One of the 6,127 reasons that I’m single is because I can’t stand high maintenance women (this one’s voluntary, so two out of 6,127 ain’t bad…I’ll get to the second voluntary reason in a minute). Anyways, right now I’m working on a pretty house wholesale deal (wholesaling a house subject-to) and the seller is crazy high maintenance. This guy calls me multiple times a day… “Hi Jason, this is Mr. Seller, its 5:00, just wondering if you’ve found a buyer…Hi Jason it’s 5:05, just wondering, Hi, Jason it’s 5:07…” This guy is also a talker which is why I have my assistant return the calls and handle almost everything. If you don’t have an assistant I would get one ASAP. I got my first assistant before I could even afford one and it was well worth it. And when I say assistant, I mean virtual assistant. My latest assistant lives in Wisconsin and has been with me for almost two years. I have her make all my calls and she handles almost everything for me. Remember, us investors need to focus on high dollar activities, not making phone calls. (By the way, I found a buyer for this wholesale sub-2, and at closing I will be getting a nice $9,997 pay day).

Okay, the second reason I’m single is because I’m cheap. I just got back from a week in Florida. As I was packing for my trip, I stuffed all of my clothes in my old suitcase and I destroyed the zipper trying to get everything to fit (but I did get it closed). Then when I tried to unpack, I couldn’t get the zipper open. Being that I’m such a patient guy, I ended up “teaching the bag a lesson”, which means it ended up in a dumpster after I tore the zipper off and it was totally unusable. So, I needed a new piece of luggage and asked my friend to show me the closest Goodwill store. I ended up getting a beauty of a suitcase for $2.13. It’s a Samsonite hard shell. I’ve always wanted one of those hard shell pieces and $2.13 is right up my alley. I love Goodwill and the Salvation Army stores.

Alright folks, if you’ve been reading my posts you know that I’m going through a lease option deal from A-Z. Last week was the paperwork needed between you and the seller and this week I am going over the checklist you need to follow after you have the paperwork signed. Here it is:

1. Make copies of all of the paperwork and either mail it to the seller or scan and email a copy to the seller.
2. Make copies of all keys (so you have a key and so you can also put a key in the lock box on the house).
3. Fax or mail the lender notification to the mortgage company so they send all of the coupons and mortgage info to your address.
4. Run a credit check on the seller. Since lease options are more risky, you need to make sure the seller is not in a dangerous financial situation (if they are, do a subject-to).
5. Fax the authorization to release form to the mortgage company and check the mortgage balance and the monthly payment amounts.
6. Send a thank you gift and card to the seller. (I usually send a gift certificate to a restaurant).
7. Go to the courthouse and record the option agreement. This should cost between $20.00-$50.00.
8. Start marketing the property to find a tenant buyer. Place a sign in the front yard, run classified ads in the local paper and post ads on Craigslist.
9. Set up your Excel spreadsheets, Word documents and folders for this property.

There you have it, my million dollar checklist. Next week, I will go over the paperwork for a tenant/buyer. I certainly hope that you are writing down all this information on lease options, because you are getting no B.S. info that took me thousands of dollars to perfect. Have a great week and remember to do at least one marketing activity every single day!

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Tags: creative real estate, crei, lease, lease option, real estate investing, real estate investor

The imminent failure of both Freddie Mac and Fannie Mae has already begun to have a detrimental impact on the larger US economy and the ability of home buyers to finance the purchase of a new home.

This is an unfortunate circumstance for many young families who may not be able to qualify for a mortgage to purchase their new home because of tighter bank underwriting guidelines. While this is a negative situation for young families looking for their own homes it could be a potential wind fall for the owners and operators of apartment building complexes across the United States. All of the people displaced by the housing bubble along with new populations of young people looking for housing will have to turn to rental properties for housing. The fact that more and more residential, single family homes are entering into foreclosure should also further diminish the available supply of rental units on the market.

When a home is in foreclosure or bank owned it can’t be rented and it sits as an empty, unavailable property. For example, on the residential street where I live in Fort Lauderdale there are 3 or 4 houses on one block that appear to be completely abandoned and in some stage of foreclosure or bank ownership. No one can rent these homes because they are bank owned and waiting for a buyer. Meanwhile the prices of homes in the neighborhood are still priced well above the ability for most working families to afford, especially considering the difficulty many are experiencing when searching for an affordable mortgage.

The obvious choice for many young families and those displaced from their homes because of foreclosure is to find a rental property to live in while saving money for the future purchase of a single family home. With the expected decline in available rental homes available on the market due to bank ownership many families and young people will be looking to apartment buildings for housing. This increase in the number of potential renters comes just at a time when the construction of multi-family buildings has begun to decline.

