Charles Parrish Investing Blog

In the video below, where I am making a call on behalf of a student, the seller of two apartment buildings discsusses the...shall we say, "peculiar habit" of one of her tenants...

I think that many people give up on the real estate investing business because they are so focused on making money they forget to make it fun. They quickly grow frustrated when the money doesn't start falling from the sky like the infomercial promised them, burn out, and give up. HAVE FUN! Don't take yourself too seriously. DEFINITELY don't take sellers too seriously. Find a way to make it fun, and you will find success in this business.

A recent technique we started at Auction Brokers known as "Bidder Bonus Time". When the bidding could use a "pick me up", I pull this out of my bag of tricks. Sometimes it's just what we need to make the deal happen when the numbers are close.

Here's some video of a Auction we did last week- an 11-Unit mixed use property that needed renovation in Dundalk, Maryland. And yes as usual, I'm doing my typical antics of pulling people's hands up in the air and yelling at people to bid.

It sold for 185,000...but what really floored me is that the high bidder said her partner authorized her to go up to $300,000 when we were doing the paperwork.

But the best part- this was a property that an Investors United student had under control with a contract, and will make over $65,000 on an assignment fee!

EDIT: Here is the page for the property on the on Auction Brokers website http://www.auctionbrokers.net/auctions/auction_detail.asp?AUCTION_ID=1202

If you have questions about selling your wholesale deals through public auction send me a PM (we are expanding to other states and I am looking for Joint Venture partners).

In this edition of the President’s Club interviews, IU Alumnus Gary Janis and my son Ian discuss a recently completed REO transaction in Parkville, Maryland with an expected profit of $40,000.

Gary also describes his journey from an attorney to a professional real estate investor, and offers some great words of wisdom to beginning real estate investors on how to overcome your fear of failure, while at the same time how a “human tendency towards greed” can be damaging as well when starting out.

Transcription:

IAN: Welcome everybody. I’m Ian Parrish, President of Investor’s United School of Real Estate. With me today is Gary Janis, who is an Investor’s United Alumnus and a new member of the Investors United President’s Club. Now, the Presidents Club is a distinguished group within Investor’s United School of Real Estate of members who have created a cash or equity profit. So today we’re here to find out what Gary did to create that cash flow or equity profit and how he got into the President’s Club. Gary, welcome.

GARY: Thank you.

IAN: Would you tell us a little bit about your transaction?

GARY: I bought an REO property in Parkville. It’s a semi-detached home. It was a unique property in that it is the only semi-detached home on a street of single family homes. It has a driveway. It has a garage. A lot of the single family homes in that area do not have that.

The bank had it listed for $138,900. I started bidding at $90,000. They came down to $118,000 and said they weren’t going to go any lower. At the time I was at $100,000 and said I wasn’t going to go any higher. When they didn’t respond to my most recent offer of $100,000, I kicked it up to $105K. They came back with 107K even though they said they weren’t going to go below 118K. At 107K, I took the property. I had told myself I was willing to go to $110,000 on this property.

I had an 80% acquisition loan and the bank that gave me the acquisition loan had it appraised for 185. So I bought a property $107,000 that my bank appraised for 185, so we’re looking at a gross equity of about 78,000 on that property.

IAN: Not bad. Now this is a bank owned property you said.

GARY: It was a bank owned property.

IAN: OK, right now there’s a ton of those so you know they’re probably motivated to get those properties off their books.

GARY: They were not nearly as motivated as I hoped they were going to be. I hoped to pick it up for less, but 107 was still a good deal.

IAN: Right. And repairs? Does it need any work?

GARY: I need to put about $15K – $17K into it. It needs a kitchen. It needs a bath. The floors need to be re-finished and it needs to be re-painted.

IAN: OK. And then, what is your exit strategy?

GARY: The exit strategy is I’m going to sell it on the market.

IAN: And you’re expecting to walk away with net profit of?

GARY: Probably looking at about $35,000, maybe $40,000.

IAN: Not bad. So a somewhat conventional transaction, but still 35 to 40,000 is good money. How long do you estimate that whole process will take you?

