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.

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

I’m in sunny Florida for the next two weeks on business/pleasure (of course there is always business in there for the tax deductions from our favorite Uncle.)

As I was getting my rental car at the airport, the guy at the counter asked me if I wanted the ultimate coverage insurance or the collision only. What this guy did was use the “yes or yes technique” or the “yes or yes” close. It is one of the best sales techniques around and if you are not utilizing it you are probably losing thousands of dollars worth of deals every year.

When the rental car employee asked me which one I wanted, I had to think for a split second and realized that I didn’t want either of them. This is such a powerful technique because when people are given two choices they automatically think they have to choose one of them. Another example is an owner of a pool hall near my house who uses this technique brilliantly. Every time that I walk into the pool hall he asks me if I would like a beer or would I like an appetizer (I bet 90% of the people choose one or the other and that very few people say neither……….except me. I’m just there for the pool and to take other people’s money. See, I believe in the use of OPM in everything I do, not just in real estate.)

After I have evaluated a property and I know that there is a deal to be had, I ask the seller “Mr. Seller would you like to set up a visit for Tuesday at 7 or Wednesday at 6, which works best for you?”

One of the most important ways that I use the “yes or yes” technique is by presenting multiple offers to a seller. Never, ever, present just one offer to a seller. If you present only one offer to a seller, then it is very easy to say no and you will not close many deals this way. I always present a minimum of two offers and many times three offers. My two offers are going to be a cash offer and a subject-to/lease option (terms) type offer. Even if I know there is no way the seller will do a subject-to, I still present the offer (this is extremely important to remember.) Even if your seller said there is no way you can take over his payments, still give him two offers so that he can choose your cash offer.
So when I am meeting with a seller, I say “Mr. Seller would you like our cash offer of x amount of dollars, or would you like us to take over your payments and you will receive x amount of dollars at closing? Which works best for you?”

There are many more ways to use this technique, such as when setting a closing date: “Mr. Seller, do you want to close on September 22 or September 25”? Or when you are purchasing a real estate course: “Do you want to pay in full, or would you like the easy payment plan of only $19.95 a month for 120 months”?

Well, I am back to the 500 degree Florida heat, sweating to death. So the next time you are meeting with a seller, are you going to present two or three offers?

Tags: closing deals, how to close, negotiation, real estate, real estate investing, real estate tips, real-estate-deals

I’ve got good news and I’ve got bad news. The good news is that food is the way to a seller’s heart and the bad news is that sex isn’t (sorry fellas).

One of the strategies that I always use when meeting with a seller is to bring them food. I usually end up bringing some type of pastry such as a pie or muffins. There are two very important reasons that I do this.

First, almost everyone loves food. It’s a very polite gesture to show up at a seller’s house with something to give to them. I am always harping about how you need to stand out and be different from your competition. How many other investors out there do you think bring a delicious apple pie to their seller’s house?

Not too long ago, I had a meeting with a seller about a lease option deal. I was running behind that day, so on my way to his house I quickly ran into the grocery store to get him something. I was in such a hurry that I grabbed the first thing I saw in the bakery section and it was some type of twisty looking pastry with a fancy sounding name (to this day I have no idea what in the heck I bought.) When I arrived at the seller’s house I handed him the pastry and told him “I thought you might enjoy these” (even though I didn’t know what these were). He took the pastry from me, we walked into his kitchen and I ended up doing the deal with him. Later that week, as we were going over some of the details, he commented to me how generous it was that I brought him the pastry and how good they tasted. Now of course that wasn’t that only reason I got the deal, but every little bit helps.

The second reason that you need to bring food to the seller is because it will lead you to the kitchen table. When you give someone a gift of food they almost always take it to the kitchen and put it on the counter or the kitchen table. This is exactly what you want to happen. You want to sign the paperwork (remember it’s always called paperwork, never a contract) for the deal at the kitchen table. For many families the kitchen table is a “happy place” where people sit, chat, relax and enjoy each others company–it is their comfort zone. You want the sellers to be relaxed and in a familiar setting when you sign the paperwork. It is also a much easier place to sign everything. If you have ever tried signing paperwork while leaning forward and writing on a coffee table it’s not a comfortable position whatsoever.

What do you do if the seller heads into the living room with your pastry or somewhere else besides the kitchen? You simply ask them to go to the kitchen. Say “Mr. Seller would you mind if we went to the kitchen table, that way I could easily lay out the paperwork for you, so I don’t forget to go over anything?” The majority of the time they will say yes.

