Investing in Real Estate

make money in real estate

Once the real-estate market starts to rebound, investing in property will become a more appealing idea — either as a career or a great side job. Like any other endeavor, though, there’s a right way and a wrong way to go about it.

Bankrate spoke with established, full-time real-estate investors and with professionals, such as bankers, to identify the 10 types of traps into which real-estate investors most often fall.

1. Planning as you go

Andy Heller, an Atlanta investor and a co-author of “Buy Even Lower: The Regular People’s Guide to Real Estate Riches,” says lack of a plan is the biggest mistake he sees new investors make. They buy a house because they think they got a good deal and then try to figure out what to do with it. That’s working backward, Heller says.

“First, you find the plan,” he says. “Then you find the house to fit the plan. Pick your investment model, and then go find property to match that. Don’t find the strategy after you find the home.”

“People fall in love with a property,” says Crowe, the managing director of Springboard Academy, the nation’s only real-estate academy for investors. “I say, ‘Who cares about the property?’ I fall in love with a motivated seller.”

2. Thinking you’ll get rich quick

That kind of wrongheaded thinking is fueled by “these self-appointed gurus who have infomercials and make it sound so easy to get rich in real estate,” says Eric Tyson, a co-author of “Real Estate Investing for Dummies.”

Real estate isn’t easy. It’s a good long-term investment, but so is putting your money in a mutual fund, which is a lot easier. “These gurus don’t talk about all that hard work. You have to be smart, you have to be willing to work, and you have to understand your risk tolerance.”

3. Playing Lone Ranger

A key to success is building the right team of professionals. At the very least, you need good relationships with at least one real-estate agent, an appraiser, a home inspector, a closing attorney and a lender, both for your own deals and to assist with financing for prospective buyers.

In the remodeling and maintenance segment of the business, the team includes a plumber, an electrician, a roofer, a painter, a heating and air-conditioning contractor, a flooring installer, a lawn maintenance service, a cleaning service and an all-around handyman.

You can’t build a business as an investor if you’re spending all your time fixing leaky faucets and putting up ceiling fans.

4. Paying too much

Heller says the biggest reason investors don’t make money is simple: They pay too much for properties.

“The profit is locked in immediately once the investor buys the property,” he says. “Due to mistakes in the analysis, the investor pays too much and then is surprised later when he doesn’t make any money.”

5. Skipping homework

You wouldn’t think you’re qualified to perform open-heart surgery without years of education and training. Yet many wanna-be real-estate investors don’t think twice about taking their financial lives in their hands without even cracking a book.

Educate yourself before you put your family’s financial security on the line. Read articles, check out books from a library, join investor clubs and attend workshops and seminars.

6. Ducking due diligence

Investors often have to move quickly on their deals. That doesn’t mean they sign a contract and write a check without plenty of research, though.

That’s where a lot of newbies trip up, says Houston real-estate agent Laolu Davies-Yemitan. They don’t do their due diligence about the deal, the costs or the market conditions, and they wind up draining their personal savings because the house needs extensive repairs or they can’t sell it.

“Sometimes, new investors are buying property just based on the idea that the property is going to appreciate,” he says. “Usually, they don’t have any information to substantiate that.”

7. Misjudging cash flow

If your strategy is to buy, hold and rent out properties, you need sufficient cash flow to cover maintenance.

“People think they can get a property manager,” Tyson says. But many have never interviewed a property manager and have little idea about how they work. Most managers, for example, are reluctant to take on one single-family home or a duplex, he says, preferring larger complexes. And fees of 7% to 10% of the monthly rent are common.

“It’s a huge expense,” Tyson says. “I can put my money in a mutual fund and it costs a half-percent a year.”

Davies-Yemitan agrees. It’s not uncommon for a property to sit on the Houston market for 90 to 120 days before it’s leased, he says. Meanwhile the owner has to pay the mortgage, the taxes, the insurance, the cost of advertising and any homeowner or condo association dues, he says. If the owner hasn’t budgeted for that, an asset can quickly become a liability.

8. Lowering the volume

If you’re working on one deal at a time, Crowe says, you’re doing transactions, not running a business.

You need a steady pipeline of prospective deals; sufficient volume will weed out the marginal deals and let the good ones rise to the top.

9. Painting yourself into a corner

Many people buy a property and get stuck with it because they have only one exit strategy. They’re going to sell it or rent it out. What if it doesn’t sell? What if the rental market stalls?

Always have two, if not three, ways to get out of any deal. For example, if plan A is to rehab the house, put it on the market and resell it, then plan B could be to offer a lease-purchase to a buyer. Plan C might be to hold the house and rent it out. And as a plan D, there is the wholesale option, which would involve selling to another investor at a below-market price. Hopefully, you’ll still make a profit, but at the very least, you’ll cut the losses you’re taking every month in carrying costs.

10. Miscalculating estimates

Crowe tells his new rehabbers that after they’ve done their homework, they should double the amount of time and money they think it will take. If they can still make money then and they might be able to rent it out, it’s a good deal.

