Remember those days when you had the first ideas for your real estate business? For some that seems like eons ago while others may just now be in the beginning stages of their business. For many those ideas never escape the confines of the cranium and some will scribble ideas on a napkin as they sit at their favorite watering hole. Hopefully those plans eventually made it to paper or, better yet, became a formal business plan.

Unfortunately for many, those plans that were so carefully crafted are soon forgotten. The mission statement, goals and objectives, strategy and such are collecting dust somewhere. Unless it is needed for some proposal or financing it is never looked at again. What happened?

Reality Strikes

People will often start out methodically following the steps in their business plan. They begin with the ultimate goal in mind and set off on the journey to realize their dreams. If they are committed to their goals they keep going while experiencing the ups and downs and challenges that come their way. Things move along as expected for a time but soon enough something happens. Reality enters the picture.

Somewhere along the line we seem to go from the relentless pursuit of our goals to putting out the little fires that pop up at every turn. Those fires are simply the reality of everyday life. They have always been there and will always be pulling you away from your intended path. In the recent real estate environment those fires have been roaring blazes. Foreclosures, falling prices, and difficult to obtain credit have wreaked havoc with business plans everywhere. What now batman?

Reevaluate & Revise

A good business plan is not a static document, it is a living, breathing organism. As such it needs to be nurtured, fed and cared for. If you have a written business plan, take it out and look at it. Have your goals and objectives changed? Odds are that your strategy has, have you adapted your strategy to fit today’s reality? If you haven’t put a plan to paper what are you waiting for?

A typical plan has the following elements:

• Mission Statement
• Executive Summary
• Goals & Objective
• Market Analysis
• Strategy
• Financials

Without a doubt the most important step is taking those elements and implementing them. If you don’t put the plan into action it’s just a bunch of wasted ink and dead trees.

You’ve got to be very careful if you don’t know where you’re going, because you might not get there. - Yogi Berra

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Tags: business plan, real estate

1. Real Estate Principles for the New Economy by Miller/Geltner

2. Real Estate Finance and Investments by Brueggeman/Fisher

3. The Appraisal of Real Estate by the Appraisal Institute

4.Investment Analysis for Real Estate Decisions by Greer/Farrell

5. Property Management in Real Estate Investment Decision-making by Jaffe

6. Macroeconomics by N. Gregory Mankiw

Real Estate Principles gives a great overview of the Real Estate Industry.  Readers will understand what drives Real Estate markets in the short, intermediate, and long run, connections between the Capital Markets and the Physical Markets, and Residential and Commercial property analysis.  The effects of the legal and regulatory environment are explored, as well as financing, cash-flow analysis, and models.

Real Estate Finance provides a similarly broad perspective but with a more sophisticated discussion concerning factors affecting financial decisions.  A larger portion is devoted towards income-producing properties, tax treatments, equity financing, effects on portfolio management, the secondary mortgage market, and investment decisions.

The Appraisal of Real Estate goes into great depth in discussing what the role of an appraiser is and how to conduct an appraisal.  I often hear from other Realtors and investors about how unreliable appraisers are.  When asked if they understand how appraisers work, their methodology, how they gather data and process it, I’m usually met with blank stares.  There is much more to appraising then simply looking at comparable properties or doing a quick cash flow analysis.

Investment Analysis is the book EVERYONE should read.  You need to have a firm understanding of the underlying principals covered in the above books in order to grasp the concepts in this one.  Greer/Farrel cover Market Efficiency, land utilization, market research and forecasting, traditional and contemporary valuation and risk measures.  Learn how to conduct a feasibility report, interpret probability distributions, utilize a mean/standard deviation approach, and discover why the certainty-equivalent techniques have issues.

Property Management is a great short read where Jaffe examines the literature of Real Estate Investment Modeling, investigates data analysis, sensitivity analysis, and how management decisions affect overall value.  Whether you agree or not with his conclusions, taking the time to see how he systematically analyzes the effects of management will help you develop your own analytical methods.

