Home Improvements and Increasing Property Value

Most appraisers have stories of homeowners irate over the fact that the special remodeling job they performed added zero value to their home. The imported Italian tile you used in your entryway or the pool in the backyard may be of immense value to you while you live in the home, but unfortunately they aren’t items that buyers shopping in your neighborhood value.To get the most bang for your home improvement buck, consider these 10 best home improvements:1. Indoor SystemsBefore you consider cosmetic improvements and even functional improvements (such as adding additional square footage) to the home, make all needed upgrades, repairs or replacements to the home’s major systems. Buyers want assurance that these basic items are in working order and won’t need to be replaced or repaired in the near future, an issue that will most likely be addressed in the home inspection.Older homes may require updated wiring and plumbing. An old roof should be replaced. Address problems with heating and air-conditioning units.2. Outdoor Replacement ProjectsReplacement projects will give you more added value than remodeling projects, according to Remodeling Magazine. Fortunately for homeowners, these types of projects are also the least expensive and add to the home’s curb appeal. Consider replacing the garage door, siding, the front door and windows. The average return on investment for these projects is almost 72 percent.The magazine suggests fiber-cement or foam-backed vinyl siding, adding a steel entry door, and vinyl window replacement.3. Attic BedroomThe number one home improvement project as far as recouping a return on your investment is the addition of an attic bedroom, according to Remodeling Magazine. At a nationwide average cost of a little over $50,000, expect to recoup 72.5 percent of the cost when you sell the home.4. Add an Additional BathroomOver the past few decades, the kitchen was the average homebuyer’s focal point when choosing a home. In 2011 bathrooms became more important to buyers than kitchens. That said, an additional bathroom, even a half bathroom, adds significant value to your home, according to the experts at the National Association of Home Builders (NAHB).A half bath may add up to 10.5 percent to a home’s value, while a full bath can tack on an additional 20 percent. Of course, the amount of additional value you will receive varies according to the home’s other features.The price of adding another bathroom to the house varies as well, depending on region. If you live on the West Coast, plan on paying almost $50,000 for a new bathroom, according to Remodeling Magazine. The magazine also states that, at the sale of the home, you’ll recoup almost 67 percent of the cost of the addition. East Coasters can plan on spending a bit less – around $41,000, but will recoup less as well – 47.7 percent of the cost.Tip: If you’re on a tight budget and can’t afford a bathroom addition, give the existing bathrooms a facelift. A fresh coat of paint, new fixtures and new flooring will add value and make the home show better.5. Kitchen ImprovementsKitchens tend to be the heart of a family home so anything you do to improve your kitchen will add value. Again, painting the kitchen should be the first step, whether you plan an entire remodel of the room or just a minor facelift. Vinyl flooring tends to make the room look dated, so consider replacing it with laminate or tile. New cabinetry, kitchen sink fixtures and updated lighting will all add value.Tip: Folks on a budget can still increase value by sanding and then painting or staining cabinetry and adding new hardware and by purchasing new (matching) appliances and new countertops.6. Boost Curb AppealWhen a TV show can be built around this one subject, it’s a pretty good indication of its importance. Curb appeal is what beckons potential buyers into your home and underestimating its importance to the value of a home is a big mistake many homeowners make.If you have a healthy budget, and your landscaping needs extensive work, consider hiring professionals for this home improvement project. A landscape architect can be pricey but necessary if your yard is in desperate need of an overhaul. According to Jeff Mitchell with the American Society of Landscape Architects (ASLA), curb appeal shouldn’t stop at the front yard, but should be extended to the backyard as well.At the very least, clean the yard of any debris, trim trees and shrubs and spread fresh mulch in the planting beds. A poorly maintained front yard can result in up to a 10 percent drop in value, according to Houston appraiser Frank Lucco.Tip: Budget home improvement landscape projects include:Line the walkway with solar-powered lights. The big home improvement stores carry a variety of inexpensive styles and all you need to do is stick them in the ground. Not only are they functional – lighting your way at night – but they provide ornamentation as well.Green up the lawn, keep it mowed and edged and reseed bare spots.Add color to the planting beds. Be careful to keep your color choices aligned with the home’s architecture. In other words, don’t add cottage garden-type flowers to a bed in front of a starkly modern home. Certain plants are grown because of their interesting and colorful foliage, such as hosta and coleus, and are better suited to more modern homes. If you have questions about what to plant, consult with the experts at your local nursery.Plant a tree. Yes, it sounds like an Arbor Day slogan, but planting a tree in your front yard pays off by helping cut energy costs in the summer (if strategically located to shade the house) and by adding value to the home. Not sure which tree to plant? Use the fun National Tree Benefit calculator to assist you with making the right choice. Just enter your zip code and the calculator will bring up a list of trees suited to your region and let you know the benefits of each.7. Refurbish the BasementConverting the basement to a family room, in-home theater or recreation area adds useable square footage to the home, which is one of the best ways to add value. Check out decorating magazines and websites for creative ideas.8. Additional StorageMost new homes come equipped with lots of storage. Older homes, on the other hand, tend to lack even some of the basic storage options, such as a coat or linen closet. If you lack the space to expand closets or other storage spaces or build new ones, consider redesigning the spaces you do have.There are specialty stores now dedicated to nothing but storage solutions. Do-it-yourself projects may include adding a complete closet system or adding organization details to a pantry.9. Additional Square FootageEvery 1,000 square feet added to a home raises the value by more than 3.3 percent, according to a 2003 study for the National Association of Realtors®.While that percentage doesn’t sound significant, when you put it into numbers it makes a lot more sense. For instance, if your home is valued at $200,000, a 3.3 percent increase adds an additional $6,600 to the value.Additionally, the 3.3 percent statistic can most likely be adjusted upward based on the age of the study. The study also claims that each additional bedroom adds 4 percent to the value of the home.If your laundry is located in the basement, the value of your home decreases by two percent, so if you plan on adding square footage to the home, build a laundry room on one of the upper floors.10. Miscellaneous Home ImprovementsThere are many small items you can add to the home that buyers will perceive as adding value. Some of these include:Alarm systemsWater filtration systemLuxury touches such as an upgraded dishwasher, whirlpool bathtub and built-in wine coolers may peak the buyer’s interest. Luxury homeowners can take this a step further by adding an in-home theater and additional spa-like features to the bathrooms.One of the most important things to keep in mind when considering any home improvement project is to not go overboard. The value of your home is determined by the value of your neighbor’s homes, so don’t make improvements that bring your home’s value significantly over the general value of neighborhood homes. Over-improving is just like throwing money away.

Posted on: 14 May 2013 | 8:28 am

Appraisers Look & the Home Appraisal Process

Whether you are buying or selling a property, you probably have a set price in mind. Unfortunately, your idea of a good price will most likely not be the same as what a lender considers a good price. That’s why a lender will always need an objective assessment of the home’s value, an assessment that can only be done by a home appraiser.Appraising a home, especially in most large cities, is not an easy job. Properties that are just a couple of blocks from one another can differ greatly in price. A home’s proximity to public transit or schools, what floor an apartment is on, and whether or not there is a view are all factors that can make a big difference in the price of two seemingly similar homes.Knowing what an appraiser will look for during the appraisal process can help you better prepare your home for the appraisal. A few key features of your home that an appraiser will be interested in are:Property SizeFirst, the appraiser will consider the overall size of your home. A larger property is often more desirable to buyers because it gives them the possibility of expanding the home in the future. Another aspect related to property size is the number of rooms. A home with many bedrooms and bathrooms will have extra value since the number of people who can live in the home will be greater.The ExteriorBefore even entering your home, the home appraiser will inspect the outside of your property. This involves looking at the structure of your home and inspecting the foundation, siding and roof to determine what materials they are made from and what condition they are in. The appraiser will also look for any damage to your home, such as leaks or cracks, and defects that may have gone unnoticed when the house was built.The InteriorAs with the exterior, the appraiser will consider the materials used in the construction of your home; their condition is very important. The main construction of your home, including the walls, flooring, windows and doors, will be carefully inspected to determine quality and identify any damage or defects. The lighting fixtures, kitchen appliances and plumbing are also evaluated during an appraisal; their condition will have an influence on the appraiser’s estimate.Extra FeaturesAmenities that contribute to the comfort and safety of a home will greatly improve the appraised value. Appraisers will take into consideration all the extras that your home offers, such as air conditioning, fireplaces, security systems, or smoke detectors. Outdoor amenities, such as a swimming pool, garage or gazebo, could also lead to a higher appraisal.ImprovementsImprovements that you have made since you took ownership will influence the appraised value of your home. While inspecting the interior of your home, the appraiser will pay attention to upgrades that you have made to your kitchen and bathrooms especially. A new oven, stove, sink or bathtub is a big plus when determining your home’s value. Because the appraiser might not notice all the upgrades that you’ve made, it is important to provide him or her with a list of all the improvements before the appraisal starts.Simple Ways to Boost Your Home’s AppraisalA lot of factors that you can’t control will influence the appraisal of your home. The location of your home or the value of other neighborhood houses will definitely have a great impact on your home’s appraised value. Fortunately, there are a few things you can do to increase your chances for a favorable appraisal:Clean Up Your HomeGet rid of any dirt, clutter and things that might restrict the appraiser’s access to your property. Your home’s curb appeal is also important, so make sure the hedges are trimmed and the gutters are cleaned.Perform Minor RepairsThat leaky faucet or chipped paint can actually lower the appraisal value of your home. Make sure you take care of all small repairs and improvements before the appraisal starts.Keep Your Pets Locked UpIf you have pets, you probably allow them to run freely inside the house and in the yard, but appraisers might get annoyed by a dog or cat following them around while they do their job.

