Real Estate As Leverage by Premier Mentoring

Real Estate As Leverage

Creating Your Real Estate Management Action Plan

Name

Real Estate As Leverage

ÂŠ Loral Langemeier All rights reserved. The use of any part of this publication reproduced, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, or stored in a retrieval system, without the prior consent of the publisher is an infringement of copyright law. Though the practices and principles outlined in this program are sound, have been tested and work, this is an educational program only and each person is responsible for their own due diligence and should seek the advice of a licensed professional for further legal and financial guidance. None of the information in this program should be construed as advice or recommendation.

Real Estate As Leverage

Table of Contents

Introduction

1—Property Acquisition 2—Remarketing and Selling the Property 3—Investors and Field Partners 4—Creative Deal Structuring 5—Sustainable Real Estate Management 6—Leadership of Your Real Estate Wealth Team 7—The Action Plan

112

8—Appendix

119

Real Estate As Leverage

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Real Estate As Leverage

Introduction Is Real Estate an Investment or a Business? Many individuals that we coach/mentor come to us with the perception that real estate is the answer to all their wealth building problems. In fact, most come to us wanting to make $5K/month in passive income through real estate. What people don’t realize is that to generate $5K/month in passive income, they have to create a sophisticated real estate business that will then become their investment. It is absolutely possible to not only create $5,000/month in passive income but to create tens of thousands dollars per month and a net worth of hundreds of dollars when you have a real estate management action plan in place and you’re very clear on the end result. Real estate is a business first and will become one of your best investments. What does it take to run a real estate business? There are 7 steps that we use in building any business and we’re going to use that formula to build the real estate management action plan in this Real Estate As Leverage Program. The outcome of our Real Estate As Leverage program is that you will learn: • the steps necessary to run a real estate business; • how to operate a national or international real estate business (same concepts that you apply nationally can be adapted and applied internationally as well); • the distinctions between traditional real estate, property management and the use of a new term we’ve coined, which is the use of Field Partners • how to determine which strategies you want to start with and which ones you want to grow into • how to creatively structure and finance real estate deals • how to create management systems to grow and sustain your real estate business over time. Most real estate business owners and investors traditionally start their real estate program in their own backyards. In fact, many real estate gurus and industry programs have directed people to do just that—stay in their own backyard. Personally, in only a few short years, I have grown my real estate portfolio in multiple states and controlling assets upward of $20 million. The benefit of national real estate investing with Field Partners is you diversify your risk, you leverage a variety of market economies and you strategically partner with teams who all have a vested interest in the performance of the properties. Are you ready to get your goal in real estate and to learn a new creative method for acquiring national real estate? Yes is the right answer. Real Estate As Leverage is a program that I was requested to write and is specifically designed to teach you, in detail, how to build your real estate portfolio in a few short years and a very new, innovative non-traditional way. To your wealth,

Real Estate As Leverage

Loral Langemeier

Chapter One

Property Acquisition â&#x20AC;&#x153;No man acquires property without acquiring with it a little arithmetic also.â&#x20AC;? Ralph Waldo Emerson

Real Estate As Leverage

Chapter One

Property Acquisition In the area of real estate investing, it is important to select a type of real estate investment that you can relate to, and one that, at least to you, makes perfect sense. It is vital that you understand the process required for successfully managing the property. In industrial /commercial real estate, it is important you know something about the type of tenants who will be occupying the property. In residential real estate, you should know something about the population that will be the target market for the apartments/ home. All of these considerations will come to bear on the process of successfully acquiring property in your real estate business. As you build your real estate business into an investment, there are specific steps necessary to follow:

1. Vision 2. Strategy/Tactics 3. Revenue Modeling 4. Entity Structuring and Tax Strategies 5. Remarketing/Sales 6. Leadership of your Real Estate Wealth Team

The exact detailed model of how to build a business plan is in our program, Building, Leading and Protecting Your Business which will help you build any business plan. However, we’re going to tailor this program to specifically show you how to build a real estate business.

What is the Vision of your Real Estate Business?

Begin with the end in mind. When you’re buying real estate property, the most critical decision you will make is to acquire the property with the profitability and the exit strategy as your core criteria. Most people we encounter want to do real estate because they either lost money in the market, they’re tired of their current job, or they know it to be a great wealth building strategy. Typically, they have very little experience or knowledge about the work and detail involved in starting a real estate business. It’s important to design your vision for real estate to determine your focus and your strategy. Ultimately, the vision for real estate is to grow sustainable wealth, provide housing for those who have no other means of acquiring it and leverage opportunities through the use of Field Partners and investors. So, how do you get there? 6

Real Estate As Leverage

The foundation for any journey is a plan, a road map of sorts, showing you a starting point and mapping out where you want to end up. The important ingredient to any plan is flexibility. In fact, the best wealth plans are like a recipe, step by step by step. They are predictable and expected. You have to have a plan. The best test for judging the validity of your plan is to determine your SWOT (strengths, weaknesses, opportunities, and threats). Like any industry thereâ&#x20AC;&#x2122;s an upside and a downside and you have to prepare for developing a plan to cope with potential setbacks, and incorporate them into your plan. Allocate part of your income to this plan, and create an emergency fund for those times when the unforeseen occurs. Our goal in this program is to focus on creative strategies that include, cash, cash flow and equity. There are many ways to acquire for all three of those strategies. Cash strategies can include flipping properties for cash or to take cash out at the closing table. Cash flow strategies include lease option or renting properties. Equity strategies include the purchase of appreciating properties and holding for further appreciation. It is critical for you to determine your strategy early in your real estate wealth building plan. What you are going to do with the property to create your profit (rent, flip with no rehab, flip with rehab, lease, sell to an owner occupant or sell to an investor) DETERMINES YOUR ACQUISITION STRATEGY. Your back end determines your front end. Once you have begun your strategy for real estate for wealth, good management will increase the income and equity over time, giving the property a better resale value than when you purchased it.

Primary or Secondary Considerations

Part of your goal setting should be primary, with some secondary considerations for the long-term. For instance, you might have a primary goal of building a portfolio of industrial properties (manufacturing or warehousing facilities), and a secondary goal of consolidating your investments in one state. The most important part of this type of goal setting is to understand the rationale for the goal itself. If you choose to invest in industrial property, it should be because you are comfortable with this type of property and understand its current, and long-term role in the overall economy of the region. For example, Reno, Nevada has become a warehouse hub for the State of California, due to Californiaâ&#x20AC;&#x2122;s hefty annual inventory tax. To minimize the taxes impact on business, California companies store their inventory in Reno where there is no inventory tax. To invest in warehousing in Reno you should, therefore, know all you can about the California tax situation and its potential longevity. Should California decide to repeal the tax, the Reno investment might be jeopardized. If, however, it is clear to you that the cost of inventorying goods in Reno will always be competitive with warehousing them in California, due to land prices, cost of construction, and transportation, then the outlook for your Reno investment should remain golden for the foreseeable future.

Real Estate As Leverage

Your primary consideration may be to acquire residential real estate with the aim of rehabilitating the property and sell for quick cash. The secondary aim is to begin a strategy of holding every other property as you build a cash reserve account with the flips then revert to a hold position to accelerate equity for long-term growth.