Macroeconomics exerts such an influence over the national and global economy.  Especially in these uncertain times, it is important to have a grasp of how fiscal and monetary policies shape the short and long run rate of output.  The recent credit and economic crisis has shown how important an understanding of globalization and the interconnectivity of all the various markets are.  If you believe that your investment property is influenced only by local market factors, think again.

Photo Credit: faeryan

Tags: Learn Real Estate, real estate, real estate book, real estate books, real estate investing

I know I write about this a lot - but I think it’s important to keep this message in the forefront for all the newer investors out there and even some of us not so newbies.  The endless emails and direct mailing pieces I get that sell me on the next big, most important, I must not miss sell-a-thon from real estate gurus - is nauseating!  Gag me with a spoon!

I cannot believe the horrible trend that is happening that all the old gurus and new gurus are perpetuating.  And to make it WORSE (can it actually be any worse?), they not only send us endless sales pitches on their own product - they are getting bigger and bigger into affiliate marketing which means that they are letting us in “a secret”, or giving us “the insiders track”, or getting us a deal that only they can give us because this guru is “their good friend”… blah blah blah blah…..  gag me with a spoon!  (Did I say that already?)

What the heck is going on with this industry?  Really I wish I had the answer.  I cannot stand this b.s.!  I am a real estate club owner and I have to spend a lot of time convincing new people that our club is different -   that we don’t do pitch fest. It’s so sad how these gurus have made what we do - so distrustful.  So what’s the solution?  How do we stop the madness?  Well - I know what I am doing to stop it - but I need your help too!

For instance - I will never book one of these guru pitch festers to speak at my club.  Maybe right now - those big shots don’t care - after all, I am a new club and how much influence can I possibly have right?  Well, after my meetings this week - I had a 100 people attend my “little club” meetings this week.  Not so bad for a silly little girl who’s club only started 6 months ago. My goal is to continue to spread the word that we do not need to spend thousands of dollars A MONTH in order to learn real estate! Even if I do wake up with a bloody horse head in my bed someday! I will not be intimidated by your sneers - you “older, wiser and more successful” gurus and owners of real estate clubs! 

Newbie Alert:  Did you know that 95% of folks who buy endless guru products never learn the solid foundation that they need in order to be a successful real estate investor?   Why - because many of these products are a trap! Not all (there are a some good ones out there), but many of these products are just a way for the gurus to get their hooks in you so they can up sell you to their next product or bootcamp - ENDLESSLY. 

A few simple tips to follow to stay out of the “seminar junkie” trap:

1.  Ask your SUCCESSFUL (successful being the key word here), investor friends - who they studied from, who’s product taught them a lot, who they trust.  Then buy that program or bootcamp. If you are new and don’t have investor friends yet, join forums such as BiggerPockets and ask around.

2.  If you go to a seminar that was not recommended to you by someone you trust - then leave your wallet at HOME.  Don’t leave it in the car - because it’s too easy to run down and get it once these slickity slick slicks have hypnotize you into believing that you cannot succeed without them and their product!

3.  Decide what real estate strategy you want to be an expert at and stick to it!  Do not deviate and start dabbling in the next big strategy that is being pitched by the guru of the week.  This should help you stay focused and deter you from buying product on strategies that are not within your business plan.  Now mind you - as markets change, strategies change - I know this, but you do not need to know how to do everything single strategy right now.  You only need to know specific strategies depending on that current market!  Mr. Bruce Norris is the best at teaching us this.  He will never try and sell you one of his products if it doesn’t pertain to the specific market that is happening now.

4.  If you simply must buy a product - first check with your friends to see if they have it.  Maybe you have something they would like to study and you can exchange product for a while.  Or check with your local real estate club - some have a lending library.  

5.  Get a mentor!  Find a successful real estate investor who is doing deals now.  Personally - I would have been lost without my mentors and coaches.  I have learned more from successful - down to earth, REAL - real estate investors than from most of the product that I have bought.  Actually - the best product I have ever studied from was from a few of my mentors.

6.  Attend your local real estate club - as long as it is not a pitch and sell environment.  Stay away from those!  Yucky! (That is why I started my own club!  Cuz I couldn’t stand to be around that kind of environment a minute longer!)

