Piggybacking on my last post, “The Importance of Being Nimble“, I’d like to blog today about something that is absolutely critical to your ongoing investing success: raising capital.

In my opinion, it is a skill you must develop.

Must.

Not should.

Must.

Once you become very very good at raising capital, any amount of capital, you can accomplish anything.

Start any business. Buy any asset/investment. Build a nonprofit. Run a political campaign. Anything.

Get my point?

OK, now to the ‘how’.

This blog may disappoint some of you because raising capital is actually not a science. It’s an art. And you won’t become an expert by reading this blog. But, I hope it will open your eyes to a few things.

First of all, here are some ground rules.

Rule # 1: GET OFF THE COMPUTER! You cannot raise capital in chatrooms and forums. You have to get outside and network and mingle and talk to people. In person. Find common interests. Love golf or tennis? Join a high end country club. Get involved in charities. Like poker? Get the point? This is especially true for those of us among the ‘younger’ set.

Rule # 2: Relationships. Relationships. Relationships. Relationships. Relationships FIRST.

GIVE first. Focus on the RELATIONSHIP first. You will be engaging with very wealthy people who get hit up all the time for donations, investment opportunities, etc. They can invest with anyone. Why you? Why your deals? You don’t want to be one of those people looking for a hand out. You want to be a friend who also happens to have some good deals from time to time. Take your time. I sometimes know people for over a year before I even bring up a specific deal (after I’ve played tennis with them several times a week, gone to poker night after poker night, went to their parties and vice versa, hung out with their families and vice versa, etc …. they know what I do and most of the time actually end up asking ME if I have anything for them … “I don’t know, John, let me see if you’d qualify”).

This will help you: (a) establish trust and (b) learn more about their personality/demeanor, investment criteria, financial profile, and snap shot of current cash position (the last thing you want to do is put the wrong investment in front of the wrong investor).

Rule # 3: See rule #2.

Rule # 4: You still have to have a GREAT deal. You can have a strong relationship, but you ultimately want to establish a reputation for yourself as someone who deals happen to just follow around wherever you go. You’re a deal magnet. And you work hard to attract those deals and vet them before spending any of your investors’ time and money.

Rule # 5: See rule #2.

Rule # 6: You are not a salesperson. There is no SELLING involved here. After you have a great relationship and a great deal, either the investor will be interested in seeing a presentation or they won’t. If not, just leave it alone. They’re missing out, but just leave it alone. After all, you are not SELLING investors, you are SORTING through investors.

Finally, you must communicate with your investors once they’ve invested with you. You must
keep them informed, briefly and concisely, that you’re working hard on their investment to ensure their return materializes.

So, this should be enough to get you started. Work hard at building relationships first. Consistently bring great opportunities and don’t be bashful about asking for interest (and referrals once they’ve invested and have become cheerleaders of your deal).

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Tags: finance, financing, money, private money, raising capital

1. You control the cash flow. Unlike other, passive, investments such as stocks and bonds, the owner of an apartment building is the CEO. If you need more cash flow and the local market will allow it, the owner can raise rents.
2. If you don’t want to manage the day to day operations of the apartment complex then you can delegate the management duties to a qualified and licensed real estate management company.
3. It is possible to get seller financing. Many apartment building owners are savvy investors and are more than willing to offer seller financing. This makes the purchase of an apartment building easier without having to qualify for a bank loan.
4. All of the units are under one roof. This fact makes management easier and more cost effective.
5. Forced Appreciation. Apartment buildings are valued according to the net operating income. This means that a motivated apartment building owner can directly increase the market value of his or her investment by cutting or reducing various maintenance costs. Value can also be increased by making strategic improvements to the property.
6. The stock market stinks. The stock market has been a roller coaster ride for most investors. Why trust your hard earned money to chance? Apartment buildings offer a relatively low risk investment with a high rate of return.
7. Your job stinks. If you are employed full time working for someone else you can never be sure how long you will have your job. The income from a well managed apartment building is relatively stable and secure. Most tenants will be on a year long lease.
8. Appreciation. During times of high inflation, such as now, apartment buildings tend to see their value increase. Historically, rents tend to rise along with the prices of other goods and services.
9. Lower cost per unit. Typically, apartment buildings have a lower cost per each unit then residential homes or triplexes and duplexes.
10. You control the quality and quantity of your income. As an apartment building owner you can control the quality of your income. This means that you determine who rents from your building and who doesn’t. The quality of income from a person employed as a school teacher for 15 years is different then the quality of income derived from a shiftless day laborer.
11. Maintenance on apartment building units can be a lot more affordable then maintenance on an equal number single family home units. Generally, contractors will be more competitive on their bids for large jobs, under one roof, then they would be for an equal number of small jobs spread across town.
12. Retirement money. An apartment building can be a steady source of income during your retirement years. An apartment building investment will allow you to work only part time while still receiving a full time income. If you need an affordable place to live you can live in one your units.
13. Pay half the taxes you now pay. Standard tax rates of 30-50% don’t apply. You will be able to pay the capital gains rate of 15% by buying and holding.
14. Pass on the wealth to your children or grand children. Have you thought about how you will pay for your children’s or grandchildren’s college education? Apartment buildings can be easily passed on to your heirs. If they lack the experience or desire to manage the building you can have management already in place for them.
15. Foreclosures. Millions of families are now facing foreclosure. These displaced people will need a place to live. They will most likely be renting because mortgages are harder to come by while home prices are still dropping in most areas of the country.