The decline in the construction of new apartment buildings is due to the fact that many banks and real estate financiers are cutting back on new construction projects nationwide. They are unwilling to take the risk of funding new construction during a time when residential real estate prices are dropping rapidly. According to the Associated Press, the “Standard & Poor’s/Case-Shiller U.S. National Home Price Index tumbled a record 15.4 percent during the quarter from the same period a year ago.”

It remains to be seen what impact the decline in availability of rental properties will have on the rental rates for major metropolitan areas.

Tags: apartment building vacancies, apartment investing, Economy, fannie, Fannie & Freddie Mac Loans, freddie, freddie mac, rental vacancy

I’m still training for my marathon and I still want to shoot myself as I jog through the summer heat in my Bill Clinton shorts (maybe I’d be having more fun if I had an intern?). Anyway, I’m in this marathon mess because of a promise I made to a friend. So, I was thinking, what if this friend had an “unfortunate” accident and couldn’t run. Well, then I guess I wouldn’t have to continue running either. If anyone out there wants to pull a Tanya Harding on my friend just let me know. Applicants must have a strong swing and no ice skating experience is required.

Okay, so last week I said I would go over the beginning of lease options. First, you have to find the deal. Here are the top three ways to find lease option deals (all targeting tired landlords).

1. Direct mail – Buy a mailing list from melissadata.com or another company and send out at least 1,000 letters a month to absentee owners.
2. Drive for dollars – Drive the zip codes that you invest in and call every “for rent” sign that you see. Also, write down the addresses of all vacant houses.
3. Craigslist.com – Go to the “for rent” section on craigslist. Scan the listings to find ones that meet your buying criteria. Once you find a property, send the landlord a very detailed email about how you want to guarantee his rent and maintenance and all you ask is that you can purchase the property down the line. Every single day you should get on craigslist and email at least 10 landlords. Doing this every day should get you at least one deal a month.

   Alright, so let’s pretend you are one of the 5% of people who are going to actually listen to me. You have done your marketing and found a lease option deal. Here is the important and detailed paperwork you will need to get signed by the seller:

   1. Residential lease with option to purchase – This is a combo lease and option agreement, that states the monthly rent you will pay the seller, the length of the lease and the purchase price of the property.
   2. Authorization to release – This form allows you to check the mortgage balance and monthly payments on the loan (if the sellers say they own $200,000 on the property, you need to make sure they are telling the truth).
   3. Due on sale disclosure – You need to let the sellers know that if they give you a five year lease with option to buy, that it can trigger the clause (before you freak out, this never happens…but you always give people 100% full disclosure).
   4. Lead based paint disclosure – If the house was built before 1978, go to www.hud.gov to get the form.
   5. Notice of option agreement – This is a very important form that needs to be recorded at your local courthouse. This clouds the title and lets the world know that you have the option to buy the house.
   6. Lease option consultation agreement – Another important form. This is one of my many agreements that cost me more than $1,200 for my lawyer to create. This makes sure that the seller can’t squeeze you out as the middle man and that you get the difference between your purchase price with the seller and sales price to the tenant/buyer. This will be notarized.
   7. Power of attorney – Needed so you can take care of the loan, make the payments…basically do anything you need to the account (since you are the one paying the mortgage. Always pay the mortgage directly to the company with a lease option. Never let the seller do it).
   8. Lender notification – Notifies the lender to send all coupons and loan information to your mailing address.
   9. Affidavit of liens – Must be notarized and the seller states that there are no liens against the property, such as mechanics liens.
   10. Property disclosure/disclaimer – All states have different disclosures that need to be filled out. You can get a copy from a local investor or Realtor (yes, there are a few things Realtors are good for).

   I tell you, I hope folks learn this method. I get properties all of the time with no money down (my only expense is marketing) and of course never use any credit. Also, the tenants are great and never cause problems. Last Friday, I had a tenant call me because they had problems with the HVAC. I kindly reminded them that they are responsible for the first $300 in repairs and that they needed to call the home warranty company (always make your lease option tenants get a home warranty).

   Next week, I am going to go over the detailed checklist of what needs to be done after the paperwork is signed (such as the ohhh so important task of recording the option at the courthouse). So happy trails folks, I’m on a semi-vacation this week because life is good when you’re a real estate investor…because you control your own destiny and you control your time (unless you’re married, then I guess the misses does that).