Decide now, that you will not go on any more visits without bringing food. You want every advantage when trying to close a deal don’t you?

Tags: Buying real estate, closing deals, real estate investing, real estate investor, real-estate-deals

The Settlement Statement, often referred to as the “HUD-1”, is a document that contains a detailed breakdown of the closing costs apportioned between the buyer and seller of property.

Typically, the closing agent (often a representative from the title company), gathers the pertinent information, completes the Settlement Statement and disperses the required funds once the buyer and seller have certified the accuracy of the statement by signing it.

The first page of the Settlement Sheet is broken down into a summary of the borrower’s (buyer) transaction on the left side and a summary of the seller’s transaction on the right. The second page is divided into those costs that are “paid from borrower’s funds at settlement” and those costs that are “paid from seller’s funds at settlement”. If buyer, seller and title agent agree that the statement is true and accurate, all parties sign and date the sheet toward the bottom of page two.

The following key sections of the HUD-1 should be thoroughly reviewed in any transaction:

Borrower’s Transaction:

Line 101 - Lists the contract price as stated in the Agreement of Sale

Line 103 - Total settlement charges to the borrower; this is obtained from adding up all of the costs on the second page and is also referenced in Line 1400.

Line 120 - This is the total amount due from the borrower inclusive of the contract price, costs listed on page two of the sheet and adjustments for taxes and other items paid by seller in advance.

Line 220 - States the total amount paid by or for borrower including deposit monies, principal loan(s) and Sellers Assist.

Line 303 - The figure here is the total amount of funds (in cash or certified check) that borrower needs to bring to settlement in order to close.

Lines 801-811- All of the costs associated with the loan such as origination fees, appraisal fee, credit report fee, processing fee, administration fee and flood certification fee are listed. If any of the fees are “lender retained”, which is indicated by the abbreviation LR, then this amount was subtracted from the amount of funds actually wired by the lender to the title company.

Lines 901-905 - Any amounts that are required by the lender to be paid in advance, such as daily interest, is set forth here. For example, if Buyer settles on May 20, 2008, the lender will likely require that the Buyer pay in advance daily interest on the loan through June 1, 2008.

Lines 1001-1009 - All reserves that the lender requires to be set aside in an escrow account such as hazard insurance, county taxes, and school taxes are set forth.

Lines 1101-1113 - Includes all charges associated with the Buyer’s title insurance such as the insurance premium, search fee, examination fee, endorsements, closing service letter and overnight wire fee.

Lines 1201-1203 - Details the recording fees charged by the county to record the deed and mortgage and sets forth the proportionate share of the real estate transfer taxes for Buyer and Seller.

Seller’s Transaction:

Lines 406-412 - Adjustments are made for items, such as taxes, that Seller has already paid in advance of settlement. For example, if settlement takes place on June 1, 2008 and Seller has already paid county taxes through the end of 2008, then Seller must be reimbursed from the date of closing (June 1, 2008) through the end of the year.

Lines 501-509 - Itemizes all reductions in the amount that Seller would otherwise walk away with from the settlement table, such as existing mortgages that must be paid off and Seller’s settlement charges (as listed on Line 1400 on page 2).

Line 603 - This is the total amount of funds that Seller nets on the transaction, which is typically dispersed by way of a check from the title agent.

Lines 701-702 - Sets forth the total commission that Seller must pay to the real estate agents involve in the transaction. This is typically the Seller’s single largest cost at settlement.

Lines 1201-1203 - The Seller is also responsible for a share of the real estate transfer taxes. In many jurisdictions, the transfer taxes are based on a percentage of the contract price and are split equally between Buyer and Seller.

It is always good practice to request that the title company (or closing agent) furnish a preliminary HUD-1 a day or two before closing so that there are no surprise costs at the last minute. Make sure to review the preliminary HUD-1 with your attorney or real estate agent and bring it with you to settlement. You should compare this draft with the final HUD-1 to insure accuracy of all costs to Buyer and Seller.

Tags: HUD, HUD-1, real estate, real estate investing, real-estate-deals, settlement statement

If I could just take a few moments and vent about my frustrations with real estate investors who do not follow formulas and do not stick with systems. Sheesh! If it isn’t one bad deal working it’s three bad deals working. Are times that bad that you have to reach for a good deal? NO! Are times that bad that you need to cut corners to make the deal favorable? It is never that bad. Have real estate investors forgotten their original high standards? Maybe so. I know one thing though, Investorino has lost its mind this month.