Photo Credit: albany_tim

Tags: cash-flow, financing, Foreclosures, real estate, real estate investing, seller financing

When I become President and it’s the United States of Jason, I will impose the death penalty on anyone that stops at a yield sign…for heavens’ sake, if you were supposed to stop, there would be a stop sign and not a yield sign. Do you think they put that extra strip of roadway there for the fun of it? So, now you have been warned that unless you want the electric chair, do not come to a complete stop at a yield sign.

Alright, alright, now to show you how to make money. As most people know, I am a FIRM believer in only utilizing investing methods that require very little cash and absolutely none of my own credit. And that the best deals are when you work directly with the homeowner (which is why I don’t do foreclosures). Well, a partner and I just picked up a lease option deal in Baltimore, MD and I want to give you the numbers to show you why this is a must learn technique.

First off, I got this property from a landlord who I had already done a deal with, which is why my favorite group to target is absentee landlords (they usually own multiple properties). Anyway, we signed a five year lease option with a monthly rent of $800 and a purchase price of $80,000 (this means that anytime within the within the five years we can buy the house at $80,000). We put zero money down (yes…..zero, nada,, zilch, zip). My lease option agreement reads that I never put money down and that I make the first rent payment 60 days from the date the paperwork is signed (60 days gives me time to advertise the property and find a tenant/buyer…I always do 60 days).

After we took care of the paperwork with the seller, it was time to find a tenant/buyer. The best ways to find a tenant/buyer are classified ads (Rent to own, bad credit OK, 3br/2ba, only $1,399/mo, Free $300 rent credits, call Lisa 555-555-5555), placing ads on rental property websites and placing signs everywhere. The advertising will generate a ton of calls. Finding a good tenant is just like finding a motivated seller…you will go through about 99 bad leads until you find one quality lead.

Once you get your leads you can either set up appointments or use a lock box. For this property we set appointments on the weekends (you will want to set appointments, do not hold open houses or nobody will show). We ended up getting a couple who gave us $5,200 to move in. This breaks down as $4,150 in option money, $200 security deposit and $850 for the first months rent. Also, they have an option to purchase the house at $110,000.

We spent about $150 on marketing, put zero money down and got $4,150 in non-refundable option money. Now, I am no math genius but I think that’s a profit of $4,000…then of course don’t forget about the big payday when the property sells.

Speaking of big paydays, over the weekend I had a lease option tenant call me and tell me their loan was approved and they were exercising their option, so that’s another $30,000 payday…how can you not love this business?

Here is the million dollar lesson I hope you learned: You need to eliminate the word BANK from your vocabulary. You need to learn wholesaling, lease options and subject-to if you want to purchase millions of dollars worth of property every year. The only people who should be going to banks are your tenants when they buy the house and the people you are wholesaling properties to. I can’t emphasize this enough: You need to think like a “player” and not a “wannabe.” Players become millionaires using creative financing methods and wannabes wait for bank loans to be approved or they wait until they have 20% saved up to buy a property.

So, which one are you? A player or a wannabe?

Tags: creative real estate, crei, financing, lease option, wholesaling

The importance of financing is so great it pays to leave nothing to chance and assumption. Knowing the local lenders and what they like to invest in is critical to finding the right lender for your investment project. Also, presenting a compelling case to the lender is important. These two aspects lay the foundation for creating a successful project.

This goes back to preparation and research. You might also want to research private financing, which entails knowing wealthy people, or knowing someone who knows wealthy people.

Having a good idea of what’s the favored investment in a local area will no doubt play a part in the choice of the investment project. But if you have followed advice and have become knowledgeable of your area, you should have a good idea about trends and the financing possibilities.