The bottom line is that there is a reason these pitch festers continue to market like dogs in heat - it’s because people buy. When gurus sell $100K in product at seminars like these only a few of those people who bought will ever do a deal - they don’t care!  They know that most everyone in the room will not be successful.  It’s not about that to them.  All it’s about is making as much money off you as possible.  Sell - the poor bastards the dream….  That’s what they do.  

The answer is get educated yes - but also, get support, get trained, surround yourself with successful investors, and don’t be hypnotized by the smoke and mirrors (think of them as the Wizard in Wizard of Oz - that might help!)

Photo Credit: Jorge Bassy

Tags: real estate club, real estate guru, real estate investing, real estate seminar

I screwed myself at the grocery store again. I bought 24 cans of Spaghettio’s (no, I don’t care if that’s the correct spelling) because they were on sale two for one. Well, I finally ate a can yesterday and it was terrible. As in, I didn’t even eat it all and I will eat almost anything. I’m not a picky guy at all, but it tasted like cardboard and dead rat. So now I’m stuck with 23 cans of Spaghettio’s. (Would I be a bad person if I donated them to the homeless? I think if I was homeless I would be motivated enough for food, to eat dead rat, cardboard Spaghettio’s…there’s only one way to find out).

Anyway, before I do my good deed for the week and poison the homeless, let’s talk about this excellent market we’re in. Because, as John D. Rockefeller said, “Buy when the blood is running in the streets.” Well, as we all know opportunity is KNOCKING loud and clear for us real estate investors. For people who have been in this game a while (meaning around five years) you remember the hot market when people had 16 contracts on a house by noon. In this market, it’s like shooting fish in a barrel. I think this market is actually making me lazy because it’s so easy to find motivated sellers and deals.

So how do you clean up right now?

As a good friend of mine says, “You can’t be a one trick pony.” You need to wholesale to get cash now. But also, the big money to be made is buying and holding. Pick up 20 properties this year (which isn’t tough if you do lease options and subject-to), hold onto these properties for five years and you will make a life changing amount of money when you sell.

And, if you haven’t learned the subject-to strategy, start learning today. If I had tried going through banks when I first started, I would never have been able to purchase millions of dollars in property (it still boggles my mind the thought of putting 20% or even 10% down on a property).

Please think big and please think positive during this buyer’s real estate market. The size of your thinking determines the size of your bank account (I can’t remember who said that, or else I’d give them credit…adios).

P.S. Next week, I’m going to reveal some of the most important clauses in my
subject-to contract which help CYA and save me a ton of money.

Tags: real estate, real estate investing, subject to, wholesaling

Greetings from the metropolis of Cedar Crest, NM. Wow….It feels good to be back!

It has been a long six weeks for me.  You see, six weeks ago, I returned from Maui Mastermind and came down with the flu…then pneumonia.  Not only was I stuck in bed but I was also hooked up to an oxygen machine.   It was definitely a humbling experience.  But it did get me thinking…..

During my time in bed….I did not do anything.  Fading in and out of consciousness and long hours of really bad daytime TV….In my long absence….my businesses continued to run without me.  How could this be?  How could the businesses that I spent that last seven years building, run without me?  How did they not LOSE money while I spent weeks coughing, vomiting, and hallucinating?   Well….It was all intentional….it was all planned.  The plan five ago was to make my business a “level three buiness.”

You see, five years ago, I learned about a concept of a “level three business”.  I remember attending the very first Maui Mastermind, where a speaker, Curtis Oakes, said a statement that I would never forget.  “My weekdays are my weekends, and my weekends are my holidays.” Curtis had built a successful business that ran without him.  At least, that I how I understood it.  When I heard Curtis Oakes say that magical phrase….I knew what I needed to do.  I needed to figure out how to make my businesses run without me.

So what is a “level three business”?

 
Well….it is a business that runs without you.  But, not only does it run…but it grows without you. At the same time, you can

So…..

