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Justin Pierce

Flipping Houses

The Siren’s Song that Led Me Into the Rocks of Rehab Over-Spending

by Justin Pierce | November 22, 2009
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Last week I wrote about the slippery slope that is rehab over-improvement. This week I would like to share a story of how I recently over-improved a home and in so doing, gave away about $30,000. Over spending on your flip projects is so easy to do that I liken it to [...]

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Rehabbing

Rehabbers: Know the Warning Signs of Over-Improvement

by Justin Pierce | November 15, 2009
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Rehabbing or flipping is almost 100% art. There are very few hard and fast rules. The goal, like in any business, is to maximize profit. Many times I have quoted the old saying that you make your money when you buy a property, and I stand by that statement. Once you’ve [...]

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Commentary

Grow Your Real Estate Network; Get Involved Locally

by Justin Pierce | November 8, 2009
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I cringe to even think of writing this post, peppered with politics, but we just had an election for a Governor here in Virginia and it raises a few points that I think investors (well any businessman or woman) should keep in mind. Don’t worry, we’re not talking party politics, but local political involvement.
Put [...]

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Real Estate Deals

Persistence is a Virtue. The Story of How I Got My Latest REO Deal.

by Justin Pierce | October 25, 2009

Let me tell you a story about how I made a bundle of money this week. It’s the story of how I captured my latest deal. Now when I tell you the story you may think that I’m counting my chickens before they’ve hatched but you really do make your money when you buy. Never, loose site of that important fact. In this case the money is made and in the bank. Now until the home is sold the money is mine to loose or keep, depending on how I manage the project.

Persistence and Ambition Lead to a Working Relationship

You could say it started about a month ago. A young ambitious Realtor contacted me when he saw my ads stating that I buy houses. He sent me about a half dozen listing and to my surprise the list had potential. I am a licensed and active Realtor but I appreciate a go-getter when I see one. I can only cover so much ground myself and I love to enlist the services of ambitious people. We looked at a few of these properties on his list and we made some offers but nothing came through. The beautiful thing was that this young Realtor came back with another list of properties. That is how I knew he had the stuff. Many Realtors say they want to work with investors but when they actually see the nature of the game they roll out quite quickly. The fact that this guy came back told me he was real deal.

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Real Estate Investing

How I Decide What I’ll Pay for a Flip Property

by Justin Pierce | October 18, 2009

Knowing what to pay for a home is critical in the rehabbing game. I’ve come up with my own method for determining my purchase price for a property. While I don’t think my method will work for everybody, maybe it will give you a good place to start or perhaps, some new ideas.

There are a lot of different variables that you’ll have to take into account on any specific deal; I’m interested to know from other rehabbers how their math looks.

Calculating the Purchase Price for a Rehab Property

Step 1: Know the value of the property. – That is the resale, after repairs value of the home. Make sure you view actual recent comparable sales. Once I feel confident I know what a property is worth I deduct 26% from that price. 20% is what I like to shoot for in a profit. With the market firming up here lately I’ve been cutting that margin to 16% on real good deals. On bigger deals or on deals that feel a little more risky I stay firm with the 20%. I wouldn’t go much lower than 16%.

Historically homes sell on average for something around 8% less than asking price. If you’re only pricing in a 10% profit then you might end up just doing a practice flip. A practice flip is a deal where you don’t make any money. Essentially you donate all of your time and effort for free to the end home buyer. The other 6% is the number I put in for closing costs when I sell the home. I’m a licensed Realtor so I list the home myself, which will save me a little. So in my case, 4% goes to Realtor fees and the other 2% is what I budget for other closing costs. You can choose to try to sell the home yourself and save the Realtor commission. If you are not a Realtor and you plan on hiring a Realtor then you probably will need to budget 6% for the Realtor fees plus another 2-3% for closing costs. I always anticipate having to pay some of my buyers closing costs.