Source:  Pat Curry for Bankrate.com


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Real Estate Leverage – the Top 4 Don’ts

real estate leverage

Real Estate leverage is the use of borrowed money to increase your profits in an investment.  Building wealth via real estate requires the use of leverage.

Let’s assume you have $100,000 to invest and you purchase a small income property for $100,000.  Let’s assume that income properties have been appreciating at an average of 7% per year.  At the end of the first year of operation,  your property is worth $107,000.  At the end of year two, it is worth $114,490.  Now let’s assume that you put your $100,000 down on a $500,000 income property.  At the end of the first year, it is worth $535,000.  At the end of the second year, it is worth $572,450.  By using leverage or borrowed money to purchase a larger income property, you have increased your profit by $57,960 in just two years.

To get the full advantage of leverage, put the minimum down on a good property which has a strong likelihood of appreciating in value.  Stay away from questionable properties in run down areas.When you purchase a piece of real estate, you make use of leverage when you borrow money towards the purchase price.

Avoid these high risk behaviors and you have a far better chance of realizing success in using real estate leverage.

1. Don’t Count on High Levels of Appreciation
Many a real estate investor has gotten into financial trouble by looking at past history, even if recent, and relying on the future to produce the same results.Even if property has been appreciating at a 12% to 20% rate for a number of years, counting on that rate to continue is an extremely risky proposition. It can cause you to overpay for properties, expecting to realize the difference at sale from appreciation. If it doesn’t happen, you’re holding a loss or worse.

2. Don’t End up With Too High a Payment
It can seem like a great investment to control a property with a very small down payment. You’re looking at the numbers and seeing a really high return on investment due to your low cash outlay.The problem is the higher payments that come with higher leverage. Should the market soften or your properties experience higher-than-expected vacancy or credit losses, you could find yourself unable to maintain those higher mortgage payments that seemed fine at the beginning.

3. Don’t Let Good Financing Result in a Bad Purchase
Many an investor has overpaid for a property because they found nirvana in a high leverage financing setup. Just because you can get a property with very little cash outlay doesn’t mean that it’s a good buy. Look at the value of the property in the context of current and expected market trends.If the property is overpriced, appreciation will be minimal or worse be non-existent. And woe be unto you if the market retraces itself for a while. Your overpriced property will be a significant drag and you’ll not be able to unload it without taking a loss.

4. Don’t Forget That Cash Flow is King
If just one of these “don’t” behaviors sticks in your mind, this is the one that you should consider carefully. Errors in judgement in one or more of the other items here can be overlooked if you have that one great thing – excellent cash flow.If your rental income minus your mortgage costs and expenses is putting a nice cash return in your pocket every month, then the fact that the property didn’t gain in value this year won’t be as worrisome of an event.

Sources: James Kimmons (Taos Real Estate); Advantage Software, LLC


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Should an Investor Get a Real Estate License?

real estate house

So many people have repeatedly asked if they should get a real estate license as investors.

First, there is no “right” answer to this question.  Below is a list of Pros and Cons  gathered from a combination from our experiences and other opinions from real estate professionals.  Based on your experience and business model as a real estate investor, it may benefit a particular group of people more than others.

Benefits:

  • Learning the pieces and parts of real estate.
  • Ability to understand techniques faster because you have a solid foundation of education.
  • As a buying tool, you’ll have access to MLS, the database of all properties listed for sale by real estate agents. It’s also a powerful tool to quickly learn market values.
  • You control your own deals. Being your own agent for your purchases and sales allows you full control over your deals. You can submit offers to and negotiate directly with listing agents.
  • You may receive commissions on properties you purchase depending on the arrangement with your broker.
  • As a selling tool, you may list your own properties on the MLS.
  • Most communities require continuing education courses if you’re licensed. Although many may say this is a pain, it’s still education.
  • What you learn in this school will stay with you your whole investing career. You’ll be able to grasp new creative investing ideas faster because you already have a solid foundation to build upon.
  • Keep in mind, as an investor, you’ll be labeled a “professional” with or without a license. You are the one who decided to become an investor. If you are ever in any kind of lawsuit, including eviction court, you will be almost automatically tattooed a real estate expert simply because you are trying to act like one.



The Drawbacks

  • Annual fees and licensing.
  • You must disclose to your sellers you’re licensed and buying for investment and/or you intend to make a profit from the purchase of their property. (This is the one a lot of anti-get-your- license folks complain about. What’s wrong with it? It simply covers your butt.)
  • The Paperwork. For the most part, only if you are representing a buyer or seller is the paperwork cumbersome. It’s cumbersome because you are their agent representing their interests. The forms to fill out are designed to protect both you and the consumer.

If you’re just getting started or you want to really begin cranking your investments, getting your license won’t hurt you. I’m encouraging you to get the education not the license. But, how can getting your license hurt you?