Posted on: 14 May 2013 | 8:20 am

How Much Money Can You Borrow on a Home Equity Credit Line?

How Much Money Can You Borrow on a Home EquityCredit Line?Depending on your income, credit rating, and the amount of yourcurrent debt, home equity lenders may let you borrow up to 85% ofthe appraised value of your home minus the amount you still owe onyour first mortgage.If you are using the home equity funds for rehabbing and need topay your obligations with repairpeople on time, it’s important to askyour lender about whether there are minimum or maximum with-drawal requirements after your account is opened. And make sureyou know about how you gain access to your credit line—with eitherlender drafts or checks.You also want to know if your home equity plan sets a fixedtime—a draw period—when you can make withdrawals from youraccount. Should you need funds you have not drawn upon, you don’twant to be stopped from receiving funds once the period expires.BE PRUDENT IN RISKING THE EQUITY IN YOUR HOMEIt’s tempting to use the equity in your own home, through either asecond mortgage or a home equity loan, as a down payment on anotherproperty. However, there are several pitfalls, such as gettingyour home payments too high, raising your interest rate, and loweringthe home equity you might need in a true emergency. If youdon’t disturb this equity, you’ll have greater peace of mind.So, try to keep your own home as free as possible of debt. Youdon’t want to put your home in jeopardy. Remember, debt is whatcauses bankruptcies. Contrary to the advice of “fast money” gurus,for example, you should never buy a property and receive money atthe closing. That usually means you are borrowing more than youshould for the property—a recipe for financial disaster.Furthermore, borrowed money is not tax-free. You have to paythis money back with after-tax dollars. Besides, if the worst happened,the IRS considers any foreclosure a sale where there is anymortgage over the current tax basis; this additional sum is treated asprofit, giving you a large tax liability. Having received this warning, ifyou need a small amount from a home equity loan, and you are absolutelysure about the property (it will sell quickly for top dollaronce repaired) and its price (you’re buying at rock bottom), goahead—cautiously.

Posted on: 31 August 2012 | 9:08 am

What Is the Interest Rate on a Home Equity Loan?

What Is the Interest Rate on a Home Equity Loan?Interest rates for home equity loans can vary from lender to lender.Always check for the latest prices. Further, you want to compare theannual percentage rate (APR), which indicates the cost on a yearlybasis. And be aware that the APR for a home equity loan is based oninterest alone and you must add in points and closing costs for a truecomparison. Note that when you compare a home equity credit linewith a traditional installment (or second) mortgage, the APR for thelatter usually includes the total costs for the loan.If you are considering a variable rate, check and compare theterms with a fixed rate. Check the periodic cap, or the limit on interestrate changes at one time. Also, check the lifetime cap, which isthe limit on interest rate changes throughout the loan term.Further, ask the lender which index (such as the prime rate) isused to determine how much to raise or lower interest rates, andhow much and how often it can change. And check the margin,which is an amount added to the index that determines the interestyou are charged. Margins may vary considerably between lenders. Inaddition, inquire whether you can convert your variable rate loan toa fixed rate at some future time.Sometimes lenders offer a temporarily discounted interestrate—a rate that is unusually low and lasts for only an introductoryperiod, such as six months. After the introductory period ends,however, your rate (and payments) will increase to the true marketlevel (the index plus the margin). So ask if the rate you are offeredis discounted, and, if so, find out how the rate will be determined atthe end of the discount period and how much larger your paymentscould be at that time.

Posted on: 31 August 2012 | 9:07 am

Money Brokering

We’ve discussed using other people’s money. Now we’re going to take itto the next level where it will become an entire business for you. Insteadof borrowing money from the bank, you can become the bank. What dobanks do? They take money in the form of deposits, paying 1 to 3 percentinterest, then turn around and loan it out at 7 to 18 percent—andcredit card companies charge up to 29 percent interest. Have younoticed that banks and insurance companies have the biggest buildingsand the nicest lobbies? They do because they’re taking your money,holding it, and lending it out. Stop letting the banks make all the money;you can learn to be the bank. You’ve learned how to analyze, verify, andfind good deals. If a house is worth $300,000, it’s a very low risk to buyit for $180,000. It’s also low risk to lend $180,000 on something worth$300,000. Why? Because if people don’t make their payments, you getsomething worth $300,000 for $180,000.By the way, your IRA cannot do “self-dealing”—that is, you can’t lendyour IRA money to yourself, but you can lend money on your owndeals, or you can get other people to lend you money, and the rates ofreturn can be rather high. You could use your own, but it’s even betterto use other people’s money (OPM). Find people with a lot of moneywho aren’t making much in their IRAs or 401(k)s or their investments,then offer them returns that are higher.Start out by asking what kind of return they make now. If they make 7percent, offer them 8 percent. If they make 8 percent, offer them 9 percent.If they make 10, offer them 11 percent, but don’t go too high oryou’ll scare them away. So set up a business once you learn how to analyzeproperty, then find other investors and offer to lend them money.One of the biggest difficulties for investors who like to buy property tofix up and sell is that they’re always out of cash. Even if you have goodcredit and a good business record, it’s difficult to borrow money on ahouse that needs repairs. Yet most of the motivated sellers and gooddeals we find are on properties that need repairs. Half the roof is gone,or the floor has sunk, or the windows are missing. A person goes to thebank and says, “I’d like to borrow $50,000; the house is worth$80,000.” Yet the bank or the mortgage company often won’t lendmoney on houses that are in poor condition. They may escrow themoney, but it’s going to take 30 to 45 days to close because of all thepaperwork, checking credit, gathering tax return information, and soon. Then, the week you’re supposed to close, they might want moreCash is king, quickness is queen. The more cash you have, the more dealsyou’ll find. The quicker you’re able to close, the more deals you’ll completeand the more money you’ll make.paperwork. In the meantime, your motivated seller may disappear.You’re better off to deal with cash.One way to help people, including yourself, close more quickly is tohave access to large amounts of hard money or private brokered money.Every state is different; check with your own state regulatory agencies tomake sure you’re not violating any rules or laws. If you borrow moneyat 8 percent, you lend it at 11 or 12 percent. At what interest rate wouldthe bank lend to a real estate investor who has decent credit? Generally,between 6 and 8 percent, but rates change constantly.A lot of hard moneylenders charge 5 to 10 points up front when the regularbanks are charging 2 or 3 points, because the banks take a longtime and may not close the loan. When banks are charging 9, 10, or 11percent interest, a lot of hard moneylenders are charging 11 to 20 percent.Is that fair to the borrower? If the numbers work for the borrower,it is. If borrowers could lose a good deal otherwise, it is. Say they find ahouse that’s worth $300,000 for $140,000. They’re going to buy it, fixit up to sell it, and make over $100,000 after their repairs. For this tohappen, the house has to close in two weeks, yet the bank said it’s goingto take a month to close and they may not even grant the loan becausethe house needs repairs. As a hard moneylender, you offer to chargethem 10 points and 14 percent interest. Is that fair to those who areborrowing the money? Yes, because if they didn’t have that money, theywouldn’t be able to do the deal.We tell people in the hard moneylending business that if you can gosomewhere else or have the cash on hand, don’t pay the extra points andhigher interest rates. But most hard moneylenders are always low onmoney because there’s so much demand. If someone would lend youmoney at 10 percent and you make 15 percent, how much do you actuallymake? Five percent. Five percent of $100,000 is $5,000. If you borrowthe money and the lender doesn’t charge you any points and youcharge 10 points, that’s $10,000. You’ve just made $15,000 by puttingtogether the person who needs money with a person who has money.Investors like you usually start out borrowing money, buying smallproperties, and renting them out. That works fine, but after a while, youget burned out dealing with the tenants. Then you graduate to the nextlevel: buying houses, fixing them, and selling them, and that’s great, too.You may make a lot of money and it works out well, but you’re dealingwith contractors, and the houses don’t sell very quickly.making good money, but with lots of headaches. At this point, someinvestors graduate and learn that they can wholesale properties andmake money just for finding good deals, so they start doing that. Thenthey learn about lease optioning and do that. Then, after 10 or 20 yearsin the business, if they’re not either rich and retired or burned out,almost all investors get into paper. And you can, too.