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Real Estate Wholesaling

Rehabbers, get to know some Real Estate Wholesalers

by Justin Pierce | October 11, 2009

In real estate there seems to be a culture of do-it-yourself. There is a swagger amongst investors who will tell you they can do almost everything and anything in no time at all. Now, I’m sure you could learn how to be a lawyer at the public library but I think formal training might be of some value.

You can’t be all thing or all people in real estate. In the next few weeks I will write a post about forming a Master Mind Group but for now I want to give a special plug to wholesalers. I want to both convince investors to work with wholesalers (specifically rehabbers) and I want to help wholesalers add value to their services. The first step to any business is to learn the business and the next is to learn what you should delegate to others.

Keep Your Friends Close and Your Wholesalers Closer

There is another cultural norm in real estate: if you can be cut out of a deal you will be. I don’t know how many times I’ve seen wholesalers, realtors, and mortgage brokers cut out of deals after performing significant services for which they were never paid. This is one reality that makes it very difficult for wholesalers to provide their best services. They have to spend almost as much time securing their position as they doing trying to get the deal done. Wholesalers don’t have the protections that realtors have. They’re actually a pretty skittish bunch. Cultivating a relationship of trust with your wholesaler will ensure they can give you the best service and increases the chance that you’ll get more good deals coming your way. The wholesaler/buyer team is much like a marriage. It can’t work very well if there isn’t trust or if only one partner is working on the relationship. In fact, I know many would-be wholesalers that leave the business because they bust the humps to find deals but then can’t find reliable end buyers. That is just a crying shame considering how rare the good deals. Help your wholesaler help you.

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Commentary

Drop that Extra Burden On Your Path to Success

by Justin Pierce | September 27, 2009

The Burden
There is a widely accepted but rarely named enemy that pervades our culture and handicaps our people. I hereby resolve to name it and identify it in defense of those with the capabilities which this enemy stifles. I want to give cover to all of you who have thought it but were afraid to speak it; to those who have muttered it but where silenced by the shrill cries of indignation. I will scream it in proud defiance atop the rock of natural law. Simple common sense and cause and effect will be my shield and my sword though I know they have proven useless against the squishy formless subversive weapons of the warriors of the enemy. I will be called greedy, heartless, and hateful by the merciless minions of the enemy but I will bare it as a patriot to the cause of productivity.

This enemy is guilt. Its weapon of choice: charity. Its result is the abdication of our free will to think, to speak, and to act in our own best interest. Guilt is the weapon that turns our strength against us. The more successful you are the more reward that natural law endows upon you and thus the more guilt you are expected to feel. In the end the most successful among us are left questioning their own rewards and sabotaging their own business by questioning whether they deserve to make so much money.

In turn the enemy is shameless. He comes with indignant scowl on his face with hand extended demanding his share of any profit. He grins and turns his back when a deal loses money as if saying, “That’s what you get.” Never would the enemy consider giving back a portion of what he took from the last deal. His interest seems to lie in taking from those who are successful and keeping down those who are in need.

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Commentary

Will Appraisers Stunt the Housing Recovery?

by Justin Pierce | September 20, 2009

appraiser HVCCAfter the financial meltdown last year lawmakers and regulators were determined to discover who was responsible for the debacle. Yes, the very people who drafted the laws governing mortgages and yes were also responsible for oversight of them went out to determine who was responsible for the melt down. The first culprit, of course, was the lenders. I think we all know how that played out. The next group on the chopping block was the appraisers. If they wouldn’t have appraised the homes then the lenders would not have lent on them, so goes the finger pointing. From that came sordid tales of realtors and mortgage professionals pressuring and even bribing appraisers to up the value of a property.

Home Valuation Code of Conduct – HVCC

After the scapegoats were identified the legislation followed. One prime piece of legislation aimed at appraisers was the Home Valuation Code of Conduct (PDF). The intent of the HVCC was to achieve more appraiser independence to reduce the amount of pressure placed on appraisers by lenders and Realtors. Well, if their had once been undue pressure on appraisers to inflate values it now pails in comparison to looming threat hanging over appraisers and it’s compelling them to keep prices down.

