As I stress time and time again to new apartment building investors, before making an offer on any apartment building real estate property be sure that the investment will be a profitable one. Banks and commercial mortgage lenders will only lend money on an apartment building that has a Debt Service Coverage Ratio of at 1.2. Once the investor has done his or her work and found a profitable apartment building to purchase then the next step is to structure a offer.

The Offer Letter

The offer that the investor makes on an apartment building should be in the form of a typed letter detailing the terms and conditions under which the investor is offering to purchase the property. After the buyer has figured out the value of the property then he or should deduct around five percent off of that figure and make that the offer price. The investor should also make the offer contingent upon receiving financing, under specified terms, within 30 to 45 days for an amount of at least 75% of the purchase price. The buyer should also include an expiration date of one week on the offer during which time the seller can review the offer.

How to Make the Offer Stronger

1. Get a letter of interest from a commercial mortgage broker that simply states they are willing to lend 75% of the properties value. This letter of interest should not be confused with a commitment letter. The bank is under no obligation to lend the money if they decide to turn down the deal.
2. Put together a professional sales agreement in simple language that is fair to the buyer and seller. This will ensure that your letter is taken seriously.
3. Include any information that will make your offer appear stronger. If you have a lot of real estate investment experience, include your curriculum vitae. If you are going to pay your down payment with cash on hand then send a copy of your bank statement showing the cash.

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Tags: apartment building offer, apartment investing, apartments, buy apartment building, make an offer on apartment building, real estate investing, real estate investor

One piece of advice that is frequently offered to those wishing to invest in real estate is to join a local real estate investment club.  Okay, now what?  While taking that first step to actually attend a club meeting is great, it is only the beginning. To make it a worthwhile endeavor requires some effort on your part.

First off, be sure that you are joining a real club, not a thinly disguised sales pitch.  Companies and individuals looking to sell products and services to real estate investors may start a club in order to attract prospects.  The clubs may be started by real estate agents, mortgage brokers, seminar peddlers, and others looking to sell you their wares.  That doesn’t mean that you can’t find these clubs valuable, just be aware of what their agenda is and go in with your eyes wide open.

The Meetings

Typical club meetings may have one or more sponsors.  In order to help cover the cost of a meeting, the clubs will allow someone to pitch a product or service in exchange for a sponsorship fee.  These sponsorship pitches are not much different than television commercials.  If you have a need for the product or service, great.  Just be aware that it is a paid spot and it does not necessarily mean that the club is endorsing the product.

There will usually be several speakers at the meetings as well.  A good club will provide a segment that is purely educational.  The topics will be related to real estate or running a real estate business.  You should be able to learn a lot from these segments and will, hopefully, be worth more than whatever the membership fee may be.

Other speakers may be a combination of education and sales pitch.  You will often hear from gurus pitching seminars and boot camps.  You should learn something from these speakers but their primary purpose is to get you to attend their training programs or buy their books and tapes.  Other speakers may be pitching an investment opportunity.  They may be traveling the country and presenting at real estate clubs in order to attract buyers.  Be aware that the club frequently gets a referral fee from those pitching seminars, boot camps and investment opportunities.   I am generally skeptical of the opportunities being pitched, if it is as good as they say why do they need to travel the country selling it?

Where The Action Is

The real value to a club is what takes place before and after the meeting - networking.  In a recent article (The Power of Networking) I explored the benefits of building relationships.  This is the main advantage of joining a club, the ability to get to know other investors and learn from them.  This is where you can make connections that can change the course of your business.

I see many club newcomers who arrive just as the meeting starts and leave the minute it ends, they don’t realize what they are missing.  You should arrive early and stay late.  Be sure to have business cards and introduce yourself to as many people as possible.  If you meet someone that you find interesting, arrange to get together with them outside of the meeting.  You may be surprised to find how many people would be willing to do this.  I usually arrange to meet with someone for an early dinner before the meeting and have developed several powerful relationships as a result.

Lastly, get involved.  It takes a lot to run a club, an offer to help at the meetings will usually be greatly appreciated.  Perhaps you can help with sign in or act as a greeter when people arrive.  What you gain is visibility, the more people who know who you are the better.  Be sure to seek out the successful investors and make an effort to get to know them, most will be happy to share their knowledge and offer their insights.  If you make an effort you will receive an enormous benefit.  It gives “going clubbing” a whole new meaning!