Long-Term Goals

Part of your plan should address immediate goal concerns, and then place them into a long-term strategic context. A short-term goal could be the accumulation of enough capital to make your first investment. The short-term solution could be invest in some form of mutual fund and REIT until there is enough capital accumulated to provide for the down payment for a building of your own. Another short-term goal could be to form an investor group to make the initial investment. Longer-term goals might encompass owning your own building without partners, or creating a portfolio of similar or diverse properties. And, beginning this strategy may be supported by the use of other peopleâ&#x20AC;&#x2122;s money to buy properties until you have the cash to buy your own. Another goal could be the realization of greater geographical diversity in your portfolio. Whatever the plan, have reasons for your choices, and have a realistic way to get there. If you can only save $5,000 a year, you will not accumulate that $100,000 down payment needed for your first building in 5 years. So, look nationally and for other partners to make this first transaction. In any real estate business plan, there are 3 primary strategies:

1. Acquisition of the Property

2. Remarketing and Selling the Property

3. Investors and Field Partners

We have begun to address the issues of vision and strategies ... letâ&#x20AC;&#x2122;s start putting the pieces together in a little more detail.

Real Estate As Leverage

“Where there is no vision, the people will perish.” Solomon

A real estate business with no vision could be compared to a plane without a flight plan … wandering aimlessly, never knowing whether or not it will reach its destination. Most people have an essence of what they do or want to do … but not a vision. Your vision charts your course and keeps you true to what you want to achieve. One of the best definitions of vision that I’ve come across comes from Cynthia D. Scott, Dennis T. Jeffe, and Glenn R. Tobe who wrote: “A vision is a picture of a preferred future state, a description of what it would be like to be some years from now. It is a dynamic picture of the future. It is more than a dream or set of hopes; it is a commitment. The vision provides the context for designing or managing the changes that will be necessary to reach those goals.” According to Collins and Porras, 1997, in the book Built to Last, visions are comprised of 4 parts:

1. Purpose 3. Descriptive Narrative

2. Mission 4. Values

Purpose

In the vision for your company, the purpose is the ultimate intention of your business. It is the “why your company exists” statement; when others read it, they have a sense of what your business wants to be. The purpose statement is something you strive for, your aspirations.

Mission

The mission of a company is comprised of the big initiatives that you are going to accomplish. This is the list of goals and strategic actions that the business is striving to achieve. Your purpose drives your mission. Your mission is composed of goals and activities that you could check off when completed; it is not a destination. Examples of Hypothetical Mission Statements: Real Estate

To increase cash flow from $250 to $350 per month/property

Cable TV Company

To increase revenues 15% within 2 years by adding High-speed access as an offering.

Real Estate As Leverage

Descriptive Narrative

The descriptive narrative is made up of three major components: 1) 2) 3)

Words ... that Elicit Emotions ... that Paint A Vivid Picture

The words you use to describe your vision should elicit emotions, then paint a vivid picture in your mind. The business description will answer many questions, some of which are listed below:

3 3 3 3 3 3 3 3

Why your business exists What your business represents Why you do the business you do What you do What do you aspire to What is the experience of your customers What are your values Who you serve

Your business descriptive narrative is the linking statements that, when combined with specific words, are designed to drive specific emotions and clearly identifies the business you desire to build.

Values

Values speak to your true essence and represent who you are and what you stand for. Below, I have listed some values that you may find helpful when creating your vision. Each of you can identify with some of these values and there are some that you might honor to a higher degree than others. Experts who have researched the subject of values are quick to point out: if a person were to lose one of their core values, they would be a totally different person. Others claim that we die for our values before we compromise them.

Real Estate As Leverage

SAMPLE VISION To provide housing to people to have no other mechanism to acquire “the American dream” of owning a home and to provide our investors sustainable growth through a real estate investment vehicle.

Strategy #1 Property Acquisition

Strategy #2 Remarketing and Selling the Property

Strategy #3 Investors and Field Partners

Now that we have described what a vision is, what is your real estate business vision? __________________________________________________________________

With your vision intact, let’s take each of the 3 strategies of a real estate business and break them down over the course of the next several segments. “Acquiring properties creatively is really about finding people who have problems and solving their problem.” Loral Langemeier

Real Estate As Leverage

Strategy #1

Property Acquisition As you think about how you want to acquire properties, you have to determine your area of real estate focus. Your real estate focus area informs your financial goals of equity, cash, and cash flow. Which one do you want now? It will probably change over time, but which is most important to you first? If I’m a beginning real estate business owner, I want cash and cash flow first. Think about the types of real estate and the different markets that are going to create that outcome for you. What you’ve probably heard over time is that finding, fixing and flipping a property for cash is a good first strategy to get you started. Depending on your market, it is the right answer. The biggest challenge we see with that strategy is that finding and fixing the property is the easy part but finding who you’re gong to sell the property to can be your biggest challenge. Again, you have to acquire with the end in mind. How are you going to sell the property to make your profit? With this strategy, you have to go into it knowing whether you are going to retail the property, whether you’re going to sell it to another investor or lease option it? If you want cash flow as your primary outcome, acquiring a property that will be a rental or a lease option should be your primary focus. But what we find with most people in the beginning of their business building is that their psychology gets in the way and month after month after month the person is looking at all sorts of real estate from large commercial, multi-units, single family, new developments and has no focus. No focus equals no real estate. This is where you really need to watch your psychology. Many people have been conditioned by infomercials and books ... that you can just jump in and the real estate is going to find you. But having done this for years and years, I know that focus and strategy are critical. Let’s say you’re going to do lease options—what will happen to most people is they feel if you focus that narrowly, you’re going to miss the best deal somewhere else. Nothing could be further from the truth. Pick a very narrow strategy and focus, hang your sign that you are in business and declare you’re actually a real estate business owner. Then, develop the business and do lease options to the best of your ability. You will be known in your market as the person who does the best lease options and who has a sustainable business, then you’ll get your “lottery ticket.” A “lottery ticket” in real estate is a “no money down deal” ... a “foreclosed property that has 40% equity in it”... and more. Our best advice to anyone who’s starting a real estate business is have a clear vision. Be clear on your strategy and move into tactical action. 12

Real Estate As Leverage

We’ll start by discussing types of acquisitions.

Types of Acquisitions

To help you identify a more narrow focus of your strategy, the next portion of the program identifies a variety of property acquisition options. The following is a list of various real estate investment types to help you further clarify what kind of property acquisition with which you want to start your business. • • • • •

Residential Real Estate Raw land Industrial properties and business parks Office buildings, suburban versus high-rise Retail Properties—from neighborhoods to malls

Residential Real Estate

When you consider residential real estate, you’re looking at four units or less, commercial real estate is considered five units or more. It’s important to determine whether you’re doing residential in your strategy early on in your decision making process because your team will be very different. There are commercial teams and residential teams. Residential real estate can be acquired through the MLS (Multiple Listing Service) through expired listings on MLS, FSBO (For Sale By Owner), HUD (Housing and Urban Development), VA (Veteran’s Administration), and Foreclosures. Each of the methods through which you acquire residential real estate has its own process and specialization. Think of it as a niche within a niche ... meaning, people who acquire residential real estate ultimately become specialists in one of the above methods of acquisition.