You have also, no doubt, become knowledgeable enough to exude confidence when you present a project to be financed. It also pays to have gathered support from influential people you know in the area who can vouch for you. Having references will allay doubt, unless you know the lender personally. It may be a process getting to the right decision maker, so you should be persistent and not give up at a first brush-off. Getting to know the assistant might be the first step, and it might take more than a few visits to get in the right door. Everything you learn from the first few failures will be important in devising a better plan.

Establishing rapport with those along the way will help clear the path — if what you present is compelling, you can advance, but the lower players will not likely stick their heads out if you seem unsure are don’t have a good presentation.

This is where having a good team already assembled helps . If you have chosen a well-known attorney and accountant, and have chosen property management (if it will be needed) and solid, quality contractors, then this shows that work has been done and others have looked at the project — it shows you are prepared and that you are a serious investor.

Having a good resume will be impressive, one that shows your skills and experience and why you would be good at this type of investment. Most lenders want to say Yes, but they want everything in place to be able to say Yes.

Make it as easy as possible for the lender by being co-operative and having others vouch for you — you might be good at selling yourself, but to a lender it will only be self-serving — a lender will be impressed if others who are influential and respected are selling you.

The bottom line is that the more you know about the right decision-making lender, the better you can plan a presentation that will be accepted favorably. Having all the numbers clearly crunched by an accountant, having all the legal ramifications covered by an attorney, all the construction aspects assessed bya contractor, all the management lined up and factored in, will present a strong case for acceptance — much stronger than if you go in alone and brag on yourself and idea and basically ask a lender to go on faith .

When an idea is reasonable, researched and the numbers make financial sense, AND you have a team behind you, the chances of getting financing are greatly enhanced — who knows, you may have lenders competing for the project, which would be even better.

Tags: Commercial Real Estate, financing, lender, presentation of the investment project, rea estate investment financing, real estate, Real Estate Investing

Just as a review, buying property “subject to” means buying a property subject to the existing financing.
The seller’s original financing stays in place until either refinanced or sold to a third party. The investor/buyer takes title to the property while leaving the loan in the seller’s name. If we were to take over payments on a property worth $100K and the mortgage payoff is roughly $50K; our offer should be in the $80K range. That leaves a $30K equity payout to the seller. In the perfect world we would love for the seller to agree to accept that $30K when the property is refinanced or sold to a third party.

Assuming that the seller accepted these terms, the seller always is concerned about how they are protected. In these types of transactions we immediately notice that there really isn’t any way to force the investor to make on time payments on a seller’s loan. The seller generally has to trust that the investor/buyer is not going to let the payments go after a few months and leave their credit jacked. The seller realizes that if that happens then their equity payout due is in jeopardy.

So the question is: “How can the seller protect themselves from these types of situations?” The answer on the investor is “we don’t have to take title immediately.”

You may have heard of a Land Installment Contract. There is a pro-seller contract and a pro-buyer contract. In this case you would use a hybrid of the two to give the seller the most amount of comfort possible. In a gist, this agreement transfers the title of the property from the seller into escrow instead of it being transferred to the investor/buyer. Without title to the property the investor/buyer lacks the power of an actual owner and the only way to reap the full benefits of property ownership is to give the seller the equity payout in full via refinance or sale. Sellers love this. And the Land Installment Contract can totally be tailored to the situation. This will definitely help you close some of those home runs that turned sour.

Blessings to Your Real Estate Investing Successes,
Milton B. Yates

Tags: buying property subject to, creative real estate, financing, real estate investing, real-estate-finance, subject to

A lot of the investors that I work with have some experience investing in single family homes but they want to know more about some of the advantages and disadvantages of investing in apartment buildings. The following lists are not meant to be exhaustive lists detailing every single advantage and disadvantage of investing apartment building and single family homes. The lists are just meant to reflect some of my own observations on each type of investment property. Also, these lists assume that the investor is buying the apartment building or single family home investment for the purposes of holding over an extended period of time. The lists don’t consider other investment techniques such as flipping.

Advantages of Apartment Building Investments

• Lower cost per unit than single family homes.
• Greater cash-on-cash return. Traditionally, apartment buildings offer a greater return than single family homes.
• Foreclosures! All of the families who have been displaced because of foreclosure are going to have to live somewhere! And most likely they will live in apartments.
• You start profiting instantly. You benefit from positive cash flows from day one. And you can live off that income, so you don’ have to go to a job everyday.
• You can afford a property manager. You can actually cut down your property management costs and headaches by hiring a company that specializes in apartment building management. Never talk to a tenant again
• It is easier to get seller financing. Apartment building owners are generally more financially astute and are more willing to help you finance the property. It is even possible to get 100% financing.
• Apartment buildings can appreciate faster than houses. Strong demand in metro areas with limited apartment vacancies can cause prices to soar.
• Pay HALF the taxes you now pay. Standard tax rates of 30-50% don’t apply. You will be able to pay the capital gains rate of 15% by buying and holding.