Posted on: 30 November 2010 | 4:49 pm

Borrowing When You Have Bad Credit

Here’s how you can get on the righttrack to borrow money even if your credit has been damaged.Credit RepairCredit repair is illegal the way most people present it. The only peoplewho can legally and ethically repair your credit are yourself, a creditcounseling service, and possibly your attorney. Credit repair is soimportant because it affects what you pay for money—for your cars, foryour life insurance, for property. When you’re buying property, it affectsyour ability to borrow. When you’re selling property, your buyers’ creditaffects you. Half of all real estate contracts fail because the people can’tqualify for financing, and knowing about credit repair will help not onlyyou, but also your buyers.I’ve had so many buyers who think they are unable buy a home becausetheir credit is awful and they have no down payment. Then, 60 dayslater, they’re buying a home because we helped them qualify for thedown payment. We have also helped them increase their credit or usesome creative financing techniques to take possession of the property.Let’s go over some of these. This will help you buy and sell.About half of all credit reports have a mistake in them, so you need toget a copy of all your credit reports. People can call credit companiesand request copies of their credit reports. They’re also available atwww.shemin.com. Get a copy of yours and look it over. If there aremistakes, you need to write in and have those taken off. You can do thatyourself, or you can hire an attorney or someone to represent you.Challenge whatever bad information is in the report, and keep challengingit until it’s removed. Under federal law, the credit reporting agencieshave 30 days to respond, and sometimes they don’t have the workers orthe time to research and verify the information. If they can’t do thatwithin 30 days, they have to remove the offending words.Understand that the law also says these companies don’t have to react tofrivolous claims, so there’s a little leeway for them, but what often happensis that credit repair companies just keep challenging the facts (e.g.,the date is wrong, the amount is wrong, this isn’t mine). Simply for lackof people power, a bad rating may be softened. That’s what so-calledcredit repair companies do—they keep challenging and challenging andchallenging.If an incorrect report isn’t fixed, you have the right to request the originalloan documents. A lot of people don’t know that, and sometimesthey can’t produce them. That might also remove the credit problem.Certain bankruptcies are not reported accurately, and sometimes thebankruptcy courts don’t respond when the credit repair companies callthem to verify. Some people have told me that even bankruptcies may beremoved just by challenging them. Again, credit rating companies don’thave the time to respond. However, the challenges can’t be frivolous.But who decides what’s frivolous? A lot of people find that, just by challenginga report in writing, items are taken off.You can do this yourself or you can get a professional to help you. Lotsof credit repair companies say they can do it. Some of my buyers havetested one service that’s actually run by attorneys. It’s calledwww.CreditLawyer.com. I am not affiliated with them, but I’ve seenpeople get real results because they work with real attorneys. They’re onthe Internet, they charge $50 a month, and they usually work with peoplefor three to five months. (Also, see the section about residual incomein Chapter 2, “Systems for Success.” It discusses a company called Pre-Paid Legal Services, Inc., which provides its members with attorneyswho have achieved good results for some people because they knowhow to write effective letters.)Get a copy of your credit report, check it, and challenge anything that’sincorrect. Challenge anything you don’t think should be on there andkeep challenging. Make sure you do it with all three of the major creditbureaus, Equifax, Experian, and Trans Union.Do things that improve your credit, and don’t do things that hurt it. Bevery careful about who checks your credit. When you lease or buy a car,sometimes the dealership sends out requests to eight or nine financecompanies and checks your credit eight or nine times. All that activityknocks down your credit score. Ask everyone how they check yourcredit and how it will affect your credit score.If you have a special situation that affects your ability to pay your bills(e.g., divorce or illness), you can write a nonemotional explanation, upto 100 words, and attach it to your credit report. Understand credit soyou can help your potential buyers.

Posted on: 30 November 2010 | 4:44 pm

Make a Plan

What does a plan look like? I’m not sure what anyone else’s plan would look like; I’m only sure what mine looked like when I started. It has been modified over the years as I progressed, as unforeseen circumstances necessitated some agonizing reappraisals from time to time. The key elements, however, are probably similar in everyone’s plan.First, I believe you should chart your available and foreseeable financial resources. Extrapolating your career path, and charting it against industry norms, can accomplishthis. You should know where you fit into the scheme of things, and, being realistic,be able to outline this fairly accurately.Second, start with the desired end result and back into a program to get there. If, for instance, you want to own a building worth $3,000,000 by the time you’re 40, then you know that you will need approximately 25 percent ($750,000) of the purchase price as equity to make that purchase. How do you accumulate this by the age of 40 with your available resources? Your solution could be to invest $25,000 per year until you have a down payment for a smaller investment, then, through astute management,roll this over with your ever-increasing capital pool until you can exchange into the property you want.Your plan may be too ambitious, or a little too shortsighted. Don’t worry about it. As along as you set your resource goals realistically, you can fine-tune the plan as you go along.Where to StartStart today, looking at what you have accumulated so far. Is it enough to start with? Do you need to readjust your lifestyle to accommodate a pattern of investment? Do you need to sell the Ferrari and buy a Chevy to have the money to accomplish your goals? Are you married? Do you have children? Do you plan to have any, and, if so, how much will they cost? What about saving for their education? Does your wife or husband work? Will he or she continue to do so?These questions and the corresponding answers will have a vital bearing on your plan and the probability of its successful fruition. If you are married, you will have to get the wholehearted cooperation of your spouse. You will have to agree on the program,and, further, will have to formulate a plan of dissolutionshould you face a divorce in the future. It would Better Believe It! be pointless for you both to successfully implement Your first deal is similar an investment strategy only to find that you will both to a hunter’s first kill. The agony lose it to attorneys in the event of a divorce. Be real-and the ecstasy are all part of istic. These things happen. Plan for the worst, and the deal. you can safely enjoy the present and whatever happensin the future.Stay LocalUnless you live in Farmtown, U.S.A., you should start your investment program by selecting an investment locally. Chances are that you are fairly familiar with your local environs, and with a little work can get an accurate handle on its potential for real estate appreciation.If you live in a small town, chances are that you are part of a larger SMSA (Standard Metropolitan Statistical Area). Any SMSA can be divided into quadrants that can be charted almost uniformly throughout the United States. The NE (northeast) quadrant usually contains the most expensive residential areas, the SE (southeast) quadrant the medium-priced homes, and the SW (southwest) quadrant the “starter” or “blue-collar” homes. The remaining SE quadrant is composed of the old core city area and/or the industrial area of the SMSA. Why is this, and is it consistent throughout the country? The simple answer is that wealthy people do not drive to and from work with the sun glaring in their faces through the windshield. This rule holds true all across America unless there is some natural barrier such as a mountain, ocean, or a river to prevent it. Obviously there are exceptions, and your community may be one of them. The importantthing is that if you intend to invest your hard-earned cash in a community, you had better know what is where, and how and why it is growing or shrinking.Draw a financial and real estate map of your area, and check your assumptions with the local real estate professionals. Talk to real estate brokers about your program. After all, they will be the ones looking for properties for you to buy.Enlist the aid of a good investment broker, and take him into your confidence. Convince him that you will stick with him throughout your program if he will committo giving your portfolio preferential treatment when buying and selling investmentproperties. You will have to pay a broker anyway, so get one on board early, and get him on your side for the long haul.If you live in a rural farming community, there will be little or no opportunity for investment, and you will have to compete with the local movers and shakers for what limited opportunities there are. You are better off searching in areas of growth and consistent demand. The best examples of this type of area are found in the Sunbelt states, as they are the ones experiencing consistent, annual, net immigration.Other areas of opportunity lie in states that experience high rates of population turnover, transient areas such as Arizona, Nevada, California, and Florida. Change breeds demand for diverse real estate products.How to Get ThereHaving made your plan and done your research, the next step is to actually do it. The first step is the hardest, and the uncertainties are rampant. Remember, real estate investmentis the business of taking calculated risks, and the process is the elimination of as many uncertainties as possible, so that you enter your comfort zone. When you feel comfortable with the resulting facts, understanding the potential problems to the extent that they may be foreseen, then you will be able to pull the trigger with confidence.The Least You Need to Know◆Do the research, as there is no shortcut to knowing firsthand what the shape and texture of your market feels like.◆Make a realistic plan, based on your resources, background, and abilities.◆Work like mad, keeping in mind that success is a mixture of sweat and common sense.◆Stay loose. Don’t become too narrowly focused; the ability to think on your feet and adapt will put you ahead of the competition.◆At all times, keep looking for innovative ways to enhance your investment.

