Today is my 28th birthday, so Happy Birthday Jason. I’m in a good mood for several reasons. Most importantly, I’m alive and in good health. Also, I get to spend my time these days how I want, where I want, when I want and with whom I want. Lastly, right now is a golden opportunity for me (and you) to make so much money during this financial meltdown (I know that when things turn around I’m going to regret not buying more).

Success is so easy to predict. When I talk to my successful real estate friends they’re thrilled at the money they’re making now and all of the houses they’re scooping up at huge discounts. When I talk to my friends with J-O-B’s they’re whining and complaining that the world is ending (it’s scary how mentally fragile some people are and how the media can sway them). Anyways, not only am I picking up houses now, I’m also getting ready to dump a lot of money into the stock market. If it goes down a little more, what do I care? I’m not touching the money for another 20 years, so I’m fine.

Alright, now to tell you how I can predict your success.

Drum roll please…I can tell how successful you’re going to become by spending a week with you. And, after that week, it would be obvious you’re going to be a success because I would say “look at everything she does, of course she is going to become (or already is) a kick butt real estate investor.” Or, I would say, “no wonder he still hasn’t done a deal yet, he didn’t do a darn thing all week.” It’s that easy. Do you drive for dollars weekly? Do you make sure your letters and postcards get mailed? Do you make dozens of offers on properties? Do you spend time networking on BiggerPockets and at your local REIA’s? Or, do you sit on your butt all week watching five hours of TV every night complaining about your job and the economy?

I think it was real estate tycoon Sam Zell who purchased millions of square feet of office space in Texas during the crash of ’87 (or some time in the 80’s). He knew it would come back up, just like it always does. And, that’s why I’m not only picking up houses but also putting money in the stock market because it’s always your choice whether the glass is half full or half empty.

So, in today’s market prepare to buy and hold for a while. Trying to flip (wholesale) is not smart in this market and many wholesalers are getting killed which is why you need to be a well rounded investor. One last thing…pretend that I’m spending all next week with you. What would you do differently? I sure hope you wouldn’t watch TV and waste my time while I was there (alright, now I’m off to reflect on my 28 years, and what I need to do to become a better person and real estate investor). Oh, by the way, next week I’m going to tell you my favorite website for mailing postcards, the size of the postcards to use, the color to use and the headline of the postcard for getting awesome responses in today’s market!

Photo Credit: soylentgreen23

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Tags: real estate, real estate investing, real estate investor, rehab, success, wholesale

In his landmark book, The 7 Habits of Highly Effective People, Stephen R. Covey calls the second habit: Begin With The End In Mind. Nowhere is that more true than in today’s real estate market. When investing in real estate, the End in Mind is your exit strategy. Unless you just like to wander aimlessly down a highway, you know where your exit is before you get on the interstate. When entering into a real estate investment you also need to know how you plan to exit.

Novice and veteran investors alike tend to get caught up in the excitement of finding a great deal. However a veteran will be more likely to think a deal through. Finding a property with a ton of equity is only good if you have a way to realize that gain.

Possible Exits

There are a number of different ways to dispose of a real estate investment in order to collect your profits.  These may include:

• Wholesale
• Sell/Flip
• Long Term Rental
• Lease Option
• Seller Finance

These are the most common ways of exiting an investment.  Each one has its own advantages and disadvantages. The current market conditions will play a large part in determining which method is best.

 If it was a great deal and you are just looking to make a quick profit, then wholesaling the deal may be your best bet.  If you aren’t in as much of a hurry you may want to rehab and flip the property.  If your goals are to build a large rental income, then you may wish to add the property to your rental portfolio.  If the market is not favoring the seller you might use a creative technique such as lease option or seller financing.  A strategy that works well in one set of market conditions may not be good for another.  You need to know this going in.

Analyzing A Deal

Investors have a myriad of different ways to analyze a deal before making a decision to purchase.  They may look at the cash flow and built in equity as well as any repairs that may be required.  However, one of the most important things to determine is when and how they are going to dispose of the property.  If it is going to be a long-term rental they need to be sure that the income will be sufficient to cover the cost associated with holding the property.  As long as you are making money every month you can sell the property when the market conditions favor the seller.

Looking to flip or wholesale a property requires that you look at the deal differently.  How long does it take to sell a property in the area?  Can you price it low enough to assure a fairly quick sale?  Recent comps may indicate that the property you are evaluating has a lot of equity, but does that mean anything if you can’t find a buyer? 