For those that don’t know me very well, I like free and clear investment structuring. My mentor has given me more than enough incite on how to creatively purchase free and clear real estate. So I have a very hard time seeing and believing the types of deals that are pieced together as though no rod of measurement is being used at all. Well, the name of the game in free and clear is that if the seller has time you have money and if the seller doesn’t have any time you don’t have any money (or much even) to give them. You can certainly pay upwards of 100% of a property’s value today, but the only catch is that price is going to be paid in one lump sum way later or paid over the course of time with agreeable terms.

So Investorino is strapped for cash. NO PROBLEM, because he’s got a great relationships with private lenders. He sees a killer free and clear property that is worth maybe $145,000.00, and it is time to do something a little creative. The subject property needed about $30,000.00 in repairs, so Investorino came up with a special big money down, monthly payment, schematic that the seller seemed to be fond of. The terms of the purchase were $40,000.00 to the seller at the transfer of title and 95 monthly payments of $1000.00. Target rent on houses within the subdivision with the same specs was approximately $1400.00 per month.

Does everyone see the cash flow?
Yes. Now let me show you a magic trick. I can show you how to make cash flow disappear (not that you really wanted to learn anyway). Investorino is going to solicit private funds for $85,000.00 to be disbursed as follows: $55,000.00 is to be made available for the jumbo pay at the title transfer for $40,000.00, to take care of any of the closing costs, and undoubtedly put some aside as a small reserve for the $1000.00 per month payments. $30,000.00 was to be used for the repairs.

Now if you think the bank was tough; check out these terms.
12% interest only on a year term with 5 points upfront and a 2 point renewal after each 365 days. Because Investorino didn’t want guarantee the deal with a partner or personally, the private lender decided that he wouldn’t provide the $30,000.00 in cash for the repairs and would like to see the finished project prior to submitting those additional monies. Uh-oh.

So now Investorino has to pay an additional $550.00 per month on a non-occupied property that needs $30,000.00 in work. Did you see it disappear…the cash flow? I did. Oh wait! Where is the $30,000.00 going to come from? Remember the property was free and clear of all mortgages and liens. The sellers will be in first position with the outstanding balance of $95,000.00, the private lender will then be in 2nd position with the $55,000.00 loan, and now there may be a 3rd mortgage needed to see this deal to the end. So this transaction is yielding about $5,700.00 to Investorino at the transfer of title. That amount is certainly not enough to get the ball rolling a the repairs.

Ending A: $30,000.00 magically appears in his account from an anonymous donor and the work is completed. Now the private lender will pay $30,000.00 to Investorino on which he will then pay an additional $300.00 per month for the adjustment in the loan amount. BOO! So now we are at $1850.00 in outward payments. Keep in mind that the market rent is based on those properties in rental condition and we can assume that this one is not. So now instead of losing $150.00 if he would have put a person in the property in its condition, he loses $450.00 per month because of the post-rehab disbursement. I told you it was magic.

Please be careful. This is about staying on the course and sticking to the formulas. Private lenders throw the formulas off all day long. Account for it and make a true adjustment in your purchase activity.

Blessings to your Real Estate Investing Success,

Milton B. Yates

Tags: creative real estate, hard money, learn real estate investing, private lenders, private money, real estate, real estate investing, real-estate-deals

I do believe that it is human nature to celebrate a championship victory as if it were out of character for us. In real estate investing, the championship is EVERY HOME RUN DEAL. Some investors never see a home run but have lots of hits and lots of RBI’s which is fantastic as well. But my concern here is that we get caught up in the hype of the potential profits of deal A without continuing to operate in a normal manner to see that the deals (B,C,D…) due to follow come to fruition. This temporary path off course is very prevalent in the sports world and the principle can really be applied to any industry.

Three weeks ago, an investor was making 15 calls per day, going on at least 1 appointment per day, and fulfilling at least 5 direct mail piece projects per day. The deal of a lifetime came rolling down the street. Picture this: A 5 bedroom 2.5 bath 4 level brick Row House placed in a historic district of Georgetown in the Nation’s Capital where the same property is selling for $700,000.00 +. The owners have allowed a contract to be executed “subject to” the existing financing giving the sellers $100,000.00 at the table and taking over the payments of $3100.00 per month. HOME RUN! The ability to negotiate that contract was like winning the NBA Championship for that investor.