Posted on: 3 June 2010 | 8:15 am

Negotiating Deals and Making Offers

To get great deals on property andbuy them without using your own money, you’re wise to learn how tonegotiate well. Often you can negotiate a no-money-down deal if youare willing to learn how and apply it to many transactions.You can actually negotiate in all areas of a real estate transaction: price,terms, closing time, earnest money, contingencies, conditions.Negotiate for all of it. Most real estate investors and Realtors negotiateonly on price. Learn to negotiate in many areas, using price as thebeginning step.Rule 1: Negotiate only with the decision maker. Go out in the next 24 hours and negotiate for something. Remember, onlynegotiate with the decision maker. When you’re at a restaurant, for example,ask for the manager and build rapport by chatting and start a dialoguelike this:“How long have you been working here?”“I’ve been working here two years,” the manager says.“What a great restaurant; Cindy the waitress is awesome. It’s our firsttime here. We’re just wondering, do you sometimes do special things to getpeople to come back?”“Yes, we do. There’s a little discount or sometimes dessert. Do you wantsome dessert?”“We’ll take some dessert.”“I’ll bring a piece of cheesecake.”“Well, since there are two of us, can you do any better?”You might think this is funny and crazy, but if you go out and start practicing,you’ll get better at asking. When you buy a car, you negotiate withthe salesperson, who rarely can do any negotiating. The sales managerthere might make all the decisions on the pricing of the car, but it’s thefinance manager who makes all the decisions on the financing of the car.Talk with the right decision maker, no matter what the situation.Remember, rarely in life does something work all the time. However, if youtry these negotiating tactics many times, they will work some of the time.Have you have ever gone to a restaurant and seen people yelling at thewaitress? The food is no good, the chicken is cold, the fish is bad, andthe poor waitress is about to cry. She wants to help, but what can shedo? Nothing; she’s not the decision maker. Then she goes to the managerand the manager comes over to your table. This manager is the person you should complain to . . . the person in charge. Negotiate on aproperty only with the people who control it and can make a decision.Ask them, “In whose name is the property? Is it yours? Are you the onewho can make the ultimate decision to sell?”Here’s a good example of how a few well-selected words can bring inthousands of dollars as a result of skilled negotiations.When you call on a house advertised at a price of $200,000, and ifthat’s a good deal, many investors may just offer the listed price. Let’ssay the property is worth $280,000. The seller tells you it’s worth$280,000, and it is. It is a great deal. Many investors would just acceptthat great deal and have $80,000 of potential profit. Not bad!However, what if you ask, “Why are you selling?” What if they respondthat the mortgage is $150,000 and it’s going into foreclosure. The sellersneed to pay off the debt—$150,000—plus they need $15,000 cashso they can move. Now you know that they may take $150,000 plus$15,000, or $165,000 instead of $200,000. That one question couldpossibly save you $35,000.Then you ask, “Can you do any better? What is the least you wouldtake?” What if they say, “Well, if you could get me $10,000 soon, I’lltake it.” You just saved or made another $5,000 by asking some keyquestions. Perhaps you are skeptical and think that this does not work.It definitely does not work if you do not try it! This is exactly what happenedto a student of mine, Carl, in Atlanta. By asking those key questions,he saved or made an extra $40,000 on what he knew was alreadya good deal!

Posted on: 3 June 2010 | 8:10 am

Property Owners

I suggest you learn every possible way to finance mortgages and usethem so you are never stuck not being able to do a deal because youdon’t have access to funds.Normally, when you buy a house, you get a new mortgage to buy it. Ifthe house costs $1 million, you borrow $900,000 and put $100,000down. Depending on your credit, income, and the collateral or property,the bank or mortgage company will determine how much it willlend you. A homeowner’s loan, meaning you are going to live in theproperty, is less risky for a lender than a loan for a non-owneroccupiedproperty or an investor loan. People are less likely to defaulton a home loan and risk losing their residence. Of course, there arehundreds or thousands of loan programs out there. Here are a few thatmay be of interest to you:■ There are many 100 percent homeowner loans for people with goodcredit.■ For first-time home buyers, there are special city, state, and nationalprograms that don’t require borrowers to have much of a down payment,even if their credit is less than perfect: They may need only$500, $1,000, $3,000, sometimes $0 down.■ Home buyers with marginal credit who are going to live in a housecan sometimes get a 70 to 80 percent loan to value. That is, if theyfind a house worth $100,000 for $80,000, they might be able to geta loan for the entire $80,000, or 80 percent loan to value. Somelenders might require them to put in some of their own cash as adown payment.■ Home buyers with bad credit can often get loans that are 65 to 75percent loan to value.■ Real estate investors or nonowner occupants can often get loans onsingle-family homes, duplexes, or buildings with up to four units at90 to 100 percent of their value. They must have excellent creditand good verifiable income.■ Many investors who are self-employed can get 70 to 80 percentloan to value if their credit is good.If you negotiate a good deal on a property, you might be able to borrowthe entire amount. If the house is worth $100,000 and you can buy itfor $75,000, you may be able to get a 75 percent loan to value and borrowthe entire amount. However, many lenders want to see you putyour own money into the deal.You can also suggest that the owner take out a second mortgage. Say,for example, that the only loan you can get is a 60 percent loan to Using a Second Mortgage to Get In with $0 DownValue or worth = $100,000Seller wants sale price = $75,000Bank will lend only 60 percent = $60,000 first mortgageSeller takes a second mortgage = $15,000 for five years$60,000 + $15,000 = $75,000 totalBuy On Owner’s TermsMany savvy real estate investors and some knowledgeable homeownersknow there is another source of funds for all of their real estate needs.Instead of going to a bank or mortgage company to borrow the money tobuy a property, they go to the seller or owner of the property. That’s right,the seller can act as your banker.If you find a motivated seller who wants $100,000 for the property, youcould borrow the $100,000 from a bank or just get it from the seller. If theproperty is free and clear (i.e., no liens on it), the seller can give you a newmortgage for $100,000, just as the bank would. Instead of paying the bankmortgage payments every month, you pay the seller. It’s called buying realestate on owner’s terms.value because your credit isn’t good. The seller wants $75,000 on thehouse worth $100,000. The bank will lend you only 60 percent of thatamount, or $60,000. You could negotiate for the seller to take the$60,000 and sign a second mortgage behind the bank’s first mortgagefor $15,000—not in cash, but in a note signed by you. This is anotherway to borrow the funds without using your own money to buy aproperty.

Posted on: 3 June 2010 | 8:08 am

Banking Relationships

A great source for buying property is through banks. If you have somegood deals, a good business plan, and some good credit, getting fundsfrom a bank may enable you to buy property without putting any of yourown money into the deal.Here’s how I bought over 100 properties without using my own money:I went to a bank and got a $100,000 line of credit secured by my ownhouse. The bank also agreed to do 15-year loans on any property Iowned at a 75 percent loan to value. That is, if a house had a value of$100,000, the bank would lend $75,000 (75 percent).For example, I would find a deal that was worth $100,000 from a motivatedseller who would sign an offer to sell it to me for $70,000. I woulduse the bank’s money (the line of credit) to pay the seller cash of$70,000. One month later, when the house looked better and I hadrented or lease-optioned it, I would ask the bank for a permanent 15-year loan. The house would appraise for at least $100,000. The bankwould lend me $75,000 (75 percent), which I used to pay off the loan,or put back into my line of credit. Then my line of credit was back at$100,000 to pay cash for another house. Not one cent of my ownmoney was used. Caution: Never borrow money you are not positive thatyou can pay back. Also, be careful about borrowing against your ownhome; if the loan is not paid back on time, you could lose your home.If you do not have great credit or the ability to do this, find someonewho does have that ability. Whatever you lack in business, find someonewho can help you. You probably know or can find people who want to make money in real estate and have great credit, but who don’t havethe time, energy, or knowledge to make it happen. You can develop theknowledge and use your energy to find the deals. Let others borrowthe money. You can partner with them 50-50, 60-40, 70-30, or whateverworks for both of you.Always make sure you have a good deal lined up before you borrow anymoney. Have a built-in cushion, too, as well as an exit strategy. If someoneelse is borrowing the money for your deals, make triple sure it’s agood deal.Also begin establishing good relationships with a bank. When I startedout, I went to the bank almost every month to ask for a loan. Everymonth the answer was no. Then, the fifteenth time, the answer wasmaybe, and soon after it was yes. The bank gave me a $50,000 loan ona duplex worth $80,000.At that time, I had more money on deposit in the bank than I was able toborrow. But the way banks work, after you borrow once, you can borrowagain—and then again. You may find that when you borrow only$100,000, the bank doesn’t really care about you. But when you borrow over $1 million, the bank cares! Loan officers start calling—how areyou feeling, how’s business, let’s go to dinner, and so on.

