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Real Estate Investing

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 Investing

Investing in Real Estate Overseas: The Really Big Leap

by Brendan O'Brien | October 17, 2009

English: Illuminatable Earth globe, Columbus, ...A couple of years ago, I was talking to a customer for my property management software who was based in Ulan Bator, Mongolia. “Mongolia!” I said. “Holy cow! Why are you investing out there?”

My customer wasn’t from Mongolia, and he wasn’t particularly concerned with the fascinating and exotic nature of the country, although he appreciated it. (Mongolia once controlled almost all of Asia, and was ruled by colorful figures such as Genghis Kahn.) No, he was in Mongolia to make a profit.

I thought of my Mongolia friend the other day when I saw another real estate pundit talking up the virtues of Cyprus and Spain. Does it really make sense to invest overseas? Does it make more sense now than a few years back?

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Real Estate Investing

Passive real estate investing tips, become an entrepreneur

by Ryan Moeller | October 13, 2009

One of the big motivators for becoming a real estate investor is to get out of the rat race. Real estate investing can be an 80 hour a week job, or it can provide you with financial freedom and a lifestyle where you get to choose how, when, where, why. The key is to become an entrepreneur. Many think of an entrepreneur as just a business owner, but an entrepreneur is much more.

An entrepreneur can be sipping on Mai Tais in a far off land while his/her business or better yet businesses are running themselves and increasing net worth and cash flow.

Here are some tips to become a passive investor and true entrepreneur

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Real Estate Investing

Real Estate Syndications: A Deeper Look

by Kyle Koller | October 12, 2009

In my last article, I described an investment tool—syndication—and how one could benefit from its utilization. Perhaps syndicating sounds appealing and you would like to know more. If that’s the case, read on and dig deeper into the little-known world of syndication.

In case you missed last week’s article, a syndication is simply a group of like-minded investors that pool their resources together in order to participate in investments larger than they otherwise would have been able to alone. In real estate applications, members within a syndication take ownership of an income property proportional to their capital contribution. Thus, if a $100,000 cash outlay is required purchase a property and syndication member Bob contributes $20,000 to the cause, he will hold a 20% interest in the property.

How to take ownership in real estate syndications

The theory of syndication is easy enough to understand. Where things start to get tricky is during the formation of the legal entity. I will discuss some of the commonly used ones in syndications.

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Real Estate Investing

Right-Brain Marketing: Finding and Comprehending Motivated Sellers

by Justin McClelland | October 8, 2009

The human brainIf you’ve read through a couple of Real Estate Investing books, purchased a course or two, and/or frequently read Real Estate websites, then you’re more than familiar with the typical life events that create motivated sellers of Real Estate.

Some of the events that create motivated sellers are:

  • Loss of a loved one
  • Job Transfer
  • Loss of a job
  • Two mortgages
  • Tenant troubles
  • House Vacant
  • Divorce
  • House won’t sell

There is nothing wrong with marketing directly to people who own property and are experiencing one or more of the above events.  However, chances are you will be amongst many other Real Estate Investors doing the same.  To stay ahead of the pack, you have to use some additional methods.  Use the right side of your brain and let your imagination go.

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Real Estate Investing

5 Must Haves Before you Quit Your Day Job for Full-Time Real Estate Investing

by Ryan Moeller | September 29, 2009

Real estate can provide passive income, even allow you to quit your day job and become financially free. For many investors, this is the goal: to be their own boss and to be able to work when they want and where they want.

Here are 5 must-haves before you give up your day job.

  1. 30% more monthly cash flow then you need – Surprises happen. Vacancy, maintenance and other expenses arise and you are not guaranteed optimal cash flow on every property every month. Make sure you have 30% more than what you need as a buffer for surprises.
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Commercial Real Estate

What’s the difference between you and Sam Zell?

by Craig Grella | September 25, 2009

It’s no secret that the real estate market is at its worst since the great depression.   It doesn’t help that most of the media seems to set their sights on publishing only articles that highlight the latest crash or the biggest loan scandal.  Defaults are rising, foreclosures are at an all time high and Realtors are leaving their jobs to pursue careers in acting.

It’s not really as bad as it seems though.  At least, not in the long run.  Boom and bust cycles are nothing new, and thankfully there has always been a boom that followed a bust.  In part due to the investors who sweep with the time tested strategy of “buy low…sell high.”  The time has come to prepare for the next boom cycle, and those who can invest now will find great wealth in the near future.

You may be saying, “Thanks for the tip, Craig.  Tell us something we don’t know.  Problem is, we don’t have any money to invest.  How do we do it.”  Great question.  Let’s start by discussing how not to do it.

How Not to Get Money to Invest

A simple search on BiggerPockets for the term “bulk reo” yields over 400 forum posts and articles about buying or flipping bulk reo portfolios.  Go out further by searching “bulk reo” on Google and you’ll find just under a half million results.  Take a moment and read a few of them and you’ll notice many newbie investors stating their plan is to go out and search for the mother lode of REO portfolios, buy them at four cents on the dollar and then wholesale them at twenty five cents on the dollar.  They all plead for other people to invest with them stating if they could just pool some money they could go out and take over Citibank’s entire portfolio.  Mostly, those posts go unanswered or just get ignored, the would-be investor tucks his tail and moves onto the next brilliant money making scheme.  That’s a great example of how not to do it.