 Eat Dessert First

You may make the bulk of your profits by buying a property at a great price, but you realize those gains when you sell.  While planning your exit strategy before you buy may seem like starting a meal with dessert, it can prevent you from getting into a bad deal.   

I buy when other people are selling.
J. Paul Getty

 

Tags: exit strategy, flip, landlord, real estate investing, real estate investor, rehab, steven covey, successful people, wholesale

It is safe to say that real estate is hot once again. Unfortunately this new hot market is only available to professional real estate investors and very savvy borrowers.   Foreclosures have become the latest and greatest in most market places. Deals on homes can be as low as fifty cents on the dollar, but most come with some form of time restraint and quick decisions need to be made.

There are number of ways to finance your fix and flip, short term hold or long term rental, and when it comes to purchasing a foreclosure it is good to know your options.

If you are buying a foreclosure that needs minimum repairs there are only really two good options, self finance or hard money. Generally the trustee sale or auction wants their money quick. Because of this conventional financing becomes nearly impossible. Depending on where you buy, there is usually just a few days to deliver a check for the full amount on your foreclosure. This is where hard money or private money is best utilized. It can be difficult to find these lenders, but if you work with the right Realtor they should be able to give you a couple of names. And please call at least two different hard money lenders to compare COST, interest rate and terms.

If you have a foreclosure that need major repairs there are a number of options to look at. If you can determined the scale of repairs most hard money lenders will lend you the money to include the cost of the repairs. Depending on the situation, one may be able to use conventional financing and cash out on the property to make the property more attractive for a renter or long term hold. Generally refinancing any foreclosure out of hard money should mean that you intend to hold the property 6-12 months or more. The cost of refinancing can out way the benefits, so pay close attentions to the closing cost.

Get in Foreclosure Shape:

1. Know how your local foreclosure process works.
2. Know the Realtors, wholesalers and hard money lender that work with foreclosures every day.
3. Line up Financing – both hard money and conventional.
4. Try to buy a foreclosure in an area you know.
5. Know the rental market ahead of time, prepare for worst case.

Do not be afraid to invest in real estate during one of the lowest price points of the last 10 years. There are a number of deals out there, but time is not on your side when you’re buying foreclosures.

Troy Schuricht

Tags: buying foreclosure, Financing Real Estate, foreclosure, hard money, hard money lender, hard money loan, HML, real estate investing, real estate investor, rehab

People invest in real estate for a myriad of different reasons. Some people have a very clear plan for what they want to accomplish, while others jump in on a whim. It can be very seductive to see the amount of wealth that can be created in real estate. With so many different avenues available to a new investor, which one is right for you?

Do you start by being a bird dog or wholesaler? Many people choose this road because they do not have the access to capital that is required to follow other paths. Do you try your hand at being a landlord? This can be a fantastic way to amass wealth over the long-term but it can be a source of frustration as well. Perhaps you are looking to flip-and-grow-rich. There are a plethora of great deals to be had. The obvious challenge is being able to flip them to a willing buyer at a decent profit.

My Chosen Route

My path was to follow the rehab road. I was led in that direction by circumstance, not by an overwhelming desire to find my fortune in real estate. I was at a point in my life when I was looking to purchase a home for myself. I bought a “fixer” because I was able to buy a house in a better neighborhood by using my own sweat equity. I soon discovered three things about rehabbing houses:

1. I had a knack for it.
2. I enjoyed it.
3. It was a great way to make money.

Rehabbing, without a doubt, is not for everyone. There are so many traps that await the novice. Cost overruns are almost guaranteed, as are unexpected problems. It is difficult for a veteran rehabber to stick to a timeline, a rehabbing rookie is sure to exceed his or her time estimate. Rehabbing requires a certain mental makeup to do it successfully. If you are unprepared to deal with the frustrations that you will encounter, you should go down a different road.

Do What you Enjoy

With so many different aspects of real estate investing, there is sure to be something that you are good at and enjoy. Many people who invest in rental properties find that they are not cut out for it. Dealing with tenants can be very difficult and stressful. You can avoid a lot of that by using a property manager, but that has its own set of problems. Then you have to deal with repairs and vacancies. However, many others have no problem with those issues.