Posted on: 3 June 2010 | 8:05 am

Ways to Source Funds

Most people who invest in realestate make money in only one or two ways: They buy properties and borrowmoney from the bank to do so, or they deal in mortgages. But manymore sources for funding and profiting from your real estate investmentsexist. You can use these sources of funds to buy property. Do not useyour own money. Create money from other sources to get into real estate.Mortgage OriginationIf you’re actively buying or selling property, you’re initiating, referring,or acquiring mortgages. It’s customary to be paid for these services by affiliating with a mortgage company, a mortgage broker, or networkmarketing companies that do mortgages.Affiliate with some good mortgage brokers or become one yourself. Goto a variety of mortgage companies—at least one main company plustwo or three secondary ones—and research the best deals available at agiven point in time.Investors (and others) who attract customers needing a mortgage arecalled mortgage originators. Originators are paid anywhere from 30 to70 percent of the up-front fees on a mortgage—just for marketing andbringing in customers. For example, if a mortgage broker is working ona $200,000 mortgage that has two points ($4,000), the originatorwould receive half, or one point ($2,000), for filling out the applicationand helping to start the loan process. I suggest you should get abouthalf, or at least 20 to 25 percent, of the points for referring mortgagesto a mortgage company. A lot of times, you can actually become anemployee of the mortgage company, so you don’t have to be licensed.(Since every state is different, check with a local mortgage companyabout these requirements. Also note that in some states, paying feesto mortgage originators is illegal.) Please send me an e-mail if you wantto learn about affiliating with a mortgage company, My email is:robertshemin@the-beach.net.

Posted on: 3 June 2010 | 8:03 am

Who Are You, as an Investor?

The first part of finding your niche involves you, the investor. Are you a housewife, college student, full-time factory worker, nurse, businessman, or electrician? There is a place in real estate investing for almost anyone who is serious about investing and is willing to work at it. Part of finding your niche is understanding what your opportunityis, and what needs you can fill. A few examples:◆A college student may convince her parents to buy a condo that she can live in along with several of her friends, who would pay rent. The student gets free rent and will also gain an appreciation for the process of attracting quality tenantswho can pay their rent and help maintain the apartment and pay the mortgage(build the equity).◆The full-time factory worker might buy a house on contract and then lease to a co-worker who has yet to establish a credit rating.◆A nurse might consider buying an old building and dividing up the space to rent to doctors for record storage, who therefore would save expensive hospital and clinic space for medical uses.◆An electrician might use his experience to rehab an industrial building that has suffered from deferred maintenance. He may end up leasing that building to other contractors with whom he has worked over the years, as well as using the space for his own shop and office.◆A college teacher could look at an old house and decide that, with a little renovation,it would make an excellent small apartment building to rent to students.If you are looking for something to invest in, it is best to look at areas that are familiarto you based on your background.

Posted on: 3 June 2010 | 8:00 am

Who Are These Mysterious Investors?

Since the advent of the REIT, the public has become more aware of the possibilities of real estate development. The notion persists to this day, however, that the real estate investor is, by necessity, a very well-heeled individual. This can be true in many cases, but it is by no means the rule anymore. Many people, primarily professionals, have pooled their pension plans and formed small self-directed REITs of their own. These groups have not really formed a publicly traded REIT, but rather, have formed partnerships and companies to own and operate these assets. They build, buy, sell, and exchange these investments regularly to maximize their portfolios, much the same way any investor does with a stock portfolio.In every building project there are different functions for both owner and occupant. One person or entity may fill all the available functions in a transaction; however, in some cases, many different participants get involved in the various functions. The owner/investor may be the initial developer or someone who buys it after completion.Some buildings change hands many times during Buzzwords their useful life. The initial occupant can be the developer, the owner, or the tenant. In the case ofPremises are legally defined pieces of real property multi-tenant buildings, the tenants may be, and usuthatcan be the subject of a lease ally are, unrelated to the owner. The tenant could beor a sale. the developer, but not the eventual owner. There are many roles in any scenario for everyone. All involvereal estate investment. For the tenant, the lease is also an asset as well as a liability. The right to occupy a specific premises can, under certain conditions, be assigned and, therefore, sold.

Posted on: 3 June 2010 | 7:58 am

Home-Saver Program

You can help homeowners save their homes if they get behind in paymentsand face foreclosure. You can help the homeowner/seller catch upon payments, buy it using owners’ terms, set up a lease option, or flip it.Using a home-saver program, you work with mortgage companies,credit counseling companies, housing authorities, and nonprofits. Hereis how to talk to potential sellers.It’s important to ask these questions before deciding to take action:“Why are you selling?”“How long have you been trying to sell the property?”“Is the property in your name?” (Make sure you negotiate with thedecision maker.)“What is the mortgage amount on the property?”“What’s the least amount you would take for it?”After a price is stated, ask how they came up with that number. You’d beamazed how people come up with their values.In this process, pretend you’re Colombo. Whenever they say anything,ask another question. Why? How? If they’re reluctant, remind themthat the purchase price, when they bought it, and the amount of themortgage is public information. By now, you’re taking on the role of areal estate doctor. In order to help someone, you need information, sokeep asking more questions.“How old is the house?”“Are mortgage payments current or in arrears?”“If in arrears, by how much?”“What are the taxes?”“How much is the insurance?”“By what date do you have to sell it?”“How much would the house rent for?”“Does the house need any repairs? How are the roof, ceilings, windows,walls, floor, plumbing, stairs, carpet, kitchen, bathroom,basement, yard?”“How much would repairs cost?”And the million-dollar question: “Do you have any others?”Always ask the sellers if they know about any other properties. Youcould even run a classified or display ad like this:Home-Saver Program—Save your housefrom foreclosure. Call now, 000-0000.

Posted on: 2 June 2010 | 9:27 am

Short Sales

Let’s say that a bank or mortgage company has written a loan for$100,000 on a house that now qualifies for foreclosure. The loan is$100,000, but the financial institution does not want to take back theproperty. Sometimes, especially with the high foreclosure rates occurringin many parts of the country, the institutions will discount, or short,the amount of the loan to get rid of it. If the house is in the process offoreclosure or has been foreclosed on, the bank may be willing to takeonly $70,000 to $90,000 on the $100,000 loan. Often, you mustpresent an appraisal on the house as well as a repair list so that the institutioncan justify taking less money. Be persistent, especially in findingthe right department and decision maker at the bank.Right now the foreclosures in some areas of the country are up 100 to200 percent. When the economy slows down, people who overborrowedand overspent during the good times have a financial hangover thatleads to foreclosures. And the banks that have lent too much moneyhave to take back property. It’s an ongoing cycle.No matter where the economy is in the cycle, there’s opportunity tomake money. In the current climate, banks have foreclosed on so manyproperties that if they are owed, say, $250,000 on a foreclosed property,they’re tremendously eager to move that property off their books, andthey’ll short-sell the mortgage. That means you could offer less than themortgage amount and buy the property as a short sale.First, you need to determine which bank owns the foreclosed propertyand negotiate with the head of the real estate loan department orsomeone who can make a decision. (The clerks who answer the phone can find out what the property is worth from the loan amount, how longthe bank has owned it, and so on. Then ask if the bank will sell thehouse at a discount.Many investors have been able to buy properties from 20 to 60 percentbelow what they’re worth by doing short sales with the banks. Many arewholesaling these great deals to other investors, or they may have partnerswith good money or credit who help them buy and hold these greatdeals. This is another way to make money in real estate without usingyour own capital or credit.Tax SalesSay you own a house that you purchased for $200,000 some years ago,putting $20,000 down and borrowing $180,000. You have a first mortgageof about $175,000, and the house is now worth $500,000.This level of appreciation has taken place in many markets. Say you goto your bank and get a second mortgage for $100,000. Now you havea first mortgage of $180,000 and a second mortgage of $100,000.Your bank calls and says, “We suggest you get one of these securedcredit card equity lines and pay off your car loan and your Visa bill,which will make your debt tax deductible, because Visa payments andyour car lease or car payments are generally not tax deductible.” Youfollow the bank’s suggestion and take out an equity line on yourhouse, secured by real estate, which now becomes deductible, and payoff your other debts. You now have a third mortgage on the house for$40,000.Then you decide to go into real estate and want to borrow $50,000from your mom to get started. She says, “I want a written loan contractand security.” You go ahead and acquire a fourth mortgage for $50,000.Unfortunately, you get divorced. The court decrees that you owe moneyto your ex, which you can’t pay, so your ex gets a judgment against youfor $30,000 and files it against your house. You owe $8,000 in propertytaxes, but you forgot to pay them last year and you can’t pay them thisyear, so the city puts a $16,000 tax lien against your house. If you don’tpay these taxes, the city will foreclose on it.Now things are really getting bad and you can’t pay any of the debts.Who is first in line for the debts owed? The city. Property taxes arealways paid first. Now the mortgage company could show up and paythe $16,000 in taxes to protect their $180,000 or $100,000 mortgage.But banks and finance companies sometimes don’t do the smartestthings. Often the properties go to tax sales and are foreclosed on. Callyour local tax collector’s office and get a list of properties with tax liens.Then call the owners; they may be motivated. Also, go to tax sales andstart learning about them. The tax office may have property that no onebought at the sale. See if you can get a good deal. Contact a local titlelawyer to learn the ins and outs of your local tax sale rules.