You can close more business in two months by becoming interested in other people than you can in two years by trying to get people interested in you.
Dale Carnegie

You may have heard recently that this is a great time to purchase investment property. One reason for this is because you can now “cash flow” them again. That sounds like a pretty good idea, but what does that really translate into? What really makes this a better time to buy and hold investment property rather than 18 months ago?

I would like to give you a brief overview on the two major concepts of making money on investment property, and why it is a perfect time to acquire and hold an investment property.

Fix & Flip

I am sure many of you have heard of the term “fix & flip”. This is a good money making technique when the real estate market is steady and the volatility is predictable. The concept is to buy a property that is undervalued compared to the other homes in the area and fix it up. The typical targeted repairs are items like new floors, carpet, paint, window treatments, landscaping, kitchen & bathrooms cabinets, etc.. Ideally, these repairs take only 1–3 months, and then you list the property for sale at a much higher price. The goal is to make enough to cover your repair costs, the temporary mortgage payments, and walk away with $20K – $60K profit on that property. The key to success is to have the right property and to turn the property as quickly as possible.

Obviously, this doesn’t always work as planned, and sometimes you lose money on the deal. Factors that contribute to losing money on a Fix & Flip property are the repair costs being too high, the repairs taking way too long, or the property not selling quickly. Sadly, some Fix & Flippers got stuck with property over a year ago when the market turned, and either took a loss selling it below cost or turned it into a rental property. This is not the ideal strategy to own rental property, because most of these people are still taking a monthly loss renting these properties today. I feel that I am an authority on this topic, because I own one of these types of properties myself.

Cash Flow

This is the concept used to identify property that will make good rentals. The word “cash flow” refers to the amount of cash a rental home generates and uses on a monthly basis. Cash flow can be used as an indication of a rental home’s financial strength. When it comes to renting out your investment property you would prefer it to have a positive cash flow, whereas you are making a profit on a monthly basis. Due to the high price of housing in some Metro areas it is more difficult to find homes with a positive cash flow, but it is not impossible. Here are some of the factors we look at to determine a property’s cash flow.

You should first calculate the monthly cost of the property (sometimes called the nut). You need to consider all costs associated with the property including the Mortgage Payment (Principal, Interest, Taxes & Insurance), Property Management Fees, HOA Dues, Pool Service, Home Warranty, Etc. This monthly cost will not only be covered by your renters, but will also have to be covered by you during times when the property is not rented. Also, take into account if you need immediate repairs to the home to make it ready for renters.

Next, you have to calculate how much you can rent the home for. I highly suggest using a seasoned property manager to help you in this analysis. Not only can this person help you identify the right rental rate, but can also help identify the current occupancy of rentals within the area. That should give you an idea of how long it will take to rent your property.

When you subtract the monthly cost (nut) from your potential rent you will get that property’s monthly cash flow number. Most people will gravitate towards properties with a positive cash flow – but some people will also consider properties that simply “break even” with the intent of selling them in a few years at an appreciated value.

Why is this a Good Time to Buy??

One of the biggest factors in finding property with good cash flow will be in the price of the home. Being that the mortgage payment on the property will constitute the largest portion of your cost, you want to find rentable property at a low purchase price. This sounds like common sense (Duh!), but a cheap list price doesn’t always mean it’s a good deal.

Today’s housing market has a record number of short sales, foreclosures, pre-foreclosures, distressed, and bank owned property! Some home prices in some areas are down over 30% from where they were 18 months ago. This could easily mark the low price point for home sales for the next few years. When you see the following scenario you might think that those properties are not really available. To that I can honestly say,… have you really looked? Because, you only need to find one property that works!

Example:

Here is a single family home (3bd/2ba) in Tempe, AZ near the light rail. It is bank owned and they are asking $150K (appraises at $205K) and they will pay all of your closing costs with a full price offer. The property is basically move in ready and needs a little paint. You pay 20% down ($30,000) & finance 80% ($120,000) on a 30 year fixed (6.75%).