Land

When you look at land as an investment, you will find that the veritable smorgasbord of different possibilities can overwhelm you. The choices available to you range from thousands of acres of untitled land down to one-quarter acre residential lots. The size of land in question and its zoning condition or condition of title will dictate the price and the immediacy of development. In general, if you are investing in land, you have the choice of developing it yourself or selling to a developer. The developer, on the other hand, looks at land as needed raw material for their business and is always on the lookout for more land in the right place. The right place is always in the path of growth. The size of a given parcel and the condition of the title, if any, attached to the land will dictate the number of possible ways to make money on that specific parcel.

Real Estate As Leverage

Small Parcels

When you are starting out in the business and have chosen raw land as your strategy, small parcels are most likely your best bet for an investment. The â&#x20AC;&#x153;buy and holdâ&#x20AC;? scenario is a safe plan, relying on the passing of time and the increase in development activity to create a greater value. Remnant parcels occur in the wake of development for various reasons. In a subdivision, there are always parcels that are not as desirable or as well located, and are therefore, passed over by buyers, due to the fact that they have a good selection to choose from. When the wave of development has moved on and time has passed, these parcels are generally disposed of by the developer at a discount so that they can move on to next project. The passing of time will cause the surrounding properties to appreciate, carrying the remnant parcel along with it.

Medium Parcels

Some other ways to ensure making a profit, enlarging that profit, and at the same time, making the parcel easier to sell, are to improve the land so that it becomes more valuable. This holds true for all parcels. There are various improvements that can be made to real estate, but they fall into two distinct groups: tangible and intangible. The tangible improvements are the traditional onesâ&#x20AC;&#x201D;bringing utilities to the site, grading the site in preparation for development, and enhancing the site with landscaping. The intangible improvements lie in the area of title and development. Issues relating to title range from zoning to final recorded subdivision maps. Development improvements range from planning approvals to leasing and financing. Improved parcels represent immediate opportunities for developers and are readily saleable. This form of land investment is invariably profitable and the resale is virtually guaranteed if the improvements are done properly. The viability of the improvement lies in the feasibility of the development project. If they can justify the new land price, then the sale is assured and a good profit will result.

Large Parcels

Large parcels are inherently longer-term propositions and should be treated with caution. Because of their size, they are only available well ahead of the path of development and consequently require greater amounts of money. The advantage of larger parcels is that they lend themselves more readily to subdivision and resale. Since there are more buyers for smaller parcels, large parcels are a good investment to zone, master plan and subdivide. This is always a profitable investment plan and some companies do nothing else. They are essentially in the business of creating inventory for other developers. A typical section of land (640) acres will be broken up into several residential tracts and as many as four commercial sites. The smaller, more affordable-sized parcels are then easier to market.

Real Estate As Leverage

Industrial

Industrial properties, both subdivisions and buildings, are reliable products in many communities. Since we have phased out many of the traditional, Industrial Age businesses, you must recognize that the demand for industrial property is now segmented into different areas. The traditional heavy industrial such as steel and chemicals are generally restricted to areas where they have been for decades. Growth areas for industry are primarily centered in the south and the west, relegating the old industrial uses to the rust belt. As in all types of development, industrial development has areas of specialization and general uses. Most industrial uses today are concentrated in so called â&#x20AC;&#x153;parks,â&#x20AC;? because communities have insisted that these areas have a better image and fit better into the communities they serve. Parks fall into two categories today: industrial and business. Industrial parks tend to house manufacturing and distribution facilities while business parks tend to attract the clean industries of high-tech manufacturing, distribution, and offices. Often there is a healthy mix of uses in each park, with the business park becoming the more expensive of the two environments. Business parks also include commercial areas such as restaurants and banks to serve the higher concentration of office population they attract.

Multi-tenant Buildings

General use structures, such as warehouse buildings and multi-tenant structures have the same appeal in industrial areas as they do in office or retail areas. The more general the use, the greater the demand. The larger the number of tenants, the lower the risk of significant vacancy. Multi-tenant industrial uses are not as common as in office and retail development and are usually found in what I describe as incubator/ office buildings in the business parks. An incubator/office building is one where there is a glass exterior in the front, truck access in the rear and the building area in between can be improved to provide 0 to 100 percent office. This enables a user to start with a small office and an assembly area or some form of warehouse area and then expand the office to the point that both operations need a new home. This flexibility allows for uses ranging from 100 percent office to 100 percent warehouse. It is very flexible and usually in constant demand in expanding markets. It is the predominant spec development in business parks across the country. One of the best types of multi-tenant industrial buildings is the mini-warehouse. They are all over the country, capitalizing on the fact that people who live in apartments and small homes need additional, temporary storage space. These projects make excellent investments but are hard to finance when under development. Established mini-warehouses, however, if well occupied, can be readily financed. The rents for this type of product have normally equaled those of apartments and make a very attractive development project.

Real Estate As Leverage

Office

Office developments parallel the same range of opportunities as the other types of development, from special use to multi-tenant facilities. The principal divisions peculiar to office buildings lie in the size of the buildings and the size of the tenant that can lease them. This is not as simple as big building for big tenants. The real difference lies not in the size of the building, but in the size of the floor plan. Remember, the floor plan is the area of any floor in a building devoted to tenant space and common areas. The floor plan will include all uses on the floor, including access (stairs and elevators), public areas (corridors and rest rooms), and tenant spaces. The size of the floor plan will tend to influence the class of the building constructed. In theory, the larger tenants are better financial risks than smaller tenants, therefore larger building will be found on more expensive land and in areas of great urbanization.

Large Buildings

Large buildings are not necessarily better investments than smaller buildings. Their relative attractiveness lies in the type, size, and quality of the tenants. The reality for an investor looking for a large building to buy lies not in the quality of the building as an investment, but in the ability of the investor to dispose of the investment once his or her goals have been accomplished. The number of entities large enough to purchase a large building is limited. In boom times, there is often no problem finding a ready buyer, but in times of recession, the larger investors generally have their hands full managing their existing portfolios. When dealing with large tenants, greater capital reserves area required for reinvestment whenever significant vacancy occurs.

Small Buildings

Small office buildings break out into two types: single-tenant buildings and multi-tenant buildings. As in the larger buildings, the floor plan will be the driving force behind the tenancy. The large tenant in a small building has a disproportionate impact on a small building. I would caution any investor away from a small building where any 1 tenant occupies more than 10 percent of the leasable space. Obviously, there are exceptions to this rule, just be aware. Look closely at this tenant before purchasing such a building, because if you have a normal mortgage (75 percent of value), the cash flow to your investment is tied up in tenants representing 20 percent of the office space. If you look at a traditional vacancy allowance of 5 percent, then 15 percent of the tenants are responsible for 100 percent of your cash flow. Should you lose that 10 percent tenant, you have lost two thirds of your cash flow. If you believe that the tenant is well capitalized and is going to stay around for a while, then proceed with caution.