Posted on: 2 June 2010 | 9:24 am

You Are Surrounded by Real Estate Investments

Real estate investors come in two varieties: the professional who does it for a living, and the investor who is looking to increase his or her net worth over a lifetime. Given a reasonable rate of success, the investor soon starts thinking seriously about turning professional.As an example, seldom does the grocery chain own the grocery store. If it started out that way, it was most likely purchased at a later date by an investor group formed for the express purpose of owning quality, investment-grade real estate. Most companies in the grocery business need all of their money to improve and enhance the business of putting groceries in the hands of the buying public. Their emphasis must be on the volume of sales and the profitability of those sales. The buildings become leased investments whose desirability as investments depends directly on the creditworthinessand diversity of the tenants in residence on the real estate.This process creates two types of real estate investors: those who develop the properties,and those who later purchase the properties as investments. In both instances, opportunity exists for profit. The profitability in each instance will be a function of the expertise of the party involved. In the case of the developer, his entrepreneurial talents will be involved, and in the case of the investor, her skill and knowledge will enhance the outcome.

Posted on: 2 June 2010 | 9:10 am

Surrounded by Real Estate

Unless you are a cave dweller, you are surrounded by other people’s real estate investments.People who keep up with the economic news are familiar with the names Donald Trump, Del Webb, William DeBartolo, The Rouse Company, Gerald Hines, and The Taubman Company. They have built some of America’s most visible, well-publicized projects within the commercial real estate development industry. However, what these people do for a living is no different, except in scale and notoriety, than what local developers do, every day, in every city and town in America.The entrepreneurs who build and/or own neighborhood bank buildings, office buildings,and local grocery stores are working at the same trade as Donald Trump and company, only on a more practical and local level. Without these people, our towns and cities as we know them would not exist.Using LeverageCommercial real estate development is defined as the creation of real property investments,“realty,” as opposed to personal property, or “personalty.” When buildings are built they become permanently attached to the land and, therefore, forever part of the real estate. Commercial real estate development is the business of creating this income-producing real estate. Why and how is this done? What prompts builder, buyer, and tenant to get involved is the attraction of using leverage to increase their profit. Leverage is the reason real estate investment can work for everyone.A simple example of leverage occurs when people use a mortgage to buy a home. If you buy a property for $100,000, using a conventional down payment of 20 percent, you need to borrow $80,000 to complete the purchase (also known as 80 percent loanto value). Simplistically, if you sell the property in one year for $120,000, you have made a gross profitBuzzwords of $20,000. However, the deal is better than itLeverage is the principle appears, as you have used the leverage of the borbywhich we use other people’s rowed $80,000 to increase the rate of return from 20money (OPM) to increase the rate percent on the gross price of the property, to a 100of return on our capital investment. percent rate of return on the $20,000 cash down paymentyou originally invested ($40,000 from $20,000).

Posted on: 2 June 2010 | 9:09 am

Why Is the Small Investor Switching to Real Estate?

During the late 1990s, the traditional stock market changed dramatically. Traditional P/E ratios increased to 50 or more times earnings, with seemingly no upper limit. People no longer purchased stocks with the expectation that they would get an annual return on investment. They counted on the “bigger fool” theory to make money. This theory rests on greed as well as supply and demand, overriding investment considerationsand turning people into speculators rather than investors. A modern-day holder of stock is counting on someone else to come along who will pay more for the stock than he or she did. Due to this increasingly insatiable demand for a place to put capital, the stock market of the new millennium has dramatically reflected the bigger fool theory.In the new millennium, investors got a harshawakening as they started to realize theirBuzzwordsstocks had become dramatically overpriced.The resulting bear market has helped toIn the past, the priceevaporate many a paper profit. The daily paid for a share of stock was avolatility and lack of clear direction of the stock multiple of its per-share earnings.market are indicative of this increasingly preva-The price-to-earnings ratio, orP/E ratio, is the price divided bylent, unsound reasoning when buying and sell-the earnings per share, eithering stocks. Ironically, the stock market does not proven or projected.reflect the real health and competitiveness of the companies involved. The country’s industriesare in great shape, cycles included; it’s just that their stock value needs to be put back into an investment mode. Once we return to a real and sustainable P/E ratio, stocks will again become a viable alternative investment. People working in the marketare constantly trying to hype the market values, but since the readjustment, stocks in the Dow Jones Industrial Average have been up an down between 10 and 11,000, with no appreciable long-term gain.When individuals want to go back to being legitimate investors, they must take a good look at real estate as an investment; it still trades on a multiple of cash flow to establish value. It retains the added attraction of appreciation, with the interim tax benefit of depreciation. In short, it is a more constant and reliable vehicle for investment.In some cases, it can be a vehicle for speculation as well. One very poignant advantage that real estate has over stocks and other investment vehicles is that it is a finite commodity. Other than volcanic eruption at sea, there has been no real estate created for several million years. The continued growth of the world’s population virtuallyensures appreciation as the available land is absorbed.Real estate investment can give you monthly income, tax shelter, and long-term appreciation. The stock market used to provide only income and appreciarion,today it has lost sight of the fundamentals of value. Real estate is easy for most people to understand. Not only can you make money with it, but also you can see it, change it, and use it. You live, work, and play in it. It surrounds your entire life. Unless you are a cave dweller, you cannot go through a single day without using someone’s real estate investment. Why not make it one of yours?

Posted on: 2 June 2010 | 9:01 am

What Happened to the Stock Market?

The traditional investment for most Americans not actively involved in the investmentindustry falls into two major categories: stocks and notes. Stocks are shares of ownership in companies, and notes are debt instruments issued by a borrower. They differ in fundamental ways. Stocks can pay a dividend, and the per-share value of the stock may go up or down in price. Notes pay only interest, based upon the purchase price of the note; the interest rate may vary from investor to investor. Other investmentchoices are futures, hedges, currency trading, and a plethora of derivatives of the above. The modern investor has so many choices that it becomes confusing unless a deliberate study is made to sort it all out.Most people have neither the time nor the inclinationto sort out this menu of investment choices.They prefer to leave the work to the self-proclaimed A mutual fund is a com-experts. For the individual with no desire or time topany formed to hold stock in analyze all these choices, this multiplicity of invest-other companies, providing a mixment vehicles has given birth to yet another class ofof stocks and mutual funds thatinvestment called the mutual fund.theoretically give an individual a choice between high-, medium-, There are funds that trade only certain stocks, such and low-risk investments. A REIT is as high-tech companies, single industries, foreigna Real Estate Investment Trust, acompanies, foreign currencies, certificates of deposit,mutual fund whose assets are realor treasury bills; the list is endless. Suffice it to say,estate properties or real estate–backed, debt-based securities there is something for everyone. Someday there will(mortgages). It is usually publicly be a fund that holds shares in other mutual funds.owned. With the resulting management overhead and brokeragefees, the net result is that dividends get pretty thin by the time they reach the investor.Miraculously, there is even a type of security (a certificate of ownership issued against an equity) or mutual fund, if you will, called a REIT. This type of fund was first formed in the 1970s for the purpose of allowing the public to invest in real estate. Its shares provide the investing public with an undivided interest in a variety of large, commercial real estate projects.Other than buying a home, American investors have always looked to the stock marketas their primary way of achieving a piece of the American dream. Their only other hope was to start a business of their own. For those who work for wages, the only viable venue for equity investment has been the stock market.