Sources: Article by Mike Butler; Article by J. Scott (Bigger Pockets)

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How to Become a Real Estate Investor with No Money and No Credit

house-money

Yes! Believe or not… You can become a real estate investor even in today’s real estate market.

There is an old Chinese proverb that says, “Where there is Chaos there is Opportunity“.

The time to get into real estate is NOW. During the depression more millionaires were created in that time than anytime before and the opportunity to create great wealth has come around again.

In just 6 very simple steps, this is how to get your piece of the pie.

Step 1:

Find a property. This can be done by walking around your neighborhood. It’s always best to start close to home. There are a number of ways to do this but this is the easiest.

Step 2:

Due Diligence is extremely important. Do your research on the property. You can do an online search to find the owner or you can use a paid search service if your budget can handle it.

Step 3:

Contact the owner, talk to the owner, listen to the owner and get the house under contract.

Step 4:

This is where your no money or credit not needed comes in. You can take the contract to an investor who has the money or credit and sell your position as principal for a fee of $500 to $5000. This was all done with you not having any money or credit.

Step 5:

Make sure you do your research on the property because this is going to tell you whether or not you have a deal. Remember, it is the deal you are selling and if it doesn’t make sense it will not sell.

Step 6:

One of the most important factor in your becoming a successful real estate investor is your mindset. If you are still thinking like an employee who is looking for approval and asking for permission to succeed, then you will never get there.

Suggested reading: Bubble Proof – Real Estate Strategies That Work in Any Market by Tonja Demoff.

BubbleProof

This is a resourceful book to get your mindset prepared and aligned with your goals as a real estate investor.  How to think like one…breathe like one… make money like one.  Give special attention to the chapter, “Equip Yourself with a Millionaire Mindset”… it’s eye-opening.

Important Tips to remember:

* If you can find an experienced investor to consult with before you find the house, this will make it easier.  Join a real estate investment group, such as your local Millionaire Mentorship Challenge.  See below for more details.

* This way you get paid to become a real estate investor – making money while you learn the ropes.

* Always know your ARV – After Repair Value – so you know whether or not you have a good deal.

* This is not easy to do but once you have completed your first deal, you will gain more confidence.

* Don’t let the mistakes you make stop you from moving forward.

* Learn from your mistakes.

* If you can learn from a mentor or someone who has done it before to hold your hand and walk you through the process this will always be best.

* However, there are many who have done this without assistance and bumbled through it without a mentor and was still successful. They just learned from their mistakes and did not make those mistakes on their second deal.


Check out the Millionaire Mentorship Challenge.

millionaire-mentorship-challenge

An intense 10-month program for real estate investors who are serious about transforming their lives through real estate investing and creating a rewarding, profit-generating business.  This would be a perfect group to belong to when you are fairly new to the world of real estate investing.  You would be able to network with like-minded people, receive continual guidance and discuss deals with many investors in their own stage of investing.

Original article by Simone Hardy.

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5 Tips to help investors win the negotiating war over the sellers

negotiaton

Negotiating in real estate is a mental and emotional game. The outcome of negotiating over property usually boils down to both parties being dependent on their emotional strengths and downplaying their vulnerabilities.

My first negotiating process over a home did not go so well. I was nervous and I believe that the homeowner was aware of the fact that I was a novice due to my stuttering and twitchy body movements. That was the point when I realized that strong negotiating skills was a necessary tool to have in my arsenal as a real estate investor.

Here are several tips that will help any novice real estate investor become a better negotiator:

Control Your Fear

There is a strong possibility that you may lose the deal if you do not exude confidence. You must act like you know what you are doing. If a homeowner smells fear in you, there is a strong possibility that he or she will use tactics to capitalize on your fear.

Showing your fear will weaken your position and cost you leverage in the deal. Just believe in yourself and you will do fine!

Greed

Nothing leads to rash decisions and mistakes faster than greed. Greed will put you in a position where you can easily be manipulated. Your goal as an investor is to create a win-win situation for all involved.

Most of us have some degree of greed and it is very important to be able to control this emotion. You should be concerned with making a decent profit and move on to the next deal. You should walk away from the deal if the homeowner is showing any greed in negotiations.

Ignorance

You should always be aware of what you are doing. Do you have several proposals prepared for presentation to the homeowner? Have you done your due diligence on the property? Are the property taxes current? Are there any liens on the property?

It is your responsibility to be aware of all factors as they play a part on how much your offer will be for the seller. Being ignorant about these factors can be costly!

Time Limit

Always place a time limit on your negotiations with the seller. I always place a forty eight hour deadline on the seller. This puts pressure on them and make them act hasty. This tactic also makes them feel like they need me more than I need them.

I like to think of negotiators as either the sellers or buyers. Buyers are the people who need solutions and sellers are the people who are providing the
solutions.

Ego

Always keep your ego under control. I do and it has worked well for me. It will work well for you!

Vulnerability in real estate negotiations is something that you should try to protect yourself from. It is also a indication that you should try to leverage if you sense it within the seller. Just remember that practice will make you better.

Original article by Wilbert Wiggins.

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