The principal & interest payment is $778/mo + $50/mo home owners ins. + $92/mo property taxes = total PITI = $920/month. You also decide to have a property manager (a good idea) for $65/month, and you find no other monthly costs. Your net cost is $985/mo.

Your realtor does their research, and informs you that rent on a 3 bedroom within 2.5 miles of ASU should rent for $1,130/mo. And if you get it listed before August 20^th, you should be able to rent in within 2 weeks.

$1,130 rent – ($985) cost = $145/ month in positive cash flow. This seems to be a pretty good scenario worth exploring. Here are the positives:

• You have the potential to make $145/month cash flow.
• You have a 30 year fixed loan, so every month your principal balance goes down.
• You have an great source of Tax deductions at the end of the year
• You have just acquired a property with $55,000 of equity in it.

The above example is simply one basic scenario out of thousands that exist. Investors can find the same scenario in most college towns. There are going to be plenty of properties that have a negative cash flow after thorough analysis. But, the key to finding the right cash flow property begins in the act of building a team and looking for them.

Conclusion

Investment property is not everybody’s cup of tea. However, if you have thought about it in the past, today’s housing market provides great opportunities to buy properties that “cash flow”. If you are waiting for the housing market to reduce inventory and “tighten up” to buy an investment property – you are missing the boat.

There are many other concepts and techniques that I did not touch on today that I will be happy to share with you if you have interest

• Buy investment property as a primary residence (2% - 5% down)
• Buy investment property as a second home (5%-10% down)
• Buy a multiplex (2 – 4 units)
• 8 creative ways to find your 20% down payment
• Purchase an investment property that needs rehab for 10% down
• Buy a new home and use your current home as a rental

I love reading other folks’ stories discovering how they got into real estate investing. Everybody’s path is unique and entertaining. Reading the BiggerPockets forum this week, there was a thread on exactly that and it gave me the idea for this article. In the vein of “still getting to know each other”, I thought my story would help and entertain you. So here goes nothing…

Those Damn TV Gurus

The year 1987…the town Cheyenne WY…

If you remember that far back, TV gurus were in full swing. There must have been a dozen late-night informercials. Dave Del Dato, Charton Sheets, Robert Allen, Tom Vu ( “I’m rich you not” …hilarious), and a guy named Sharkey..or Shackly who said he was a “former teacher turned real estate millionaire” all had infomercials running at the time.

But those infomercials did their job. I couldn’t stop thinking about real estate investing. I didn’t have the cash for their courses, so I went to the library…and guess what?

Every one of them had a book in the library! Plus I found a bunch of other real estate investing authors who were actually better writers but had yet to land an infomercial deal.

I read them all in a weekend - 6 books - and started looking at houses Monday morning.

The Hunt for the First Deal

I discovered a friend of my wife was married to a real estate lawyer in town who handled all the foreclosure filings for the big banks. He had picked up a small 2 bedroom home that was condemned due to “in the wall” gas heaters…you know the porcelain jobbers you light with a match?

Other than needing a new central heating system and a kitchen / bath upgrade, it was a great house.

This lawyer made the mistake of telling me he bought it at the courthouse steps. So I looked up what the bid amount was in public records and knew what he paid…$24,300. He had it on the market for $38,000. I decided to keep looking.

I must have looked at 60 houses. I wrote a few low-ball offers to no avail. At night the bleakness creeped in like a thief trying to steal my dream. During the day, my wife’s un-approving glances weighed on my shoulders eroding my resolve to keep trying.

Over the next 45 days, my wife’s glances became stares, and the stares turned into arguments. She was worried. Worried I’d “do something stupid” or “get into legal trouble” or (my personal favorite) “embarrass me or my family”. After all, I was listening to those “ridiculous people on the TV”.

I tried to ignore all of it, but it wasn’t easy.

Ask and Ye Shall Receive

Another 2 weeks came and went with no success. Then lo and behold my wife was talking to her friend, who mentioned her husband the lawyer had purchased the foreclosure house I’d looked at a few weeks back using a 90 commercial loan… and the note was coming due in 20 days!