I don’t mean to pick entirely on newbie investors because there are many seasoned investors out there using the same strategy.   We all understand the math of “buy low and sell high” but it begs the question:

How is it that Sam Zell, even during bankruptcy, can raise $600 million to buy property in this market when you can’t raise a dime?  The answer: he’s got a plan and you don’t.

That is… until now!

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Real Estate Investing

How I Choose My Real Estate Partners (and the criteria I use)

by Jason Hanson | September 23, 2009

If you really want to make six-figures in this business you’re going to need partners so you can leverage your time. Well, last week I wrote about one of my partners and how we’re getting ready to hopefully close a huge wholesale deal. So, this week I want to tell you how I go about selecting my partners.

Right now I have only a few partners who I work with and trust. And even through I trust these people, the first rule of partnering is to always do it on a per deal basis. I would never form an LLC with someone, or make them an “official” partner in your business. You want to partner with them one deal at a time, that way if anything goes wrong you’ve learned your lesson and you never have to work with them again.

When I first found my partners, most of them ended up approaching me about partnering. But it doesn’t matter if you approach someone, or they come up to you, the selection criteria will remain the same. You could approach a person because they have the money and you have a hot deal which requires money… or they could approach you because they want you to put up the money.

Anyway, here’s how I evaluate a real estate partner:

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Real Estate Investing

10 Tips to Start Out in Real Estate Investing

by Ryan Moeller | September 22, 2009

Starting out in real estate can be very difficult for beginners. There are a lot of unknowns and comfort barriers that must be overcome not to mention the time it takes. Here are 10 tips to jump start your real estate investing career.

  1. Learn – Read every book, article and forum you can. Some boot camps, seminars, webinars, etc are very informative but can be costly. Also become active in online forums.
  2. Join REI Clubs and Groups – Join your local REI Club, networking groups and online groups. Network like crazy and make contacts with experienced people who Do.
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Real Estate Investing

How To Make $70,000 Off A Real Estate Wholesale Deal

by Jason Hanson | September 16, 2009

I’m currently working on my longest deal ever. So far it’s been about eight months in the making. Let me show you how this deal evolved so you can learn how to make $70,000…with only a few hours worth of work.

About eight months ago one of my partners got a lead from a guy who owns a beachfront condo in Virginia Beach, VA. It’s a gorgeous condo in perfect condition. The owner is an “eccentric” individual who travels a lot and didn’t want to have to deal with the property anymore.

I met with this owner twice in person to negotiate the deal. At first I thought it was going to be an awesome lease option deal. The mortgage balance was relatively low and the place could be rented out for $3,000 a week during the peak season. My partner and I were looking at over a thousand dollars a month in cash flow.

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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

Why Appealing to People This Way Will Help You Close More Deals…

by Jason Hanson | September 9, 2009

Do you want to increase your closing percentage when you talk to sellers? Well, if so, pay attention because you’re about to learn the secret to one of the most important reasons people decide to buy and sell houses.

Let me start off with an example. This is a personal example, but it proves the point beautifully. My mother died of cancer and before her death we used Hospice. The other day I got a letter in the mail from Hospice asking for a donation to the program.

It was a brilliantly written letter which talked about a family with cancer and how Hospice had helped the mother of the family live out her last days in comfort. The letter pulled on the heart strings and touched on almost every emotion.

This was obviously the perfect letter to send to someone like me, being that I could emotionally relate. (No, I didn’t donate any money. I donate 10% of my income to other causes).

The big lesson…

So what’s the big lesson from this letter? If you want to close more deals and be more successful as a real estate investor you must appeal to people’s emotions. Human beings are not logical (especially one of the sexes, I’ll let you guess which one).

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Real Estate Investing

Investment Property Nightmares: How to get rid of that smell!

by Winston Westbrook | September 7, 2009

I purchased my first investment property in Victorville, CA. It was an REO that looked ok on the outside but I had no idea what I was going to find inside. When I opened the door to take a look inside I couldn’t believe anyone could live in such conditions. The place looked and smelled like a garbage dump. I am not kidding, it literally looked like one. Roaches would cascade down doors I opened them up. I think they were upset that I disturbed their sleep, lol. The previous owners pets no doubt had full range of the house, but especially in this one particular front bedroom. The smell of urine was so bad you needed a gas mask. Even though the property was in need of many repairs it was still a great investment.

The Battle to Clean this Investment Property

I ended up purchasing the property and began to gut it out. I removed all the carpet and hauled out all the trash. The smell began to lighten up around the house but this front bedroom still had that awful smell. I thought that by taking the carpet and padding out it would of solved the problem, but I was dead wrong.

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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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Real Estate Investing

High Unemployment & Rising Foreclosure Rates: Yet Homes Sales are Increasing…

by Peter Giardini | September 2, 2009

As real estate investors everyone of us have to be thinking… “how in the heck do I profitably navigate in a market as defined in the title of this article?”

And that is the million dollar question, which I will respond to in just a minute, but first lets look at a few of the facts:

A Look at the Current Housing Picture

  1. Let’s start with the economy.  Depending on who you are listening to, we are either at the bottom, still moving downward or possibly even worse.  If you invest in California, Michigan or Ohio you don’t need to be told the state of your economy… it stinks!  The message here is that if people aren’t working, they will not be buying real estate or making good renters.
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