Real Estate As Leverage

Retail

Like office space, the size of the building and the size of the tenant hold true for retail projects as well. Retail buildings run the gamut from single-tenant buildings to regional malls. If you are an investor looking to buy or lease buildings in a regional mall, you need to have several hundred million to invest. Single-tenant buildings are, as an investment, mostly a function of the tenant’s credit and longevity. They are no different than single-tenant buildings in any use category. Look at them in the same fashion.

Strip Centers

Strip centers are a classification of shopping center characterized by both size and tenancy. They are most often five to twenty-five thousand rentable square feet in size. Most are “un-anchored,” that is to say, they do not contain a national chain store or a tenant with “bankable” credit. Due to their awkward size, and their lack of significant credit tenants, they are a riskier proposition for an investor than a conventional neighborhood or power center. This inherent risk is two-sided. The increased risk brings with it a greater potential for profit. Strip centers tend to be in-fill projects on heavily traveled thoroughfares and are, therefore, quite visible. Small tenants like these centers, as both visibility and accessibility are the key to their survival. The characteristics enable the local or “mom and pop” tenant to compete with national chain competitors.

Neighborhood Centers

Everyone lives near a neighborhood center. They are so-named because they are designed to serve the immediate (generally assumed to be a three-mile radius) surrounding residential neighborhoods. It traditionally takes over 15,000 people within this 3-mile radius to support a center of this size and tenancy. This center has a supermarket, a drug store, and a bank as the main attractions. The balance of the tenancy is comprised of smaller convenience stores, most of which are owned by local merchants. Over the years, these centers have grown to 200,000 square feet or more and are referred to as community centers. They are, however, merely a variation of a neighborhood center serving a highly concentrated population. This center is always an attractive investment for anyone. Its size lends itself well to resale, and the type of tenancy tends to remain stable with little or no turnover during the life of the center. It will become obsolete only if the residential neighborhood falls into slum conditions, or if it does not stay up-to-date and competitive with its nearby contemporaries.

Real Estate As Leverage

Power Centers

These centers are comprised of discount stores, known as “box stores,” and range in size from 200,000 square feet to over 1,000,000 square feet. The tenants are the same all over the country. They are the recognized discount stores typified by WalMart, Home Depot, and Office Depot. They are everywhere, and have become the staple of American shopping. These centers range in value, at the low end, from $15,000,000 to over $100,000,000. These shopping centers are most often owned by sophisticated investors who stay in constant touch with the tenants, and who are adept at anticipating changes in the public’s shopping trends. These types of investments are recommended only for experienced real estate investors.

Regional Centers

Regional centers, such as the Galleria in Houston, Texas; Metro center in Phoenix, Arizona; or Sun Valley in Walnut Creek, California; are so large and expensive, that they create an economic environment of their own, totally independent from the rest of the community. They draw from populations in excess of quarter million people, and the owners are few and very large, and are usually restricted to developers and institutional owners. It takes huge amounts of capital to build and maintain these centers, so the few companies that do it seldom face any new competitors. Every regional center that will be built over the next 20 years has already been identified, and is mostly likely in the planning stage.

Mixed-Use Projects

These projects are hard to quantify and are generally a one-of-a-kind investment. They are usually built to capitalize on some unique local need or custom. The most common type of mixed-use would be found in centers that mix retail and office uses in an urban setting. Other forms of mixed-use projects are not recommended for novices. Ready? Set Your Strategy. As you can see from the above descriptions there are multiple options available to acquire properties. Again, as you look at what your strategy will be for property acquisition, it’s most important that you get focused on a very small niche, learn that business of real estate and do it very well. Over time, as you’re more sophisticated, you’ll begin to take on larger projects with a variety of investors and Field Partners. To get started—focus.

Real Estate As Leverage

As you think about your property acquisition strategy, what is your initial financial outcome?

o o o

Cash Equity Cash Flow

__________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What real estate strategy do you want to start with? __________________________________________________________________ __________________________________________________________________ How will you acquire properties for your strategy? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Now that you have your vision, your strategy and your focus ... letâ&#x20AC;&#x2122;s start building a real estate system to make that happen. As part of your acquisition system you will need to:

3 3 3 3 3 3

identify your Field Partners identify your markets identify your neighborhoods clarify your buying criteria buy right build your real estate wealth team/leadership

Real Estate As Leverage

Identifying Your Field Partners

Most real estate business owners and investors use traditional property management as their partner. What we have done distinctively different is created a concept and an arrangement called Field Partners. A Field Partner is someone who has a vested interest and their compensation is based on the performance of the property. When you start a real estate business, itâ&#x20AC;&#x2122;s a good idea to seek out Field Partners first. Most people are trained to find the best markets and neighborhoods, we find Field Partners in areas of the country who were doing great real estate businesses on their own and by partnering with a larger team, are able to leverage both business to the next level. Additionally, Field Partners offer the opportunity to diversify the risk, leverage a variety of strategies, and accelerate your overall wealth plan. Further along in the program, weâ&#x20AC;&#x2122;ll be describing in detail how to work with Field Partners. As you think about this part of the acquisition system, who do you know who could be your Field Partners and help you get started? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

Identifying Your Market

The strategy that you choose will determine which markets and kind of Field Partners you should be looking for. For example, if you want to do a residential lease option program, thereâ&#x20AC;&#x2122;s a certain kind of market and neighborhood that offers better performance. If you want to do a residential rental program, again, there will be certain markets and neighborhoods where that performs well. Your due diligence will determine whether to lease or rent. For those who want multi-units and commercial properties each market is distinctively different to support their own strategies. There are a lot of economic indicators that determine which markets are better for which strategies. Much of this information you can find through the internet, or there are research companies who specialize in this area. Economic indicators you should pay attention to are: the population growth, the growth of the market, appreciation rates, city grants and subsidies, larger corporate movement (i.e. a lot of large corporations from the coast are moving to the mid-west and are being incentivized by the cities to do so), median incomes of the population, median rents in the market, landlord vs. tenant laws, insurance implications, property taxes and more.

Real Estate As Leverage

As part of your acquisition system, what markets have you identified to start your real estate business? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

Identifying Your Neighborhoods

Many times you’ll find a market that fits your strategy, but the market’s not enough, you’ve got to find your neighborhood that assures the performance of your real estate business. For example, we’re in a market in New Jersey, the large surrounding towns are not where we’re acquiring properties, we’ve found “bread and butter” neighborhoods (very basic 3 bedroom, 2 bath houses, most of the neighborhood is owned by investors and all of the properties are either rented or leased. Additionally, we are in the Arizona and Nevada markets where specific neighborhoods are growing at a 16%-20% appreciation rate and the strategy is new development, spec homes. These are great for a new real estate business owner that wants to flip for cash. Again, the neighborhood within each market is critical to you obtaining your real estate objectives. Given the markets that you have identified, what are the specific neighborhoods in which you would begin your real estate business? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

Clarifying Your Buying Criteria

Once you’ve found your market and the neighborhood you’re buying in, you have to have a specific buying criteria so your Field Partners and acquisition team (real estate agents, brokers etc.) know how to bring you real estate that’s within your acquisition strategy. The mistake we see people making is that they’ll pick a strategy and market, not clarifying the neighborhood ... so your acquisition team is showing you everything and anything ... you’re being shown houses in the $100K, $200K range, multi-units in the million or three million dollar range ... which causes you to not buy anything. Your buying criteria ensures and supports you in your evaluation of every deal. What a buying criteria will do is assist you to buy real estate in a much more expedient manner.