When my wife told me the story I knew what to do. I waited another 10 days, and wrote an offer. Knowing what he paid…I wrote a contract giving him $800 over his purchase price. I can remember his reaction at his dining room table like it was yesterday. Pissed off is putting it mildly!

He slammed his hand down on the dining table simultaneously leaping to his feet shouting, “You’ve got to be kidding, right?”

I didn’t say a word. (Honest admission time; this was not a tactic. I was just exhausted due my fruitless hunt for property, my dissolving relationship at home, and I’d just driven 50 miles in a snow storm to present this offer. I truly didn’t care if he signed it or not.)

I got my coat and headed for the door…didn’t even get half way there before I heard….”Wait”.

He asked for a couple of lame face-saving concessions…which I agreed to…and he signed the offer.

Oh…did I mention…I’m a college student at the time…no job, no credit, no cash…no wonder this ‘power real estate lawyer’ was mad.

Well, by the time I got this deal under contract my mother-in-law who initially thought my investing dreams were silly was instantly converted to my biggest fan. She wanted in and ponied up the cash becoming my new 50/50 partner.

Long story longer, we doubled our money in 6 months!

What Did I Learn?

1. Get educated anyway you can…the library, BiggerPockets, and the Web in general is free so there is no excuse to go into investing not knowing what you’re doing.
2. Never listen to family or friends about your dreams. They’ll come around when you succeed.
3. Take the emotion out of your offers. Of course, I just stumbled upon this one. But it’s true. The one who cares more loses.
4. Find the deals and the money finds you. Partners and/or lenders come out of the woodwork when the deal is good. Focus on putting as much profit in your deals and you’ll never worry about finding the money.

Now Go Get’m…It’s Your Turn!

Tags: Learn Real Estate, real estate, real estate investing, real estate investor

In 2005, I bought a house at the Dallas County auction for a California investor friend who asked me to bid in his place. With the help of a Mentoring student, Gloria Stephens, I was given valuable information about the current owner. What type of person she was and whether or not she would willingly vacate the property if I ended up getting the house for my friend. The owner had accepted the impending foreclosure sale and had agreed to vacate the house within two weeks of the sale, in exchange for $500. The only catch was… She would not allow anyone to see the interior of the house before the auction. While that is not the norm, it does happen from time to time.

Had the numbers been tight, I probably would have passed on bidding for it unless I was able to see the interior.

The auction God’s were on my side that day as I was the winning bidder (the ONLY bidder actually) on the house and even I was stunned that I was able to get it for $0.48 cents on the dollar (or 52% equity).
I had done well and figured with the move out agreement in place, the deal appeared to be a “slam dunk.”

That’s when things turned ugly.

The previous owner would not return any of my calls. The move out date came and went with no sign of the tenant moving out.

I placed a letter on the front door as a last resort before filing the eviction.
No response.

I filed the eviction and found that the tenant didn’t bother to appear in court. The judge ruled for the eviction and I crossed my fingers that the tenant would not trash the house on her way out. The “put out” was scheduled for the coming Friday.

Thursday afternoon I got a call from the tenant. I had never spoken to her directly and was rather surprised at how polite, articulate and pleasant she was. She was overly apologetic for not returning my previous calls and claimed she had been out of town for the previous three weeks “having to bury” her brother. I have been told a lot of things by people facing eviction and family deaths were not new to me. However, she was flawless with her explanation and I hate to say it but, I bought it.

Her request was simple enough… Postpone the put out until the following Monday and in return, she promised to be out by Sunday night and leave the house in a broom swept condition.
I called my friend who owned the house to ask him what he thought and our thinking was the same. We delay the put out two days and she hands over the house in a non-trashed condition. I called the Constable and he said he would see me Monday morning.

That is when I really dropped the ball!

The tenant had been so convincing that I didn’t bother to drive by the house Sunday night to see if she had actually moved. OOPS!

To make matters worse, I didn’t bother to round up a crew of guys to move the contents of the house out to the curb while the Constable kept the peace.

As I neared the house that Monday morning, I knew that I had made a serious mistake. The tenant had the U-Haul in the front but it was obvious that nothing had been moved until that morning. The Constable shook his head at me and said, “Where the hell are your movers?” Still stunned with how badly I had handled the situation, I pleaded with the Constable to give me 30 minutes to get some movers. He told me to go home and luckily for me… He said to come back the next morning “WITH the movers.”