How was I going to take myself out of the the day-to-day operations without driving my business into the ground?  Well needless to say, it was very difficult and there was no magic bullet (no matter what others tell you).  And still, to be honest, there is a lot of room for improvement. But….here are three big areas that I concentrated heavily to make the transition to a level three business (there are a lot more but…give you a good idea):

1)  Technology - Automation of several of the business processes was a priority.  Identifying the processes and implementing the correct technology was key.  Technology not only allowed for consistancy but also allowed for “easier” business management overall.  A big “plus” is the right technology is easily leveraged for other areas of the business.  For example, one of my companies is a commercial property management company.  We implemented Yardi Voyager (web-based property management software) in order to not only help on the management and accounting side but also to assist on the asset management side (more on asset management below)  This was a huge financial and time investment…and loaded with mishaps….but I can look back as say it was well worth it.

2) Outsourcing - We looked at all business areas to identify what could be outsourced.   Many areas were outsourced.  For example, our human resource department (including payroll and benefits) was outsourced to a Professional Employee Leasing company (Trinet).

3) Asset Management - Implementing  Asset Management  (True North Asset Management) was probably the most helpful in transitioning to a level three business.  I never heard of Asset Management before.  But asset management is a power concept of “managing the manager.”  I deal with one person who is managing all the property management companies that manage my properties (including my property management company)  different parts of the country.

Tags: business, entities, real estate business, running your business, structures

So I see one of my friends that I haven’t seen in a while when I was in Florida, and she tells me I look disgustingly skinny (basically, she calls me a hideous freak). Well, I tell her that I’m training for a marathon, so I’m sure that has something to do with it. And here’s the other reason: I HATE cooking. I have the worst eating habits. If it’s not in the frozen food section, can’t be cooked in a microwave, or made by my personal chef (Mr. Boyardee), then I don’t eat it. Anyways. About two months ago I’m at Giant staring at the TV dinners and Healthy Choice TV dinners are 50% off (yes, you know where this is going). I pretty much bought out the store and now have a lifetime supply of Healthy Choice meals. The problem is, that these meals have about .003 calories. So over the next few months I will probably wither away and die (how come they couldn’t have Hungry Man dinners on sale….gosh!)

Before I start to look like Nicole Richie back in the day, let me go over the paperwork needed when you have found a tenant/buyer. Here are the 9 necessary docs.

1. Property Condition Move-In Form - Walk through the property with the tenants and note any problems, blemishes, etc….
2. Renter’s Insurance Form - The tenants have 7 days to fax back the form with proof of renters insurance (I also staple the card to the form of the agent I work with).
3. New Tenant Information Form - A welcome letter for your new tenants. This letter should list the names and phone numbers of all utility companies, the day the trash is collected and anything else they need to know about the property.
4. Property Maintenance Agreement - This form states that the tenants are responsible for the first $300.00 in repairs and they must also get a home warranty. (I have my tenants use American Home Shield).
5. Option Agreement - States that the tenants have a one year option to buy the house at x amount of dollars. And that if they violate the terms of the rental agreement or any other agreements, the option becomes null and void. (This does NOT get recorded at the courthouse. You only record the option agreement between you and the seller).
6. Payment Policy - This form only has a few sentences in huge font that state: Your company has a zero tolerance policy for non-payment of rent, that evictions start on the 5th and there are no exceptions. (and that you can murder them for non-payment of rent…..I wish).
7. Property Disclaimer Form - This is the same form you signed with the seller. Each state has their own disclaimer/disclosures about the property.
8. Lease Option Disclosure - This form says that the tenants understand they have an option to purchase this property. And that you might not be the owner of the property and may only have an interest in the property (this is important….in a sandwich lease option you only control the property and you need to disclose this).
9. Rental Agreement - This should be iron clad and cover everything. My current lease is 7 pages. Make sure you have your lawyer review it. (Maybe in another post I’ll go over the key paragraphs of my lease).

Well, this week I’m headed to Florida again. I’m driving down, because I’m going to leave a car there….so I’m looking forward to a good ole’ 12 hour road trip. And in my car will be all of my real estate and marketing CD’s so it can be a productive 12 hours. By the way, right now in my microwave is my Healthy Choice mash potatoes (I think that’s how you spell potatoes, but I’d better ask Dan Quayle) and broccoli meal…..de-lic-ious! Til next week.

Tags: buyer, lease option, real estate investor, real-estate-deals, tenant

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