Real Estate As Leverage

Get R.E.A.L. Inc. (Get “Real Estate As Leverage”), one of my investing company’s buying criteria is we buy .60 to .80 cents on the dollar, we buy in high rent neighborhoods - primarily blue collar workers, our cash flow for property averages $300. and our minimum down payment is $2,000. So, what that criteria enables us to do is inform our acquisition teams to only look for properties that meet that criteria and put us in neighborhoods where we can “buy right.” To continue to build your acquisition system, what will be your buying criteria? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________

Buying Right

Buying Right means to know and honor your criteria, manage your psychology and don’t get desperate to have to start the real estate business by not buying right ... there will always be another deal. The common error we see is that a person will build their vision, their strategy, they’ll find a Field Partner who has a great market in a great neighborhood to buy real estate in, they write down their criteria ... and then get to the negotiation stage ... and the price is just a little too high but they do the deal anyway. This causes complications because they can’t get it to cash flow because they broke their criteria. Another piece of buying right is making sure you’re financing right. We’ll talk about financing later in this program, but your strategy and your financing have got to be in line, or you won’t buy right. Based on the acquisition system you’re building, you have your Field Partner, your market, your neighborhood, your criteria ... what will it mean for you to buy right? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ 22

Real Estate As Leverage

The following is a very basic form that we’ve used for price determination to support you in your acquisition system. We believe in a principal called tracking and control. As you begin to look for real estate properties, keep documentation of all that you’re looking at, so you can do a comparative analysis. The other thing that tracking will do is allow you to see your growth as a real estate business owner and you’ll notice the evaluation of your properties will become much more sophisticated over time. Date Address City

State

Owner

Phone

Agent

Phone

Zip

List Price $ Fire Sale Price $

(after fix up)

Closing costs for buyer on purchase $ Fix-up estimate $ Describe work to be done

Sales costs $ (includes advertising and other sales-related expenses; closing costs for seller) Desired profit $ From fire sale price, subtract closing costs for purchase, fix-up costs, sales costs and desired profit. That number is Price you’ll pay $

As you continue to evaluate properties, you will become more familiar in using an APOD or other property evaluation tools.

Real Estate As Leverage

Sample Annual Property Operating Data (APOD) Statement Any Investor 24 Anystreet, Anytown, Anystate, 11111 Single Family Purchase Price: $54,000.00 Market Value: $60,000.00 Financing Loan Type Loan Priority Principal Interest Rate Term (months) Payments/Year Payment: Annual Debt Service

New Loan ________________ lst Mortgage ________________ $40,000.00 ________________ 6.500% ________________ 360 ________________ 12 ________________ $252.83 ________________ $3,033.96 ________________

New Loan _____________ 3rd Mortgage _____________ $0,000.00 _____________ 0.000% _____________ 0 _____________ 12 _____________ $0.00 _____________ $0.00 _____________

Income

Expenses Accounting/Legal Advertising Reserves Association Fees Electricity Insurance Lawn Care Management Fees Payroll Pest Control Property/RE Taxes Repairs Secretarial Security Services Supplies Trash Removal Utilities Water/Sewer Miscellaneous

Monthly Expenses 24

New Loan ________________ 2nd Mortgage ________________ $0,000.00 ________________ 0.000% ________________ 0 ________________ 12 ________________ $0.00 ________________ $0.00 ________________

$1.00 ________________ $8.00 ________________ $0.00 ________________ $0.00 ________________ $0.00 ________________ $45.00 ________________ $55.00 ________________ $0.00 ________________ $0.00 ________________ $15.00 ________________ $75.00 ________________ $50.00 ________________ $0.00 ________________ $0.00 ________________ $0.00 ________________ $0.00 ________________ $20.00 ________________ $0.00 ________________ $0.00 ________________ $0.00 ________________ $269.00 ________________

Real Estate As Leverage

Monthly Rental Income Other Operating Income Interest Income Gross Monthly Income Vacancy Allowance Operating Income

$650.00 __________ $0.00 __________ $0.00 __________ $650.00 __________ $32.50 __________ $617.50 __________

Annual Operating Income

$7,410.00

(-) Annual Operating Expenses

$3,228.00

(-) Annual Debt Service

$3,033.96

(=) Cash Flow Before Taxes

$1,148.04

Building Your Real Estate Wealth Team/Leadership

The last component of your acquisition system is your real estate wealth team. It can be a very critical component of property acquisition and should be taken very seriously. In fact, it can either make or break your deal. We’ve been talking about your acquisition team—people on your acquisition team will include your real estate agent/broker, inspectors, CPA, attorney, title company, your mortgage lender and more. In fact, we’re dedicating a whole chapter to this topic later in the program. Real estate requires good leadership and communication skills to make sure your real estate program is done properly. Acquiring properties is actually the easy side of the equation; remarketing and selling properties, which is our next strategy to discuss is more involved. “Buying properties is the easiest part of the game; selling them and assuring your profit is where you must be creative.” Loral Langemeier

Real Estate As Leverage

For those of you who have already started your real estate business, which of the strategies you are using are working and which ones are not producing revenue. For those of you who have not started, you can use this form in the future. Profitable Strategies

Non-Profitable Strategies

In the space provided, list the strategies that are not working and outline the reasons you think theyâ&#x20AC;&#x2122;re not working. Additionally, list what needs to change for them to produce revenue. Strategy

Why Itâ&#x20AC;&#x2122;s Not Working

Real Estate As Leverage

Corrections Needed

Of the strategies you listed previously, make a decision as to whether these strategies can be reworked or whether or not you need to replace them with a new strategyâ&#x20AC;&#x201D;one that is revenue producing. Make a clear, concise commitment to which property acquisition strategies you are going to work on that align with your vision. _________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

__________________________________________________________________

Now bring your vision forward and commit it in the box below. As you continue to build your real estate business plan, use the model below and insert your various strategies.

Vision

Strategy #1

Strategy #2

Strategy #3

Real Estate As Leverage

Tactics Align and Drive The Strategies

In the model below, you can see how the vision cascades to the strategies that will, in turn, cascade to the tactics. Tactics are those actions that accomplish the strategy you have defined, ultimately supporting your alignment to your vision.