Nothing in life is perfect, but you need to choose what is best for you. Spend time investigating different aspects of investing until you find something that you think you would enjoy. Proceed slowly until you find out if you are suited to that particular investment style. When you discover your niche, run with it.

Finding Your “Why”

In order to achieve any significant goal in life it has to have meaning. New Year’s resolutions are a great example. Most people who make resolutions at the start of the year will break them quickly. They stop smoking for a short time, stick to a diet until they get a whiff of a fresh sticky bun, or they work to get out of debt until they see something on sale that they absolutely have to have.

If you are able to get in touch with your “why” you have a much greater chance of reaching your goal. You may think of investing as a great way to make money, but what will that money do for you? Perhaps it means more time with your family or time to pursue activities that you enjoy. Maybe you have a desire to get out of the rat race that is your typical 9-5 corporate job. Whatever it is, if you keep sight of why you are doing something, you have a much greater chance of following through with it.

What you get by achieving your goals is not as important as what you become by achieving your goals. - Zig Ziglar

Tags: goal-setting, real estate, real estate investing, rehab, Rehabbing, Richard Warren

You’ve been hunting for that perfect rehab deal like a Neanderthal stalking a mighty Mastodon. You’re sure you’ve found it. The after repair value and renovation costs will allow for a hefty profit. You should even be able to set a price that will result in a quick sale when the rehab is complete. There is only one teensy-weenie thing left to do – find the money to make the purchase of the property.

Back in the ancient, olden times (early 2007) it was fairly easy. You would seek out a hard-money rehab lender. Sure, the terms were steep, but the financing cost was built into the equation. As long as the numbers penciled out you could get funded. It was even pretty common to include the cost of purchase and repairs and have the interest financed right into the deal. If you did it right you didn’t need much, if any, of your own money.

Things Ain’t What They Used To Be

Here we are a short time later and the easy money is gone. Rehab loans can still be had, but things sure are different. A novice rehabber has little hope of obtaining financing at all. The experienced rehabber is facing a lending environment that has changed dramatically. No money down? Forget it. All costs rolled in? Fat chance. All repair costs included? In your dreams. These days the lenders want you to have significant skin in the game.

It’s hard to blame the lenders. They have been burned so often in the recent past that they had to change the rules. While it is easy to say that they had no one to blame but themselves, you can’t fault them for adjusting to the realities of a changing market. The rehabber has to adjust as well, unless he is going to pack up his tent and go home until things change.

What’s a Rehabber To Do?

It’s more important than ever to seek creative ways to fund a deal. If you have equity in your own home, try using a Home Equity Line of Credit, or HELOC. Lately many banks have been reducing the credit limits on existing HELOCs, so be careful there. The advantage of HELOCs are that you are a cash buyer, you can use the money as needed for the deal and repairs, and when you pay it back it is there to use again.

Can’t use a HELOC? Look for owners who are willing to hold a short-term note while you complete the rehab. A friend of mine made an offer on a house with no money down, the owner holding a note for two years and payments deferred for six months while he completed the rehab. The seller accepted the terms without a fight. It can be done.

Learn about “subject to” deals where the existing financing remains in place. This allows you to buy a property without have to obtain financing. If the seller still has equity in the property, ask him to defer taking his share until you complete the rehab and sell the property. When people are in desperate need of selling a property, they will agree to all sorts of crazy terms. Try it, you’ll like it.

Creativity Is Key

The point is to look for alternative ways of making deals happen. Instead of thinking, “it can’t be done”, ask yourself, “how can I do it?” In a nutshell, think outside the box. These are challenging times. Those who rise to the challenge will succeed.

A successful man is one who can lay a firm foundation with the bricks others have

thrown at him. - David Brinkley

Tags: creative finacing, financing, hard money, heloc, home, lender, property, real estate, real estate investing, rehab, Rehabbing

While the Fed Funds Rate reduction does not directly affect mortgage rates it does have an impact on the interest rates investors utilize. When we read in the paper about how the Fed has slashed interest rates, the rate that has been cut is the lending rate between banks and other depository institutions. As the interest rate decreases for banks to borrow money, the bank in turn passes this reduction to the general public. Mortgage Backed Securities dictates conventional interest rates; it is the demand of the market that causes rate increases and decreases. However, rates tend to pattern the Fed, but they are not set by the Fed. The interest rate that real estate investors should be paying attention to and that can be directly correlated to the Federal Reserve, is the Prime Rate. The Prime Rate was at 8.25% in September 2007 and now it is at 6.00%. That 2.25% means substantial savings for all investors that utilize lending tied to prime.