GARY: I hope to have the renovations complete by the 1st or 2nd week of June and then we’ll put it on the market.

IAN: OK, and we’re in the second week of May so that’s a pretty quick turnaround.

GARY: Well, I bought the property the last week of March so I actually took possession the first week of April. There were some initial issues getting contractors in and getting some estimates and things of that nature. All those things have been ironed out and the work is progressing as we speak.

IAN: Excellent. Now have you taken the course on FREEhabbing?

GARY: Yes.

IAN: Alright, so you’ll make sure to use a 50% draw schedule or payment upon completion to eliminate any risk from the contracting equation.

GARY: I don’t see any problems with the contractors at this point.

IAN: Good, good. Were there any creative terms in your contract? Anything out of the ordinary, a stutter clause or anything that our viewers might be able to learn from?

GARY: Unfortunately no. This was a bank contract. They would not consider anything other than a standard Maryland Real Estate Contract so I couldn’t put any of the terms that I wanted to put in.

IAN: I think the lesson learned is that even though it is a conventional type transaction, the lesson is to get out there and make offers. Even going where everybody else is going, bank owned properties and listed real estate, you have zero chance of creating income if you don’t make any offers, right?

GARY: I focused on REO properties since I’ve been here. I started making offers in September and it reached a point where I was making at least one offer a week.

Now, I know it doesn’t sound like much but when you look at the bank owned properties, that was the way I thought was the best way to do it. I’d look at several properties each week and make an offer on the one I thought had the most equity or potential for equity. I could not get banks to meet my price and when you run the numbers, I did not want to go above a certain figure. So this was the first one where everything fell into place, but we started making offers months ago.

IAN: Gotta play to win. Now, you’re long term strategy, not just this property but your overall real estate investment strategy, would you mind sharing a little bit about that?

GARY: Well, my intent is to buy at least one more property to build up my cash reserves. At that point I want to continue to do that, plus I want to start building a rental portfolio. My intent is to go into this with joint ventures so we can do more than one property at a time.

IAN: Excellent. So you want to develop a stable of properties and enjoy the gift that keeps giving.

GARY: That’s correct.

IAN: What a wonderful tax shelter too. For every flip property that you have, you have this balance of write-offs and depreciation. That’s very wise. Your background? You were an attorney?

GARY: I was an attorney.

IAN: And what made you come to the real estate side of things from the consulting side of things?

GARY: Well, when I was 35 I decided I wanted to be an attorney when I grew up. So I went to law school at night at the University of Baltimore at night for 5 years. In 1990 I graduated. I took the bar and I was admitted to practice. I practiced for about 18 years, and in 2008 I decided I wanted to do something else, so I retired. My plan at that point was to do nothing for 2 months and then when I got done doing that I was going to take the rest of the summer off. I had plans to do things around the house. I finished all those project within 2 weeks and then I got bored. I needed another challenge at that point. I heard an ad for IU on the radio and I thought to myself “I can do that”, and here I am.

IAN: You’re unconventional, but are you having fun yet?

GARY: Yeah, it’s a lot of fun. If it weren’t fun I wouldn’t be doing it. That’s why I stopped doing what I was doing because it reached the point where it wasn’t fun anymore. Every 10 or 20 years I need to do something different.

IAN: You are unique Gary. Many people will put their head down and just continue to be dissatisfied doing what they’re doing because they think it is what they are supposed to do. It’s very difficult to do what you did and I hope that our viewers can take a lesson from you in that you made the decision to be happy and knew that everything else was going to fall into place, and it looks like it has.

GARY: And my wife and I have been blessed. There aren’t a lot of people who can do what I did and just take a year off to start something else.

IAN: Well, good for you. Do you have any words of wisdom, words of advice, for either someone who might be watching who is already involved in real estate and looking to take their endeavors to the next level or maybe curious about getting started?

GARY: I think one of the most important things is to overcome a fear of failure and along with that at some point in your investing career you need to overcome a human tendency towards greed. Both can be troublesome at different stages to an investor. Don’t be afraid to take a risk. Risk can be managed. I’ve learned that since I’ve been here. Learn to invest based on facts, not emotion. Get advice from people who are already where you want to go. Additionally, and I do want to say this, if you do pursue a career in investing, you will make money, and once you start making money, don’t make money and idle. Be a good steward of resources you have. I would strongly recommend giving at least 10% of it away.