Visi

Stra

teg

Property Acquisition

Tact i

• Determine your criteria and communicate it to your team of agents and brokers • Determine your financing so it supports your strategy and criteria • Coordinate with your investor to get financials to the lender and money into escrow • Coordinate with your investor the entity structuring, contracts and agreements

Real Estate

Remarketing and Selling the Property • Place ads in local papers

• Develop your real estate program

• Develop relationships with mortgage brokers

• Creatively structure your deal

• Create first time Homebuyers class

• Develop joint venture agreement • Market to investors

• Develop Buyer Database, track leads with software • Multi-language radio advertisements • Signage on the property as you contract the property

• Coordinate with the title company for your close of the property

Investors and Field Partners

Real Estate As Leverage

• Confirm your tax strategies and exit plan • Develop communication process with the investors

On the prior page weâ&#x20AC;&#x2122;ve given you examples of what tactics you could use to start your property acquisition program. Using the space below, list the tactics you will do to support your property acquisition strategy. These tactics should be specific, measurable and have a specific result attached to them. __________________________________________________________________ __________________________________________________________________ _________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ _________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

Real Estate As Leverage

What are the 3 things I learned from this lesson:

1 2 3

ACTION

What 3 actions will I take as a result of this lesson and by when:

______________________________________________________

______________________________________________________ ______________________________________________________

To whom will I be accountable? ______________________________________________________

Creating Your Real Estate Management Action Plan

Chapter Two

Remarketing and Selling the Property â&#x20AC;&#x153;Buying properties is the easiest part of the game; selling them and assuring your profit is where you must be creative.â&#x20AC;?

Loral Langemeier

Real Estate As Leverage

Chapter Two

Remarketing and Selling the Property Remarketing and selling the property requires a couple of key skills ... marketing ... marketing and marketing. And if I’ve forgotten to tell you, you’ll be marketing! How you remarket or sell depends on the financial outcome of your strategy. If you’re using a buy and hold strategy for equity, it’s time to rent or lease out the property. If you’re using a cash strategy, it’s time to resell the property. If you’re using a cash flow strategy, it’s time to lease with an option to purchase or WRAP the property for long-term cash flow. Remarketing and selling the property begins as you’re acquiring the property. When you acquire a property, make sure the real estate contract allows you the option to start marketing the property during the escrow period. Whether you’re marketing to put in a tenant or marketing for a sale, you’ll use similar marketing strategies to get to the end goal. A big mistake that people make is they wait too long to market the property. In fact, most people don’t even think about marketing until they have contracted, financed, gone through escrow and closed the deal. And, then into their first month, it begins to occur to them that they need to either get their tenant or start marketing for the sale. In our opinion you should be doing it simultaneously during the escrow period and when you’re really good at it, you’ll be doing a double close. A double close is when you buy the property and close your transaction, then a few hours later you’re either renting it or selling it. That’s when you know your marketing system is absolutely working.

Great Remarketing is Future Pacing

Future pacing is the ability to look down the road 6 months, 12 months, 3 years, 5 years or longer and start leading your team now—to be able to get to that 6 month point prepared, on-target and in the black (profitable). If you look at your remarketing plan, what do you need to put in place now to future pace your business? Remember, you have to pace the work ... not do the work! Your job in the “DO” cycle is to make sure everyone else is doing their job. You absolutely have the option to lead the business as opposed to “do” the business, even if you’re at a point in your company where you’re heavily into the “do mode.”

A template that we recommend you start with, in this order is: a) What’s the end in mind? b) What are the strategies in place that are going to produce that end result? c) What are tactics needed to support the strategy? 32

Real Estate As Leverage

Don’t be surprised if future pacing takes a lot of concentrated effort. This is the most strategic work that a leader needs to do to move their business into profit. Your capacity will definitely increase throughout this process. And, as a leader you cannot communicate this process enough. In fact, as a leader, it’s your job to communicate and pace, as no one will do it as well as you ... and you have the most credibility. What areas of your business right now that you need to future pace? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ As you’re future pacing your strategies of property acquisition and remarketing, some of you may have decided that part of your acquisition strategy before marketing would include a rehab of a property. You’ll need to use future pacing, especially with rehab properties to ensure the property rehab comes in on time and on budget. The following are some rehab tips:

• The price of the properties that need repair can be discounted by the

• Know who you are rehabbing to

• Do not become emotionally attached to the investment property while

• Do only the repairs and renovations that match your strategy.

• Operate as your own general contractor and hire subcontractors to do

cost of the repairs which creates a larger profit opportunity.

a) an investor b) an owner occupant c) a renter or lease tenant as this will impact the amount of rehab you do. you are rehabbing.

the actual work.

“You lead it. You do not have do it.” Loral Langemeier

• Take before and after pictures of the rehab project. This will enhance your credibility with lenders and investors.

• You do not have to finish your rehab work before you sell it—if you get a good offer, take it.

Real Estate As Leverage

To future pace for profitability, you may want to find, fix and flip properties, here are some things to consider. Finding houses that are fixer uppers means finding good deals that have the buying criteria needed for a successful project. Your offer price is determined by using a formula that is based on your estimate of the After Repair Value (ARV). If you are applying your buying criteria correctly, and the seller accepts your offer, you have a good deal. As with all property acquisition, it is all really a numbers game. The numbers either create profit or they don’t. Below is one of the formulas most commonly used by those who specialize in the art of the quick flip: ARV X 68% - repairs - desired profit = your Maximum Allowable Offer (MAO) The above formula uses a 68% multiplier. By removing 32% of the value of the house, you are in effect building equity into the deal. As we mentioned previously, knowing who you’re going to rehab for (investor, owner/occupant, or renter/lease tenant) will determine the degree to which you rehab. Once you have inspected the property to estimate the repair costs, estimate your numbers to come up with your maximum allowable offer.

For example: ARV = $100,000 X 68% = $68,000 Repairs = $15000

$68,000 - $15,000 - $10,000 = $43,000 Maximum Allowable Offer

Your key issues to watch are keeping the work on schedule and on budget. Investors who don’t have a lot of cash on hand will typically finance fix it deals with “hard money.” These are loans that are designed specifically for distressed properties that need lots of work. The hard money loan covers acquisition and rehab costs. The terms are usually 90 to 180 days, at 15% interest and 5 points. This type of financing will add as much as 10% of the ARV to your overall costs, so scheduling and budgeting are of utmost importance. The work should be of comparable quality to the surrounding area. Buyers will notice if you cut corners by using cheap workmanship and materials. For maximum profit potential you need to balance between scheduling, budgeting and quality. It can take a while to develop a system. Starting with smaller houses will make it easier to control. It is important to know the quality level found in the neighborhood. Viewing other similar price range houses in the area will help you get a feel for the work needed.

Real Estate As Leverage

Now you have a house that is fixed and ready to sell. Start remarketing the house as soon as it looks good enough to show to prospective buyers. Some prefer to remarket only after the house is completely rehabbed. A unique characteristic of real estate is that Find, Fix and Flip are one strategy, and they are each a strategy and a form of business unto themselves. There are wholesalers who only focus on finding deals they can resell for cash. There are contractors who only work on rehabbing and building houses. And there are Realtors who only focus on selling houses. For those of you who are planning to find, fix and flip properties, what is your overall plan? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What are you first steps? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ As we mentioned earlier in the program Strategy 2 Remarketing and selling the properties will require an enormous amount of sales and remarketing skills. As we deepened your learning around Strategy #2, letâ&#x20AC;&#x2122;s focus on whoâ&#x20AC;&#x2122;s going to help you remarket and sell the properties. Whoâ&#x20AC;&#x2122;s going to help you remarket and sell the properties?