As I walked back to my car, I glanced at the tenant who was standing at the front door, snickering as she waved at me.

I showed up the following morning with six guys ready to empty out the house. The U-Haul was gone and it appeared the tenant took what she wanted and left a big mess behind for me to deal with.
The Constable had me wait outside while he went inside to make sure it was safe for us to go in and start moving all the garbage out to the curb.

He wasn’t in the house for more than 30 seconds before he was back out in front of the house, waving us all off. He came over to me and said he can’t allow us to go inside because the house was infested with… FLEAS!

I tried to reason with him that the fleas couldn’t be that bad. He only laughed and told me to see for myself.

I gave the guys a confident look and walked inside. I think I got about six or seven steps in before I knew the Constable was not kidding. I was being bitten by more fleas than I could fathom. I turned and ran out of that house, with my arms waving all over the place and my feet bouncing around like they would if I was barefoot, trying to run across a parking lot paved with searing hot black top. One of the neighbors who was watching me prance around, managed to hold back his laughter long enough to yell out, “The Gringo Flea Dance! You can’t buy entertainment this good!”

Within a few seconds, a stream of water from a neighbors’ garden hose hit me and about 30 seconds later, I waved my appreciation to the neighbor as the water had flushed the fleas off of me.
Also laughing was the Constable. He told me to have the house bombed before trying to empty it.

End of story, right? NOPE!

I returned later that day with boxes and boxes of flea bombs and clothing that was more appropriate. I went in to set off a flea bomb but, right before I set it off… I saw something move. I walked over to the doorway where I had seen the movement and stopped dead in my tracks. It was a cat! And the cat had friends. All tolled… There were seventeen cats! How nice of that sweet to leave behind seventeen cats. It was good that she wasn’t there at that time because she had left all of the windows and doors…closed! The temperature was easily 110+ degrees inside and she had left them in that flea ridden, sauna!

Thankfully the SPCA was able to round all of the cats up that same day. I still tell myself that all of those cats were adopted but, in reality… I doubt that was the case.

By the next day, the house had been flea bombed repeatedly and we were finally able to clear the house out.

It was still a good deal for my friend but, I have not bid on a single house since, without first seeing the interior condition.

I will end the Flea House story on a positive note… The previous owner, who had abandoned seventeen cats in the hot, flea infested house, was prosecuted for animal neglect and cruelty. It made me wish that she would have been forced to endure the same thing but, it dawned on me that she DID live in that house!

Tags: cats, constable, eviction, fleas, Foreclosures, real estate investing, real estate investor

I don’t want to come across as a crepe hanger but it seems to me those of us who are in the foreclosure trenches have at least a semblance of a handle on the what Mr. and Mrs. America are actually facing. Even if you aren’t in the foreclosure trenches you know the number one worry people have is the economy.

When the average Joe says economy, he almost always means the stability of his job. Translate that into everyday English and it boils down to paycheck security. I’d be worried about it too given what is happening in the world of big business.

Because I believe information coming from those in the credit business happens to be as close to accurate as can be at any period in time I believe a credit card CEO when he is quoted as saying:

“Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations,” said AmEx Chief Executive Kenneth Chenault. The “this” month he refers to is June 2008.

This statement was made as AMEX was accepting $1.5 billion dollars from MasterCard in a lawsuit settlement. Mr. Chenault also readily admitted AMEX did not have a grasp on how quickly AMEX cardholders are falling behind on their debt.

Read those sentences again and if you can tell me the picture has gotten any better than it was even a year ago, I’ll buy you a beer or three. For starters, cardholders are falling behind on their debt faster than AMEX predicted, thought or knew.

Wow, that is quite an admission. Also, if I was to dig around, I bet I’d find statements by Visa, MasterCard and Discover executives admitting their cardholders are falling behind at about the same clip.

Why? Because all offer the same programs to business people and all have about the same delinquency rate.