IAN: Sure. We have a saying around here. That is we believe everyone deserves to be happy and deserves to be prosperous and is obligated to give something back. That’s what makes Investor’s United unique, in part, is that idea from the name on down, “Investor’s United”. The idea is to groom potential partners, to share our knowledge with people with the idea that those folks will come back and maybe partner on a transaction. We were just talking before filming about the purpose of Investor’s United and ladies and gentlemen at home or watching, if you’d like to meet Gary and conduct a transaction with him, refer business, go through a rehab, by all means come to the Maryland Real Estate Exchange, our investment club, the first Saturday of the month. Meet him at our mastermind meetings, talk to him in the hallway, talk to him in class. Gary will be around and that‘s what Investor’s United is all about. Is there one resource at the school that you felt was the most useful above all the others?

GARY: I wouldn’t say there was one resource, but there are two lessons that I walked away with that I think are most important and that’s learn to invest based on facts, not emotion. When people talk real estate, you always hear them talk about location, location, location. Well, to an investor, it’s not location. It’s cash flow or equity. I think the second, and the most important thing I’ve learned is that risk can be managed and weather you want to get into investing as far as foreclosures, REO’s, income producing property, commercial property, this school will teach you how to manage the risk.

IAN: It should be fun, right? It should not be risky. If you’re going through your real estate endeavors and you’re not 100% then you need to re-evaluate. Gary, excellent advice. Thank you very much, I’m proud of you. And Ladies and gentlemen, thank you for watching.

GARY: Thank you.

Question: Can you explain the Reserve Method of Auction Marketing? I have never heard of it. I live in Arizona and am an Investing Realtor, (Must disclose this) and am interested in finding out more about this type of investing.

- Sue, A.Z.

Sue,

Give me your e-mail address and I will send you additional information on how agents and investors can use the “Reserve Auction” method of marketing. This is an open invitation.

The Reserve method of auction marketing is a very simple way to set up a real estate auction.  The seller says he wants $200,000 for his property.  This is his reserve.  The reserve amount is NOT made public.

At the time of the auction, the auctioneer’s goal is to sell that property for as much as possible and he knows that he needs to reach that reserve to get paid.  If the auction reaches only $180,000, the seller can reject that bid. 

The auctioneer will recess the auction for a few minutes to talk to the seller.   The conversation will go something like this, “Mr. Seller we have a high bid of $180,000 plus a 10% buyer premium (commission paid by the buyer), that means that the buyer is paying $180,000 plus $18,000 for a total of $198,000 plus settlement cost.  As you know this bid represent all cash, no contingencies and settlement within 30 days.”  At this time the seller may say “OK, I’ll take it!”

If the seller says yes, I’ll take it, the auctioneer will resume the auction and will say, “Folks this is now an absolute auction, this property will change hands today!  ONE HUNDRED EIGHTY, NOW ONE-NINETY, WILL YA GO ONE-NINETY, HERE IT GOES, AT ONE EIGHT, ALL IN AT ONE EIGHT ---- HERE IT G O E S…………S O L D!!  The property sold for $180,000 plus 10% buyer’s premium. 

Often times, when the auctioneer announces that the sale is now absolute, the bid may go higher. A good real estate auctioneer will work very hard to get the bid as high as possible.

On the other hand, the seller may be stuck on his $200,000 or he may say I will take $190,000.  At that time the auctioneer may consider giving up $10,000 of his $18,000 commission in order to make a sale.

An absolute auction is where the property will be sold regardless of price.  Auctioneers love absolute auctions because they are a guaranteed pay day. About 20% more bidders attend absolute auction sales.

Charles Parrish, Auctioneer
www.AuctionBrokers.net

P.S. If you want to learn how to integrate auctions into your investing as quickly as possible, I have put together a program to teach you exactly this. It contains over 3 hours of instruction of different auction investment strategies: 1-2-3 SOLD! How to Profit from Real Estate Auctions.