Posted on: 2 June 2010 | 8:55 am

Landlords and Landladies

Those who have been in business for a long time, especially, may bemotivated sellers. Being a landlord can be tough, tiring, and stressful.Often, small-property owners don’t have systems and management policiesand procedures in place. They may have been lax about collectingall the rent; maybe they haven’t been raising the rent; perhaps theyhaven’t been keeping up with the maintenance and the property is indisrepair. They likely bought it 20 or 30 years ago for very little money,and they may not understand today’s real estate market as well as theyshould, so they’ll sell it for below market.“For Rent” AdsWhen you call on For Rent ads, you get in touch with landlords or landladies,real estate investors, property managers, or Realtors acting asproperty managers. Landlords and landladies are excellent sources forinvestment property and lease-option deals. (See Chapter 4.) Everyonewho owns rental property knows that all of the tenants pay the rent ontime and never call about repairs, right? Wrong.Landlords have rent collection problems, repair problems, vacancyproblems; they can be constantly dealing with headaches, but they canbe highly motivated to sell. If you talk to 20 to 30 small-property owners,managers, landlords, and landladies, you’ll probably find somedeals, and they often have more than one property to sell.AuctionsAuction companies announce that they’re auctioning a house, a commercialproperty, or a farm 30 days from now. You want to call thatauction company, gather all the details, and get on its list to be invited tothe auction. You also want to meet dealers at the auction companybecause they’re out to find deals like you are. They find motivated sellerswho are willing to auction their property. Sometimes those sellerssay, “I don’t want to auction; I don’t want to advertise; I don’t want topay your auction commissions. But do you know of anyone who willbuy property quickly?” Many auctioneers are also brokers and sell a lotof property, so try to develop good relationships with them.Other InvestorsYou can meet other investors at auctions because, when you buy at anauction, you usually have to close within 10 or 20 or 30 days with cash.Would you like to know a lot of investors who are looking to buy propertieswith cash? Absolutely, because when you find a deal, you canwholesale it to them; you can partner with them; you can use theirfunds, their cash, their credit. They’re your real estate partners. Again,as in any business, networking is invaluable. Go to every auction, meeteveryone, and add them to your database.Legal NoticesNewspapers post legal notices of divorces, bankruptcies, and foreclosures.Follow all of those and get to know who the players are. Callthem; look at the deals. Find attorneys who are representing people inbankruptcies, divorces, and foreclosures and see if you can contract anyof their deals. Call a few lawyers and ask where they advertise foreclosuresand bankruptcies. Get a copy of that paper and go to work.ObituariesThis may sound a little morbid, and I prefer not to do it, but some ofyou might. In the newspaper, look for a list of people who have justpassed away. These people may have owned property, but their familymembers often live in other communities. You can perform a service forthat family by helping them liquidate the real estate. They don’t want it;they usually don’t know how to sell it; they certainly don’t want to take alot of time to make decisions. You could offer them a quick sale andthey might be motivated.If you contact them, of course, be sensitive to what they are goingthrough, saying, “I’m sorry to hear about Rose passing away. Is this agood time to talk?” Ask them whether property is involved and whatthey plan to do about it. Could you help them by offering to get rid of itquickly? If you call on enough obituaries, you’ll probably get deals.Small NewspapersYou can also run classified ads to find deals. You can run them in newspapers,on radio, TV, and billboards. Do you have any local neighborhoodshopping newspapers, community weeklies, or even the ThriftyNickel? Putting ads in these small papers doesn’t cost much—$10, $20,$30, or $40. One of my students did a study in Memphis, Tennessee,and found that—per time and per dollar—people get a much betterresponse out of the smaller neighborhood newspapers than they do inthe larger papers.Use the following sample “I buy houses” ads:DO YOU NEED A MONEY MIRACLE RIGHT NOW? If you have ahouse in any condition that you want to sell, I’ve got cash, know-how,and banking connections. And I’m eager to buy your home. Please call[investor’s name] at 000-0000 right now for an extraordinary no-riskproposition.Legal NewspapersEvery major city has a legal newspaper in which people advertise bankruptcies,foreclosures, divorces, estate sales, probates, and relatedevents. Get a copy of this newspaper and look at it at least once amonth. Then follow up with phone calls.Foreclosure AttorneysIn every area, you’ll find two or three attorneys who specialize in foreclosures.Find out who they are and talk to them They may not be ableto give you a lot of information because of client confidentiality, butthey might be interested to know someone can buy their properties, payoff the banks, or help their clients get rid of their properties.Driving for DollarsPick an area that’s in transition: one that is getting better or an areawhere people are fixing up houses. Watch for lots of activity—houses forsale, houses for rent. Then start driving around looking for signs of possiblemotivated sellers: vacant homes, needy homes, condemned homes,For Sale signs, For Rent signs, For Sale by Owner signs. You ought toget excited if you see gutters hanging off, 10-foot-high grass, garbagepiled up, holes, junk cars. There’s a basic premise to follow: The worseshape the house is in, the better the deal. These are the signs of opportunity.Write down the address, locate the owner through the property taxrecords, and phone or write them to see if they want to sell.One of my students in his early twenties, a young man in Memphis,Tennessee, just sends letters to homeowners of vacant properties hefinds driving around—about 50 to 100 letters a week. He had beenmaking $25,000 a year working part-time on the night shift, but hemade that much on one real estate deal. He has now made about$200,000 in 12 months just using this idea consistently. He doesn’twork the night shift anymore.

Posted on: 2 June 2010 | 8:49 am

Signs of Motivation

You can look for signs of motivation by getting the Sunday newspaperand looking in the real estate section for places for sale. More specifically,look for the following sources of motivated sellers.“For Sale by Owner” AdsIf people are trying to sell property and don’t want to get a Realtorinvolved, it shows motivation to sell. Maybe they can’t afford a Realtor,don’t have time to get a Realtor, or simply want to sell it themselves.This can lead to getting a good deal quickly because you can negotiatedirectly with the decision maker.Some investors just work with a list of properties; others work only withRealtors and make a fortune. Everyone is different. It all works.However, about 80 to 90 percent of the deals I do never go through aRealtor. They’re never listed with the Multiple Listing Services. In thenewspaper, you have nonlisted properties for sale by owner, and youalso have listed properties that are for sale by real estate companies. Youmay be able to make a living by responding only to For Sale by Ownerads and asking them why they’re selling.“For Sale” AdsThese lead you to Realtors or to people who just listed their house forsale with Realtors. They’ll likely try to get full price. These are probablynot the best sources; sellers working through Realtors usually aren’tmotivated to sell at a discount, although you might find some motivatedsellers in this group if you are willing to make enough calls.Expired ListingsExpired listings can be a good source of deals. Contact some real estateagents and ask them to help you make offers on all of the listings thathave expired or are about to. For example, let’s say someone listed ahouse for sale with a Realtor for $300,000. The Realtor listed it for sixmonths and it has not yet sold, but the agreement expires at the end ofsix months. Chances are the seller might now be more motivated. Doyou see how this list could be a source of some good deals for you?Investment Properties AdsWho would list properties for sale under the category of investmentproperties? The following describes several possibilities.Investors and Their BrokersInvestors can be understanding toward other investors, so sometimesthey sell the property for below what it’s worth. Or maybe the propertywas purchased 30 years ago and hasn’t been fixed up or managed properly.You might be able to buy it for less than market value because theseller is motivated.

Posted on: 2 June 2010 | 8:41 am

Avenues Leading to Motivated Sellers

If you do not find a motivatedseller, you can’t begin to make money in real estate.When people are selling a house and are eager to get rid of it, the onlything they care about is solving their problem. You may think they caremost about the money involved. That’s simply not true. You may thinkthey want to sell a house. That’s not true, either. This goes back to themost important question: Why do people buy a home? To spend a lot ofmoney? No. Because it’s good to buy a home? No. It’s important tounderstand why people buy homes; then you’ll understand why they sellthem, and then you’ll also know how to negotiate with potential motivatedsellers.Owning a home involves paying mortgages and spending money fortaxes, insurance, and repairs. Many people could rent something for alot less and live in a nice place with everything taken care of. But theybuy homes based on the emotions of security and status, which is whysome people live in houses that are too big and expensive for them. Theyalso buy houses to get into better school districts for their children. Butmostly, their decision has to do with emotion, not rationalization.People also sell homes for emotional reasons. They either have a problemor they’re avoiding problems. They have pain they want to “fix.”They’re getting divorced; they’re getting remarried; they have to moveout of the city or state; they’re starting a new job. Sometimes, they have to sell their homes quickly. They may have to pay off the mortgage tohave money to buy another home. Or they’re in over their heads financially.Or they’ve had a change in their life—a divorce, a family debt, ajob change, or money problems.Your job as a real estate investor is to discover their problem and solve it.Loss of job. Financial problems. Estate sale. Job transfer. Illness and nohealth insurance. Recent divorce or remarriage. Overextended credit,tax problems, tired landlords. These events can all lead to motivatedsellers, because here’s an example of what happens.A homeowner has $400,000 in debt and the bank is demanding payment;the house may be worth $555,000, but the homeowner may notbe able to get the money to pay off that debt or stop foreclosure. It’spossible the home will be foreclosed and the owner’s credit wrecked.You can help turn this into a win-win situation.Perhaps all the sellers really want is to get $5,000 cash to pay off thebank and move. If not, they could be foreclosed upon and end up in realtrouble. You could help the seller and the bank by putting the houseunder contract for $405,000—$5,000 to the seller and $400,000 to payoff the loan. Contact your network of buyers, investors, and real estateagents; perhaps you could find a buyer who would pay $455,000 for the$550,000 house. If it is a good deal, the buyers will come. At closing,the bank has its loan paid off, the sellers have been saved from foreclosureand have $5,000 to move, the end buyer gets a great deal, and youearn $55,000 (less any closing costs you had to pay) for finding a gooddeal and putting a buyer and seller together.