Tags: lease option, real estate, real estate investing, rent to own

The first purchase of an apartment building can seem like an overwhelming endeavor for the buyer. There is a lot of information and terminology that is suddenly thrust upon the first time investor and chances are that the new investor doesn’t have the knowledge base to accurately sift through the information to obtain and utilize the most important facets. For example, the new buyer may be staring blankly at the rent rolls for a twenty unit apartment building for the last two years and not have any idea how to dissect that information. Or the new investor may be looking at the income and operating expenses supplied by seller’s realtor and not be able to determine if the information supplied is accurate or even complete. Therefore it is wise to follow a few easy steps before actually purchasing an apartment building, of any size, as an investment.

1) Get an Education — It is necessary for the first time apartment buyer to get the best education possible before actually making the first purchase to make sure that he or she understands exactly what they are entering into and to be sure that they are prepared for any challenges that may arise. The education of the first time apartment buyer should include both an academic and a real world, experiential, component. The academic education should consist of reading as many books as possible about the subject in order to learn the technical terminology and to learn how to do simple financial analysis that will allow the investor to make intelligent comparisons between different properties. The real world component should consist of talking to and meeting with as many other commercial property owners and investors as possible. This can be accomplished by joining real estate investment clubs and meeting commercial realtors

2) Find a Qualified Commercial Realtor — While finding a commercial realtor is not an absolute necessity for finding a great apartment building investment many commercial realtors may know about sellers who don’t actively list their apartment buildings on the market for sale but are anxious to sell none the less. It may also help the first time buyer to have a realtor that will represent him or her when it comes time to make an actual offer.

3) Start Comparing Apartment Building Properties — One mistake that I see novice apartment building investors make, time and time again, is that they let their emotions rule over clear analytical thinking. Because many apartment buildings for sale are priced beyond their ability to be profitable it is important for the first time investor to carefully compare the investment returns offered by one building to many others that he or she has examined to find the one that is the best fit.

4) Find Apartment Building Financing — There are many different methods to obtain financing for an apartment building investment. Some of them include traditional bank financing, hard money loans, a limited liability partnership and owner financing. Each deal will hinge upon the kind and availability of financing for that particular property.

Tags: apartment, apartment building investing, apartment investing, buy apartment building, Commercial Real Estate, how to buy apartment building, landlord, real estate

It’s 10am, do you know where your building inspector is? You certainly know where he isn’t, he isn’t approving the most recent work so that you can move on with your project. Your inspection was scheduled for first thing in the morning and the inspector finally shows up near the end of the day.  On the one hand you want to yell, scream and complain, on the other hand you know that you need him to sign off on the work so that you can proceed.  Outwardly you are respectful and cordial, inside you are seething and thinking, “next time I’m doing this without permits!”

Do I Really Need Permits?

It’s very tempting to do renovations without pulling permits.  You can save time, money and a big hassle, but at what cost?  The primary reason that municipalities require permits is so that they can be sure that work is performed to acceptable standards and that it meets all building codes.  The codes are created to set minimum standards for safety and appearance.  These standards give home buyers a reasonable level of assurance that a home is safe for them to live in. 

A lot of cosmetic work can be done without permits.  Installing new carpets, painting and simple changes do not normally require any kind of approval.  Major renovations involving plumbing, electric, foundations, extensions etc. almost always will.  A good starting point is the local building department.  They can give you an idea of what the local requirements are.  When in doubt, give them a call.

We Don’t Need No Stinkin Permits!

When working with contractors you need to be careful.  If they tell you that they don’t need permits to do the project you should check to be sure.  It could be that they are unlicensed or they may be looking to cut corners.  Be especially wary if they say that you can save money by not pulling permits, you may end up paying a lot more in the end.

Big City vs. Small Town

When working with a building department in a large city you a probably dealing with a bureaucracy and may not see the same inspector twice.  In a small town the local inspector may be the entire building department.  You need to adapt to whatever the situation is.  In a large city you want to develop a good reputation so that inspectors know that you are easy to deal with.  In a small town you need to make the inspector your friend.  Making an enemy of a small town inspector can be the kiss of death for your business as can a bad reputation in a big city.

Permits, inspectors and inspections can be a big hassle.  However, they are a part of the business and learning to deal with them can make your life a lot easier.

Tact is the ability to describe others as they see themselves. - Abraham Lincoln

I’m highly allergic to poison ivy and I get it about once a year. Here is how this yearly occurrence happens:

Every day, I take my lazy dog Toby for a walk in the woods behind my house. Once summer comes around, I take him on a walk wearing shorts and get poison ivy all over my legs. I promise myself that I will not wear shorts again, and for the rest of the summer I wear long pants. Well, another summer rolls around and I haven’t had poison ivy for a year and I tell myself that I won’t get it again. I take Toby for a walk in shorts, get poison ivy on my legs, and I wear long pants for the rest of the summer. This is pretty much my yearly poison ivy occurrence (I never said I was the smartest guy in the world…hey, I went to college for the social life, not to learn how to work for somebody else).