1. A performance based team remarketer

2. Field Partner

3. A Realtor

Real Estate As Leverage

1. A mortgage broker

2. Your tenants for referrals

3. Other

“The secret of a marketing plan is that it will enable you to see your ultimate goal with clarity, making minor setbacks and failures along the way unimportant. Just as important, a plan helps you communicate your vision to your employees, ad agencies and investors.” Jay Levinson and Seth Godin

These are a few of the team members that support our Field Partners across the country to make our profits. Each Field Partner is responsible for the acquisition and remarketing of a property. Typically the Field Partner will be the one on the team to acquire the properties and they will partner with a performance based remarketer. By that we mean, someone who is willing to work for compensation based on the performance of the property. Typically, we would give them a percentage of the down payment proportional to the time frame to which they can get someone in to occupy the property. The sooner they have someone occupy the property, the more they get and they’re incentivized for same day closings. Their performance bonus goes down if we get to 30 days and we have to pay the mortgage because there’s no tenant. The same principle applies in a residential rental or a multi-unit property. In the case of a rent model, we pay a lower bonus (typically less than the 10% standard) and they earn the rest of their fee on the performance of the occupancy of the property and many times will earn more than their original 10%, which keeps us in profit as business owners.

Remarketing and Sales System

As you acquire your properties and rehab them, you need to be remarketing for tenant prospects as you go into the contract. How do you market the property for a rental, a lease or a sale? Whether you’re marketing for a residential or commercial property, many of the following techniques will apply. Some techniques will be more useful in residential real estate and some techniques you’ll need to tailor to commercial real estate ... but the bottom line is to get your word out.

Real Estate As Leverage

There are several options for you to develop your remarketing system ... here are just a few. • Advertise in the newspaper • Fliers • Radio • Yard signage • Word of mouth • Mortgage brokers • Realtors • Check Cashing Stores • Divorce and bankruptcy attorneys • Credit repair classes • First time homebuyer classes

Advertise in the Newspaper

Go to the local Penny Saver, the Nichol, the Pacific Sun ... the greatest value for your dollar is to advertise in the inexpensive, small target area neighborhood newspapers. People who are renting or lease optioning, pay attention to their neighborhood news. Depending on the volume of real estate inventory you have, you probably only need to remarket on weekends—especially Sunday papers, but if you have a large volume of inventory, you’re going to want to run newspaper ads every day. The purpose of the ad is to get your phone to ring. In many of our Field Partner markets, we receive up to 40-60 calls per weekend of people wanting to rent or lease option our properties. Samples of the ads we run are: Make them like newspaper ads

Low Down Payment Easy Qualifying Bankruptcy is OK Call 888-555-1212

DESPERATE For Sale By Owner $1,500 Down Easy Qualifying Nice 3 bedroom $800 per month 888-555-1212

Minor Fixer Must Sell Now Only $1,800 down $700/month 888-555-1212

Fliers

Fliers are great to use for renting, lease option or for sale. Have them printed on fluorescent paper to distinguish them from the junk mail they might receive. Design your fliers to include the kind of properties you acquire, the ideal tenant or lease option prospect, a brief sentence about how you finance, minimum requirements for the program and contact information.

Real Estate As Leverage

Your job is to find a targeted list or neighborhood in which to distribute the fliers. Remember, earlier in the program we referred to neighborhoods being owner occupied or investor owned. So, flier the neighborhood where the house is, typically those people are renting anyway and may want to lease option your house or they work with someone who’s living in an apartment and would love to lease option your house. Other places to distribute fliers are local businesses that employ blue collar/union workers, a target list of lower to middle-income families ... what you’re looking for are people who have bad credit, cannot qualify for their own loan and essentially you’re going to be their landlord or their bank and supply them with sustainable housing. If you’re selling the property, again you want to target very specific buyers that would be appropriate for the neighborhood you’re purchasing. Don’t forget that investors are also a source for the sale. You may purchase a property and flip it to another investor for cash and let them deal with the long-term strategy of the property.

Radio

When you use radio advertising, always direct your clientele to a local phone number with a very detailed phone tree that talks about the various properties. For example thanks for calling Get REAL. If you’re calling about 403 Miller Street, press 1. If you’re calling about 2020 Taylor Street, press two. And when the person gets to the option of 403 Miller, give them the address of the property, ask them to drive by, and if they like ... to then come to the office to pick up qualifying papers and then go show them the property. DO NOT spend your time driving around a potential renter or lease option prospect or you will waste your entire day ... or your week. If they don’t have enough motivation to drive by the property themselves, they probably won’t have the motivation to pay you on time and you do not want them as a renter or a lease option client. Be sure to run your radio ads in multiple languages. We run ours in Spanish and English and be sure that you have someone who can answer the ads in any of the languages you run.

Yard Signage

Put up signs in and on the property. Use common signs and unique signs. The common signs say, For Sale By Owner, Easy Qualifying, Low Down and a phone number. The unique signs have the specifics about the property. For example, FSBO, $2000 down, $900/month, easy qualify, and phone number. Your signs should be made out of corrugated plastic and 4’ X 4’ - or as large as you want. They need to be seen by at least a block away.

Word of Mouth

Tell everyone you know. And because you’re in the business of real estate and everyone knows you’re in real estate ... be sure they know your criteria and your real

Real Estate As Leverage

estate strategy. The people that will help you the most with word of mouth are your tenants and your current lease option customers. In fact, we incentivize our current tenants by giving them $50-$100 of their next month’s rent for referrals to our program.

Mortgage Brokers and Realtors

These are the two people who have access to all of the people who are not qualifying for properties and clearly want them. So, you take your fliers and you visit, in person, to mortgage broker and Realtor offices, meet them face to face and tell you about your real estate and if they happen to know of anyone who fits the profile, would they please pass the flier on.

Check Cashing Stores

Most of the people who have poor credit typically don’t have a bank account and they need to go to check cashing stores to cash their paychecks. So, put your fliers in the check cashing stores with the owner’s approval.

Divorce and Bankruptcy Attorneys

People who end up in bankruptcy or divorce, typically end up in a bad situation where their house is being sold, and in bankruptcy they could be losing their home and these people need places to live. Clearly with a bankruptcy, their credit will be impacted which qualifies these people for a rent or a lease option program. With divorce, one of the parties typically needs a place to live short-term. So, again, take your fliers and meet face to face with these attorneys, explain your real estate program and ask if they would be willing to pass out your flier when they come across a potential prospect.