Posted on: 2 June 2010 | 8:40 am

The Terms of Your Lease Option

If they miss a rent payment or are late by one day, they lose all theiroption money. If you rent out an apartment, what’s the tenants’ incentiveto pay on time? Not much. If they’re late, they pay a measly littlelate fee.What’s the number one complaint all landlords have against renters?They damage the place and don’t take care of it. Are you shocked? Haveyou ever rented a car? You are no doubt nice, honest, and ethical. Whenyou rent that car, how do you treat it? Do you drive over the bumps inthe parking lot, take the curb, do some donuts? Let’s floor it, see whatthis little rental car can really do, drink a Coke, throw it in the back seat,right? Don’t we all tend do the same? Why? It’s not that we’re bad; it’sjust that it’s not ours.SECRETS OF BUYING AND SELLING REAL ESTATEPerform Regular InspectionsHow do you make sure that the property is not being destroyed and thatyour tenants are doing the repairs they are supposed to do? In every leaseand lease option, you have the right to inspect the property every 30 days.I predetermine my inspection date in writing. For example, I say, “On thesecond Tuesday of every month, during business hours, I have the right togo in and inspect for repairs, check the air-conditioning filters, spray forbugs.” Inspect it every 30 days; if you don’t, you could be shocked at whatyou find.When you lease-option, tell your tenants they’re on a home-ownershipprogram, that this is their house. They’re going to fix it up. It’s theirs.Way to go. They own it. They’re buying it. They’re lease-optioning it.They may plant some flowers, paint, maybe put a porch on the back. Ifthey’re homeowners, they take care of it.■ If they’re late on the rent, they lose the option money.■ If they don’t buy within a year, they lose the option money.■ If they do any damage or don’t do the repairs, they lose the optionmoney.■ If they don’t close on a new mortgage within a year, they lose theoption money.In my landlord course, I explain that all my rent is due on the first of themonth, late on the fifth, and we evict on the eleventh. This is my policyand procedure. I promise you if tenants can’t pay this month’s rent, theyprobably can’t pay three months’ rent if you let them stay in your rentalproperty.Do you remember when, during the Vietnam War, the Chinese capturedsome patriotic, red-blooded, dedicated Americans and put them on televisionand forced them to say “America is not a great country”? How didthe Chinese torturers get them to do it? They used the psychologicaltechnique based on the idea that if you put it in writing, you can’t deny it.They’d start out very generally and have them write a report detailingproblems in America, and, of course, the valiant American POWs saidthere were no problems, no way, they wouldn’t write, they wouldn’tcooperate. Then the Chinese said, come on, there are race problems,poverty problems, some type of little problems. Just a little one, write it

Posted on: 1 June 2010 | 5:32 pm

MAGIC PATHS FAQs

Before you read about how to put the five “magic paths” to work,take a moment to look at these frequently asked questions.Is this book designed for the experienced real estate investor?Absolutely not. Although anyone with real estate experience couldbenefit by reviewing the material here, what is presented is primarilyfor the beginning investor.Will these strategies work in my area?Certainly. Although markets vary, opportunities abound in each area.The book contains a discussion on how to evaluate your local marketfor using the best strategy.Do I create a lot of debt in real estate investing?Not necessarily. Creating debt is not your goal. Just remember whatdebt you do take on is backed up by a tangible property that is worthmore. And when these debts are paid off their value will have goneinto your pocket.Will all the techniques discussed in the book work?Yes, they comprise the major techniques used to practice investing inreal estate in the United States today. Although some have morepopularity than others, none are minor or insignificant.Do they involve “no-money-down” schemes?Not at all. Some require more money than others. But often severaltechniques are used to build up cash reserves for their use elsewhere.What is this so-called creative financing all about?Creative financing is a catchall term that usually involves financingother than or beyond a traditional mortgage loan. When used in thisbook it refers to the seller’s participation in secondary financing andthe conservative use of a home equity loan.Will using the techniques described here take much time?Some take longer than others. You certainly don’t need to give upyour present work to get started with using several of the techniques.Securing and arranging the work on a fixer-upper can often be doneeasily on a part-time basis. Correspondingly, however, something likeMagic Paths FAQs 9the operation of several apartment buildings may take a larger commitmentin time, unless professional management is used.If I’m buying a single-family house or small apartment building do I have toswindle the seller?Of course not. Great profits come from dealing fairly in the marketplace.Note that all prices come from comparable sales in the marketplace;even a damaged fixer-upper has a reason for its low price.Is this book comprehensive and all I need to know?No, your study of real estate should be lifelong. Although the techniquespresented here are thorough and intended to get you started,each is its own field with a distinct fraternity of followers, books,courses, and gurus.Are negotiations with sellers difficult?Not at all. Even when you need to offer a seller less than what he or sheis asking, a seller is generally persuaded by the factual material andcomparable selling prices that you will gather regarding a property’svalue. You can make negotiating pleasant if the seller knows that youwant to take some of the responsibility of the real estate problem off hisor her shoulders. Note that you can often come near the seller’s askingprice if you name the terms; that makes it win–win for you both.I’m not sure about my credit. How do I go about qualifying for a mortgage?Two observations: First, consider that many investment properties,both single- and multifamily, are financed in whole or in part by theseller; second, many lenders base their mortgage decisions more onthe value of the property and less on the borrower. Once you havereal estate, regardless of how it’s financed, you will have gone a longway to repairing any credit problem.Do I need a real estate license?Not to practice as an investor, you don’t. In fact, having a license maycompromise your investor status with the Internal Revenue Service(IRS), as well as be a hindrance in working with sales agents. Further,many sellers simply don’t want to talk to brokers, so don’t licenseyourself to become one. Note that wholesaling a property mayfeel like it requires a license, but even here you’re selling a contractto buy a property over which you have a measure of control—andnot for a fee, but for a markup, or difference in price.10 Five Magic Paths to Making a Fortune in Real EstateDo I need to incorporate?Generally, no. In fact, you will lose important tax advantages if youdo. Incorporating is supposed to limit liability, but if individualswithin a corporation act irresponsibly, the corporation will not sheltertheir liability. As far as liability for someone having an accident onyour property goes, you should always cover yourself with theproper insurance, and liability insurance is relatively inexpensive. Asfor liability for the mortgage, even if you have a corporation you arelikely to be required to sign personally on the mortgage. (In this regard,you should always make sure the mortgage is less than thevalue of the property.)What are the main ways in which I will spend my time?Oh, yes, I didn’t tell you yet? It’s not so much about bricks and mortar(although there may certainly be some of this). You will spendmost of your time contacting people, and the second biggest investmentof your time will go toward establishing value by investigatingcomparable sales.Will it take persistence?Yes, definitely. It will also take indefatigability, stamina, determination,purpose, grit, and, of course, pluck. Yes, lots of pluck.In the next chapter, we’ll begin setting out the way you make moneywith fixer-uppers.

Posted on: 1 June 2010 | 4:10 pm

TAKE SOME MEASUREMENTS OF YOUR MARKET

Before we leave our overview and go into details of our first strategy,take a moment and evaluate your own marketplace. Here are somecharacteristics you could investigate about your marketplace and theneighborhoods in which you will look for property:■ Establish the territorial area in which you will prospect forproperty.■ Determine territorial divisions of neighborhoods in which youwill do business.■ In each neighborhood determine if the number of home salesas well as the value of their prices are rising or falling, and lookat trends for the past several years.■ Look at the number of single-family houses in contrast to thenumber of multifamily dwelling units, and find whether thetrend for the past several years is increasing or decreasing.■ For single-family houses, determine the ratio of tenants toowner-occupants, and the trend there for several years.■ Determine the profile of the typical buyer in each of the respectiveneighborhoods.Don’t let this list intimidate you. Investigating these characteristicsisn’t meant to be a demanding task. You probably alreadyknow much of the information. Whatever you don’t know can belearned from local real estate agents, property appraisers, assessors,or other investors. A check at the county registry of deeds officemay also be helpful. The purpose is for you to start gaining a senseof what’s happening in real estate in your marketplace. This willstart you thinking about whether the value of single-family propertiesis going up and whether the tenant mixture is moving towardowner-occupants—two important points in using the realestate techniques in this book.

Posted on: 1 June 2010 | 4:08 pm