Anyway, I recently got my yearly poison ivy and now my legs are covered in it. I have had it about a week, hoping it would go away, but it hasn’t. So finally I broke down and went to CVS ready to buy anything that would ease the pain. I ended up buying a $20.00 bar of soap that is supposed to be some super-duper soap that has a special chemical which washes the ivy away. Yes…..I spent $20.00 on a bar of soap. Why did I do that? Because I was motivated to ease the pain of my poison ivy. I didn’t care about price, I cared about itch relief (prepare for cool metaphor, simile, analogy….whatever the heck it is).

New investors are always in disbelief that a seller would sell their house for 65 cents on the dollar. Or that a seller would let you take their loan subject-to or do a lease option. They don’t end up doing deals because they have the wrong mindset and think none of the creative stuff works.

So why does a seller sell for 65% or why do they let you take over a loan for no money down? Because they want to get rid of their “poison ivy”. The name of the game is motivated sellers and they will do anything to get rid of their property problems (they just want relief from their pain). This is where new investors make mistakes. If the seller is not motivated, move on. You cannot force someone to be motivated, so don’t waste your time. When you are screening a seller, the first thing you need to determine is motivation, because it is the most important aspect of real estate investing. And don’t forget it!

Alright, last week’s post was on lease options and all of my loyal fans (if I am my only fan, does that still count?) requested more info about how to do this method better and make more dineros. Over the next several weeks I am going to go over the nitty gritty details from A-Z of everything you have ever wanted to know about lease options.

Next week, I will show you the three best marketing methods to find lease option candidates and the crucial paperwork needed between you and the seller. Also, please respond to this post with any other questions you would like me to cover over the next few weeks about lease options (I first started out wholesaling, then became a lease option machine, so the method is near and dear to my heart……….I want to show you how to become a “player” with this method and use none of your own money or credit). So you better send me some good questions! And remember, there are no stupid questions, only stupid people.

Tags: cheap homes, investor, real estate, real estate investing

Let’s take a look at some of the actual returns for a small apartment building investment over a period of five years. Whenever you are making projections into the future concerning investment returns it is always necessary to make some assumptions. In this case we will keep our assumptions very conservative and well in line with historical averages.

Also, I will be using as an example an eight unit apartment building with a purchase price of $300,000.00. I want to use a smaller property with smaller numbers because I believe that just about anyone, who properly prepares him or her self with the proper education and preparation beforehand can realistically purchase, manage and profit from an apartment building this size. There are many methods for securing the money for a down payment that I discuss in my course but I don’t have the time right now to list and explain them all.

The purchase price for our eight unit apartment building is $300,000.00. We are using a bank loan for 75% of the purchase price and we are making a down payment in the amount of $75,000.00. The Net Operating Income of the building is $27,750.00. Our annual mortgage payment on the property is $19,952.76 based on our 25 year bank loan with a fixed interest rate of 7.5%. After paying our mortgage payment the building’s cash flow is $7,798.00. This cash flow gives us a cash-on-cash return of 10.4%. (the cash flow of $7,798.00 divided by the down payment of $75,000.00.)

Let’s take a look at what happens to your returns after five years. We will assume that the building’s income has grown by 3% a year. We will also assume that the expenses have increased 3%. The fixed rate mortgage payment remains the same for the life of the loan.

The Net Operating Income has increased from $27,750.00 to $32,169.86.

The new Cash Flow for year five is:

The new Net Operating Income of $32,169.86

-

The mortgage payment of $19,952.76

_______________________________________

= $12.244.00 Cash Flow at Year Five

The cash-on-cash return has increased from 10.4% in the first year to 16.3% in the fifth year.

In the mean time the actual value of the building has increased by 3% each year to $347,782.00. And increase of $47,782.00 after five years

In addition, the mortgage balance has amortized. The principle amount of the 25 year fixed rate loan has decreased by $20,106.76. The remaining loan balance is now $204,893.24.00.

Putting aside the income returns seen from the Cash Flow every month for 60 months and just looking at the appreciation and loan amortization you have a total return of $47,782.00 + $20,106.76 or $67,888.76. That is a whopping 90.5% cash-on-cash return for a period of five years.

These kinds of returns for many investors who are stuck in the stock market might seem too good to be true. But, remember that we only used one real assumption and that was a growth rate of 3% which is well within historical average norms.

Tags: apartment building investing, apartment building investments, apartment building investor, apartment investing, apartment investment returns