Investor Rehab

There are several ways to finance your rehab project: hard/private money, cash, credit cards, or home equity lines of credit (HELOC). A number of investors utilized lines of credit on their primary home or existing investment properties to rehab their projects. This is becoming even more favorable because all HELOC’s are tied to prime. If you had your HELOC prior to September 2007 you have seen a 2.25% rate reduction. On a $50,000 HELOC the rate reduction saves you $93.75 a month.

Spec Building

Prime Rate has a similar affect on financing of spec homes or construction loans. Most spec and investment properties are financed with interim construction loans. These loans are based on a margin -/+ Prime Rate. Once again, since September there has been a 2.25% rate reduction. On a $417,000 loan amount this equates to a $781.88 monthly savings on the debt service.

Cash Flow

While the Prime Rate is seldom used to secure an investment property long term, it is worth mentioning how the Fed Funds Rate can help the average investor cash flow. Historically conventional interest rates have followed the direction of the Fed; this has caused the interest rate to decrease significantly since September. There are a number of variables on investment properties, but if an investor can qualify by having great credit, documented income, assets and have 30% equity into their property, rates have been as low as 5.5% on a 30 year fixed over the last month. This is only an illustration. Please contact your trusted mortgage advisor to check your specific scenario.

With more potential rate cuts in the near future 2008 is a very good time to be in the real estate investment arena.

Tags: cashflow, Feds rate cut, mortgage for investors, rehab, spec construction

You don’t need the construction skills of Bob Vila to be a rehab professional, yet it’s no secret you can save if you do some of the work yourself. As a general rule, estimates from contractors in our area run 1/3 for materials and 2/3’s for labor. So theoretically, we save 66% by doing the project ourselves, right?

Well… maybe.

To decide, consider:

• Cost of materials: Can materials be purchased at contractor cost or will you pay a hefty up-charge? Is it possible to find materials at salvage or a Habitat-type store to increase your margin of profit?
• Cost of time: How much longer will this take to DIY? And in real dollars, how much will this add to holding costs? Holding costs include but are not limited to mortgage payments, insurance (generally higher when property is empty and/or under construction), utility bills, and lost rent. If it takes 2 weeks working nights and weekends to complete a project your contractor can finish in 2 days, add 10 days of holding costs.

Just an Opinion:

The decision to DIY should be a simple mathematical equation where you:

• price materials
• estimate the time needed to complete the project
• multiply the number of days/weeks by the daily/weekly rate for holding costs, then
• subtract that amount from the contractor bid

Of course it’s not that easy… how much fun would that be?

For starters, you may not be delaying completion of the project if other work is going on anyway. Contractor delays are a common problem and if your’s has a history of putting off your projects for another day, you might be able to finish sooner than he can anyway. But besides that, there’s value hidden away in DIY projects that can only be mined by rolling up the sleeves and getting your nails encrusted with something icky.

By learning a new skill, you increase both ability and confidence. You’re also learning to identify quality work, the amount and difficulty of labor, special tools needed for the job, and reasonable time estimates for completion. If you decide to hire someone next time, you’ll have a much better idea what’s involved in the project and if bids are reasonable. That type of knowledge is invaluable to the rehab professional, paying dividends with every new project.

One of the mister’s favorite DIY projects is installing pine flooring in our rent houses. For more info, click here.

Just Another Opinion:

Consider taking on at least one new project with each rehab, even if it’s as simple as replacing a light switch or changing out a door knob. With experience, you’ll learn which repairs save the most and which are best left to others. During your first few houses, try to be as hands-on as possible and consider it part of your rehab education.

If you have no handy-man skills whatsoever, you might try working alongside your contractor (if he’ll have you). He may tell you to pound sand (politely of course), but if you have a good working relationship, it’s worth a shot. Later, you may find that hiring reputable contractors for most (if not all) of the work will save enough in holding costs to justify the expense.

Working alongside a professional is one of the best ways to learn a new skill. Here, Mr. Brz watches while our friend Marc Bridges demonstrates proper glazing technique.

And working with a friend is lots more fun. We’ll probably need Marc to teach us something else next time around.

construction, Contractor, DIY, handy-man

Tags: DIY, do it yourself, fixer, real estate investing, rehab, rehabber, Rehabbing