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Real Estate Investing

Rehabbers! Know ALL the Costs to Flip that House

by Justin Pierce | September 13, 2009

Every once in a while I catch an episode of Flip this House; I have to admit, it is entertaining and it does show the drama involved in fixing up a home. However, I am very amused when they show the final numbers. I have watched episodes where a first time rehabber has bumbled and stumbled through the process and yet still manages to make a profit in the end, according to the show. This and other shows might make one believe that a flip is a sure bet. When they do the numbers they normally list the Purchase price, the fix up costs, and the sales price. Wow, are they missing a bunch of stuff.

Please take my advice: Do NOT start that flip if those are the only categories of expenses that you are anticipating.

The REAL Costs of Flipping a House

Here are the actual costs of one of my recent flips.

real costs to flip a housePurchase Price:
Contract Prices: $213,000
Wholesaler: $12,937
Total Price: $225,937

*This deal was brought to me by a wholesaler. So my purchase price consisted of both the amount that I paid the owner (in this case a bank) and the finder’s fee that I paid the wholesaler.

Costs of Money:
3 Points: $7,312.50
Broker Fee: $2,437.50
Holding Costs: $9,500.00
Lender’s Lawyer: $1,220.00
Total Costs: $20,470.00

The cost of money or the cost of capital to me is everything that the lender charges for the use of his money. Note that in this case (which is pretty standard) I paid the lender 3 points and I paid the broker 1 point. Note that there is also a lawyer; this lawyer is not the title company. This is the lenders lawyer who writes up the contracts and the deed. He’s the one who does his very best to shackle me to ensure his client gets his money back. The lawyer represents me in no way at all, but I get the privilege of paying for his services. Most hard money lenders will either have this fee or some sort of administrative fee of about the same price.

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Real Estate Investing

Using Census Bureau Data for Real Estate Market Research

by Justin Pierce | September 6, 2009

Diversification is the key to any good investment strategy. Parochial and or dogmatic mindsets will certainly catch up to any entrepreneur and be the kiss of death to his enterprise. Most real estate investors are aware this fact yet many stubbornly cling to a small geographical area. Despite the advice given by the great Andrew Carnegie who said, “put all your eggs in one basket… and then watch that basket,” I just feel a little better knowing that the total value of my real estate portfolio is not dictated by the fortunes of one town.

Expand Your Base into Different Markets

I say that if you have more than just a couple investment properties, particularly if you are a buy and hold landlord, then you should really consider spreading out a little. No, don’t ever invest in a town or state in which you are not familiar. Do your homework before you lay your hard earned money down. I encourage investors to look first at their favorite vacation spot. The investor will likely be at least basically familiar with the location.

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Commentary

My Entrepreneur’s Manifesto

by Justin Pierce | August 30, 2009

I am capable of limitless success. Success is within me. I will make no excuses nor accept them of myself. I am not at the mercy of other people. I am not at the will of random events. My only true impediment is that which exists at the end of my own resolve.

My resolve is determined by my enthusiasm and faith in a worthy pursuit. I will tap the unlimited well of passion and enthusiasm within myself through constant self education, and action which will lead to progressively larger victories thereby stoking my inner fire and fueling my progress. My self education will lead me first to my passion, then to my mission, and finally to a plan for success. My plan for success will illuminate my vision and measure my progress. I will be assured in my cause but I will always keep my eyes and mind open for new realities and different possibilities.

I know that the world is full of uninspired people and critics. I know there will be many people who will actively seek my failure and many more who will wish for it. I will strike down those miserable beings who seek to obstruct me out of pure jealousy and I will be indifferent to those less treacherous but like minded people who placidly watch me pass. I will be humble for I know I will take many lumps. I will not be discouraged by the lack of justice but I will be just. That is what will make me stand apart from the mob to be noticed by other proactive and honorable people.