The problem was that the investor’s concentration left the business itself and his focus became the deal. He started forgetting to make those 15 calls a day, he forgot to schedule his 1 appointment, he wasn’t returning phone calls, and all of the sudden he felt that the direct mail pieces weren’t quite as important anymore. Because this deal did not come from a traditional marketing source, the investor felt that the other items were not where his attention should be. WRONG! WRONG! We all know how the story ends. Lack of attention to the details of the mortgage and the situation of the seller resulted in a dead deal. Because the most important part of the machine (the real estate investing business) was not in operation for 3 weeks, there was no pipeline to look to for appointments and/or potential deals.

I always tell my colleagues to RELAX but don’t be LAX. This quote really sums it up:

“I have what I have because of what I’ve
done. If I continue doing what I’ve been
doing, I will have only what I have now. If
I don’t change what I’m doing, things won’t
change for me.”

Even though you’ve gotten a good result this time. That same strategy may not get you the same the next time. Teams lose games because of this attitude, championships are lost, money is lost, and it is all because of mindset. You are supposed to WIN. When you hit the home run act like it is what you expected and go back to the everyday. The everyday wins back to back championships.

Blessings to Your Real Estate Investing Success,

Milton B. Yates

Tags: dealmaking, marketing, real estate, real estate investing, real-estate-deals

During a class I was teaching in 2005, one of the students asked why all the “idiot” California investors were flocking into town and buying newly constructed houses for as much as $0.90 cents on the dollar? His question drew some laughs from others in the room and they also wondered why they would pay that much when the local Dallas market was not appreciating while the rest of the country continued to appreciate to record highs.

I remember not knowing the answer at the time but I began to question the California investors when I was in contact with them and started to take notice of what and where they were buying and what they were doing with them. Within a few months, my opinion had been formed and I began re-raising the students question and following it up with my answer.

Q: “Why are all the idiot California investors flocking into town and buying newly constructed houses for as much as $0.90 cents on the dollar?”

A: They aren’t idiots. In fact, they are the opposite.

People wanted to know my reasoning. It was simple really and I suggested that “us Texans” just might be the actual idiots. The reactions I was met with told me that I had better start making sense because “everything is bigger and better in Texas!” In this case, my assessment was our ego’s was about the only thing that was “bigger.”

The fact of the matter was…
California investors were pouring into Dallas, Ft. Worth, Austin, San Antonio and Houston by the planeload on a daily basis. All of them appeared to be going directly to the builders and snatching up as many houses as they could get.

They appeared to be buying in under-developed or “up and coming” parts of town. In the DFW area they were buying like crazy in Keller, Wautaga, Justin, Frisco, Celina, Corinth and Prosper. The areas in the Ft. Worth side of town all happened to be around Ft. Worth Alliance Airport and the Texas Motor Speedway. The areas they were buying over on the Dallas side were all on the northern outskirts of town.

The last thing I noticed about the California investors buying habits was that the majority of the houses were under the $150,000 price range.
None of the investors were selling either. All of them were putting renters into the houses.

I decided that, all those California Investors knew what was coming. While the rest of the country was busy paying attention to the appreciation that was taking place in California, those investors were in Texas…Buying new houses and renting them out for $1,500 or less in most cases.

Since that time, most of the country has seen property values go down faster than Mondale in ’84. And…At the same time, Texas stayed stale and the hottest part of the Dallas market appreciated only 4%.

In other words…Most of the United States appreciated to record levels and now we are seeing the values go back down but…Texas, yes Texas…Never went up.

What does that mean? It means there are thousands and thousands of foreclosures every month and the people that lived in those houses will be looking for affordable housing. In addition to that, we have investors all around the country, all looking for the next great deal.

While us Texans were laughing at the California investors for buying all those new houses, those very same California investors were and still are laughing at US!

You see…They bought houses that were brand new. Ten year warranties for foundations, roofs, HVAC systems, water heaters and so on. They put renters into those new houses to pay their holding costs until their big, pay day comes. I doubt Texas will come close to the triple digit appreciation so many parts of the country saw but, I am willing to bet that Texas will easily see double digit appreciation in the next couple of years.

That age old saying… “Buy Low…Sell High” is what the Californians had figured when they stormed into Texas. Think about it… Texas has nowhere to go but up. In today’s and even tomorrows real estate market, I think most people would agree with me that, investing in Texas real estate is a better bet than investing in a market that has seen its values peak and are now on the way down. The trick is being able to handle the carrying costs until the pay day comes.

Things may not always be “Bigger” in Texas but… They are about to get “Better.”

Tags: california real estate, investing texas, landlord, real estate, real estate investing, real-estate-deals, texas, texas real estate