Advantages of Single Family Home Investments

• Lower start up costs. The down payment on an investment house can be extremely low. Some investors are able to obtain cash back at closing.
• Financing for single family homes is readily available.
• The acquisition costs are less then an apartment building. Generally, you do not have to perform an environmental survey or pay expensive out of pocket fees prior to closing.
• If your rent is priced right, it can be very easy to keep a single family home rented and to keep vacancy rates low.
• Many single family home investment properties will attract longer term tenants, such as families with kids.
• There is the potential to buy single family investment homes from desperate sellers thereby acquiring the investment at below market value.

Disadvantages of Apartment Building Investments

• High start up costs.
• Larger tenant turnover.
• High maintenance and management costs.
• Generally you will have to put down a 20% down payment.
• Your great FICO score won’t help you very much when qualifying for a loan.
• You need to educate yourself to determine how to identify a profitable opportunity.
• There could be hidden maintenance costs you did not perceive or anticipate that could adversely effect your investment returns.
• High out of pocket fees and expenses are required when qualifying you apartment investment deal with a commercial lender.

Disadvantages of Single Family Home Investments

• The cost per unit is usually higher.
• If you lose your tenant then your cash flow goes to zero.
• Prices in the residential market can fluctuate wildly.
• You may be required to belong to a Home Owners Association.
• Because of the higher unit cost, cash flow is lower.
• Maintenance costs can be excessivEach unit has its own roof.
• The taxes and insurance, per unit, can be much higher.
• The replacement value is higher.

Tags: apartment building, Commercial Real Estate, financing, landlord, mortgage, real estate, real estate investing, renter, SFR, single family home, tenant

When we the real estate market return to normal? When will things go back up? When will I be able to get $0 down loans again? How long will it be before I am able to get a loan I can’t afford? When will I be able to go back to flipping my way to outrageous fortune? The short answer: never! With any luck those days will never come back.

Things had been so crazy in the world of real estate investing for so long. People came to accept that insanity as the norm. There were so many novice investors in the market who thought that the mania we were experiencing was the way it was supposed to be. Many of us who had been around awhile, and should have known better, got caught up in the hysteria as well. As with any overheated investment market, when the bubble of speculation burst many people were left holding the bag. A large number of those who lost money will never again invest in real estate. They will blame the real estate market just as those who invest in the stock or commodities markets do when things go bad. They should really be blaming themselves and their own unrealistic expectations.

The Pendulum Swings

The fallout from the bursting bubble is that things have swung too far in the other direction. Lenders that were burned by the liar loans and fog-a-mirror are now afraid to finance even well qualified borrowers. They too were caught up in the speculative fever and made many loans that never should have been approved. Afraid of compounding their mistakes, they are now in a state of paralysis. This lack of liquidity is magnifyng the problem. How can the market recover if even those who are qualified can’t obtain financing?

There are fantastic deals everywhere these days. During the heady days of the market the challenge was locking up a property before someone else did. Today the issue is be able to finance it. Many investors rely on stated income loans to obtain investment real estate. The over-correction in the credit markets has caused many lenders to eliminate these programs or change them in such a way that it is much more difficult to qualify for them.

The Government has jumped in as well. The state of Nevada passed a law that attempts to eliminate the use of stated income loans (Assembly Bill 440). While these loans still exist to some degree, lenders in Nevada have to follow a stringent set of guidelines before approving loans of this type. Many lenders have decided to eliminate the product entirely rather than risk running afoul of the law.

They Way We Were

The lenders will eventually work things out on their end. They need to lend money in order to survive. The rules will certainly change as the market adapts. Investors will eventually be able to purchase property, albeit with rules altered for qualifying. The excess supply of homes on the market will be absorbed in time and at some point supply and demand will reach a point of equilibrium. The real estate phoenix will rise from the ashes.

As investors, we once again need to look for deals that make economic sense. To buy with the hope that the price may someday rise is not investing, it’s speculating. We should be looking for deals that make sense when we purchase them. You should have clearly defined investment goals and follow them. Perhaps you are investing for cash flow or built in equity or long term appreciation, or some other reason. Whatever that goal is, be true to it and be careful not to get caught up in frenzies that will inevitably occur in the future.

Make a distinction between being interested and being committed. When you are interested in doing something, you do it only when it’s convenient. When you are committed you follow through – no matter what – no excuses. – Mike Krzyzewski , Duke Blue Devils

Tags: financing, Housing, real estate investing