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Financing Real Estate

Understanding Private Lending – Part 3: How to Find Private Lenders and Get Funded

by Justin Pierce | August 16, 2009

Oh have faith yea disciples of the deal; it is possible to find a lender who will loan every penny of the purchase price of a property. Just like it is possible to find a property that can be bought with no money down, but know that both endeavors can be laborious. Real estate is one of the few business games where the ante is affordable to anyone with a little gusto, and success is possible for those with a lot of diligence and perseverance.

Where to Find Private lenders

  1. Classifieds advertising sites such as Craigslist.com. Look under services and financials.
  2. Do an internet search using any search engine type in “hard money” or “private money loans” etc.
  3. Check your local newspaper classifieds under money to lend or finance.
  4. Go to your Real Estate Investment Groups meetings.
  5. Patrol real estate investment websites like BiggerPockets.com
  6. Network with other real estate investors to see who they use.
  7. If all else fails you can even call mortgage brokers.

Researching Lenders

Search far and wide and you’ll find a couple of good private lenders. There are no certifying bodies for private money and there is no central association. Anyone with a lot of money can essentially lend it out, so sometimes you may run into a lender who is not legitimate.

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Real Estate

Understanding Private Lending: Interview with a Private Lender Part 2

by Justin Pierce | August 2, 2009

Last week I spoke with a private lender who loaned her own money and brokered here own loans. She operates in Northern Virginia and takes great interest in the borrower. Her operation is small and she does not have any time or desire to foreclose on a property thus she tries to ensure she will not have to by dealing with experience investors who have assets and usually money to put into the deal.

To get a little variation on this topic I spoke with a different flavor of private lender. David Williams is a hard money lender located in Utah. The differences between these lenders are more than just their geographical location.

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Real Estate

Understanding Private Money: An Interview with a Private Lender, Part 1

by Justin Pierce | July 26, 2009

There seems to be a lot of curiosity, myth, and maybe even ignorance when it comes to private lenders. So, hoping to shed some light on the subject, I had a candid conversation with a private lender with whom I’ve worked with, and respect. She did not want to have all of her information listed because she doesn’t want to get bombarded with phone calls. So, I will just refer to her as Patty. Patty does want to hear from good investors, however, and I’ll tell you how to get in touch with her later.

Patty has been lending for about 10 years. She is unique in the industry because she is a trained lawyer with extensive construction experience. The money she lends is mostly her own, but she does use some money from friends and family, on occasion. When you borrow money from her she drafts all of the loan documents and the deed of trust herself; there is no third party lawyer involved, except for the title company’s lawyer. She is literally a one stop shop for a private loan.

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Real Estate

The Passive Income Deception

by Justin Pierce | July 19, 2009

"Trump"ing the CompetitionI was at an investor’s meeting not too long ago talking with a young, idealistic, newbie investor who brushed off one of my real estate suggestions and told me he was looking for passive income. He wanted -in short order- to work only 4 hours per week. Ahh, yes, the fabled four-hour workweek, I’ve heard of it so many times yet I’ve never actually known anybody who had one, not anybody making any money at least. I think it must be next to the pot of gold at the end of the rainbow.

I admit, I’m going a little overboard with the pot of gold bit, but it’s for a much-needed theatrical effect. To be fair, real estate is like any business and there are some investors out there who have worked hard, became successful and were able to build a system that they could back away from a little and turn more operations responsibilities over to others. Make no mistake, however, it took a lot of work to build that system.

When they say passive income they are usually talking about rental properties. They tell you to go buy a property. Rent out said property to a tenant who pays the mortgage and expenses and you keep the difference. Easy right? Maybe if your Donald Trump and you start out with a million dollars to put down and pay management.

Lets analyze a more realistic scenario.

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