If those of us buying foreclosures or REOs can’t sell the properties, how soon will it be before they become foreclosures again? What will this do to the economy? Will we be reduced to accepting government quick fixes and bailouts? How many times can Congress pass a foreclosure bailout program anyway? Where does the money come from to pay for the bailouts?

As a small business owner in small town America, I can only generalize on what I see in my business sphere. If you know anything at all about insurance agents you know we are always prospecting. Prospecting business owners is one of the best means of selling several policies at once thereby increasing income and reducing sales time.

That’s not a secret, is it? It also isn’t a secret that small business people, whether in my town or yours, are cutting back. They aren’t just not offering insurance packages to their employees. They are also cutting payrolls, reducing overtime and benefits in conjunction with other personalized cost cutting efforts.

Every once in awhile you read an article that says home sales have picked up. That pronouncement was made by our county RE board president in an article in the online version of our paper this morning.

However, when I read the comments that follow the articles (our paper allows the readers to comment on each article), it seems the local RE board prez was fudging the facts a little bit.

The number of new home sales they quoted were from builders who loaded the homes with so many extras, they were actually taking a loss. How many people can stay in business with that kind of sales technique?

The number of new condo sales was also a fudged figure. It seems an investment group had bought 30 new condos at a sweet price to hold them for the inevitable upturn. My bet is this group will soon be renting them if only for the return OF investment.

Since those with supposedly the straight market skinny have to speak in adjusted fact speak, Mr. Chenault’s comments become even more important. They become more important because they are not fact adjusted statements.

If the guy employing 2 to 50 employees drowns in a sea of debt, how many foreclosures does that add to the landscape?

I don’t know if this is a solution for this scenario but it is being employed by one of our clients. She rents her properties at her mortgage payment amount. Her mortgage payments are below market rates.

It seems to be working for her up to now. Fortunately none of her tenants face layoffs or job closings. And, yes, I do know it is a technique preached by the gurus. However, it seems to have taken on new import today. You’d agree right?

Anyone with a pencil and two brain cells can see her only profit center is the tax benefits she gets on her properties. But maybe tough times demand tough solutions. Maybe if we assume the underbelly of today’s scenario is larger than the exposed belly we can still find a way to make a profit.

I write what I see and what I read and let you correlate it for your area. If it helps, wonderful. If not, well, I tried.

On Saturday at my local REIA meeting (everyone should be going to ALL of the REIA meetings in your area), I was talking with an investor who had received a nasty phone call from a homeowner who was not happy that they received a letter in the mail. They wanted this investor to know that they “did not want to sell their house and never to send them another letter ever again.” This investor was new and of course this phone call upset them. I reassured the investor that this happens and is the nature of the business.

The majority of calls that I get from these angry, crazy people is them wanting to know how I got their information, not believing it is a matter of public record, and wanting off my mailing list. One of my most memorable calls was from a Realtor who proceeded to scream at me that it was illegal to send out letters trying to buy her house, that she had been in the business 25 years and that she was going to sue me (obviously she must have been very successful if she thought direct mail was illegal…of course you can never argue with a crazy person…just ask any husband).

I can only think of one time where I was justifiably yelled at when it came to marketing — I got a message from an irate guy with every other word being the F word. Apparently, my bandit sign guy had put my sign up next to a funeral marker on the highway, where someone had recently died (yes, I told my bandit sign guy not to do this again and to use common sense when putting out my signs.)

Well, here is the point…you need to be immune to criticism when it comes to this business. If you are not getting people ticked off at you, then you aren’t sending out enough letters, you aren’t putting out enough signs and you aren’t closing enough deals. Who is going to get yelled at more, the guy who sends out 1,000 letters a month, or the guy who sends out 10,000? Also, please don’t take it personally when you do get yelled at…the person who is yelling at you doesn’t know you from Adam. They are simply yelling at some person who sent them a postcard or a letter.

Also, when you do get yelled at, remember the person probably is having a bad day, or has a crappy marriage, or a crappy home life or they are envious of you (and they just need to vent at someone.) Now, get out there and make sure you are getting criticized more often (yes…that means sending out thousands of pieces of direct mail a month and becoming successful sooner)!

Tags: direct mail, foreclosure, foreclosure marketing, marketing, NOD, pre-foreclosure, REO