Credit Repair Classes and First Time Homebuyer Classes

Potential tenants and lease option prospects will, if they’re serious about owning a home someday, attend one of these two classes. Either a credit repair class to increase their current score, or a first time homebuyer class to learn the techniques of first time home buying. These are great places to advertise your real estate program. You can let them know what they’re doing so they can either rent or lease option from you and once their credit is cleaned up, you can introduce them to someone who will help them qualify for a mortgage. In the New Homebuyer Classes, you can even pass out a new home survey. What this entails is you discovering what the participants in the class want (i.e. one bedroom, two bedroom, three bedroom, which neighborhood) ... and go find it and remarket to them. The goal of all of the above remarketing efforts is to get the phone to ring and to start collecting a database of all potential tenants or lease option prospects or buyers. In a future section of the program, we’ll talk about the systems required to manage the database. When the phone rings ... let it go to your sophisticated phone tree. Have the

Real Estate As Leverage

person leave their name and phone numbers at the end of every option. Your job is to call each person and either prompt them to visit the property or host an open house and let them know that the open house is coming up on the next Sunday. When you’re talking to your prospects, be very clear, be very direct ... remember the only two things your prospects care about is how much it costs per month and is there a down payment required. Don’t talk about the price or the interest rate if you’re lease optioning for sale.

Now that you have your prospect ... We’ve just provided you with multiple steps for your remarketing and property sale system. Now that you have a prospect, let’s complete the transaction. One option is for you to do an open house to further qualify your prospect.

Hosting Your Open House, Qualifying Your Tenant and Contracting the Deal

If you’ve just acquired the property and completed the basics of “powder and paint,” depending on the condition of the property, we would encourage you to do no further fix up —just broom clean and mow the lawn. Create a huge sense of urgency by letting the person know that there are only 4 houses to look at today and there are 12 people bidding on those houses. Be sure that you inform them to bring a cashier’s check with a minimum amount and that the first person who sign’s the contract and gives you the cashier’s check will get the house. You will create an incredible buying frenzy. Once someone has contracted the house, you now need to qualify them by taking their application (a template of this will be provided in the Appendix). Once you have their application, confirm their employment. You want to be sure they’re employed, so you get paid. You could additionally do a criminal check and a credit check. There are several online services that will do these types of credit and criminal checks for a nominal fee. Once you have your prospect qualified, you need to complete the contracts and the paperwork. If you’re renting, use a basic rental agreement that has been approved by an attorney in the state you’re renting. If you’re lease optioning, provide two contracts, one is a lease contract - again, approved by an attorney in the state in which the property is held and the second is an option to purchase contract. These must be two different contracts. In the Appendix, you’ll see examples of each.

Real Estate As Leverage

Be sure when you contract with the person that you never let them move in before you close the property and own it yourself. You have to close and have ownership of the property before people move in. It sounds rather obvious, but when your remarketing plan is such that you’re closing and selling within such close proximity ... you can run into this situation. This applies to whether your prospect is renting or leasing with an option to own. Let’s get started designing your marketing plan. No matter what your strategy for your real estate is, you’ve got to begin marketing sooner than later. In the space provided, list the components of your current remarketing plan? Then, beside each item you list, state how well it’s working for you or if it isn’t working. Even if you don’t think you have a plan, list the things that you would do to obtain a prospect. Marketing Activity _____________________________________

How Well is it Working? ________________________________

_____________________________________

________________________________

_____________________________________

________________________________

_____________________________________

________________________________

_____________________________________

________________________________

_____________________________________

________________________________

_____________________________________

________________________________

_____________________________________

________________________________

_____________________________________

________________________________

We’ve provided an overview of how to acquire and remarket properties. These activities will happen simultaneously and you will need to be building revenue models to ensure your real estate business is profitable. Revenue modeling is your new best friend. Most of our clients initially avoid this process and continue to make mistakes in their acquisition. For example, one of our real estate programs offers a 13% preferred return to the investor. Our strategy is a national lease option program and in all of our markets 13% preferred return works, based on our revenue model (and results). Yet, another real estate program that we’ve just started in the southeast will be a rent model and can’t substantiate the 13% return. In fact, because of the rent market there, we’ll provide a 10% preferred return. Just because you hear of a program working in one part of the country in a certain market or a certain neighborhood, doesn’t mean it will work where you’re buying real estate. You have to revenue model to ensure your success. Many economic variables will impact your revenue models, so with every piece of property, revenue model, revenue model, revenue model to ensure your profitability.

Real Estate As Leverage

Revenue Modeling

Revenue modeling has two components: 1. The determination of a base line (where your business is financially). 2. Forecasting projected revenue (tied specifically to your strategies).

Revenue drives your business and will decide your future results! As harsh as that may seem, it’s the absolute bottom line. The purpose of business is to make a profit and if you’re not doing that, you’re not running a business. Let’s take each of the components of the revenue model and provide further detail.

Financial Baseline

To determine your financial baseline (where your business is financially at this moment), you need to produce a profit and loss (P&L) statement and a balance sheet. A Profit and Loss (P&L) is a monthly statement that, in detail, outlines all of the income and expenses within your company. The second financial statement you need to produce is a balance sheet. It holds all of the assets and liabilities of your company. On the financial worksheet provided, list, in detail, all the money that comes in under the income column and, if possible, tie each to a strategy. On the expense column, list all of the expenses and, if possible, tie that into a particular strategy. For those of you who are just starting a business, you may be running the expenses and income out of your personal account. Your first step is to open a business account and divide what’s personal and business in their appropriate accounts and list only those items that are actually business related. You need to have a true picture of what your business income and business expenses are. On the Business Balance sheet, list all of the assets that you own (office equipment, database, intellectual property, buildings, etc.), then list all of the liabilities—everything that you owe (full amount of credit card debit, credit line, mortgage on the building, etc).

Forecasting Projected Revenue

In order to complete this exercise thoroughly, you will have to go back and look at several months of financials to determine an accurate base. If you’re just beginning your real estate program then find a mentor or a business that you want to model and ask them for financial information to give you guidelines to build your first revenue projections. It’s important that you know exactly where your money is generated to determine which strategy is producing which percentage of your revenue. Visit www.wealthfoundation.com/LOL/forms.asp ... for electronic downloads of documents that will support you in building your revenue model.

Real Estate As Leverage

Business Profit and Loss Income Item

Total

Expense Amount

Item

Amount

Total

Real Estate As Leverage

Business Balance Sheet Assets Item

Liabilities Amount

Total

Total 44

Item

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Amount

Financial Forecast Trust Personal

Business

Real Estate, LLC

Personal

Business

Real Estate, LLC

Total

Income

Gross Income

Expenses

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Total

Revenue Modeling

The Revenue Modeling Worksheet shows the trends of your revenue sources and where you need to grow or strengthen the business. Use the Revenue Modeling Worksheet on a monthly basis to make business decisions and provide you with specific revenue goals that need to be met in order to implement your strategies. On the Revenue Modeling Worksheets that follow, list each strategy and the ways those strategies produce income, what income they have produced (if any) and what the next year of projections are. Ideally, you would want to do this on in excel spreadsheet. The following is an excerpt from Napoleon Hill’s classic, Think and Grow Rich, which clearly emphasizes the need for precision and clarity as far as finances are concerned.

Six Ways To Turn Desires Into Gold

“The method by which desire for riches can be transmuted into its financial equivalent, consists of six definite, practical steps, via:

First

Fix in your mind on the exact amount of money you desire. It is not sufficient merely to say, “I want plenty of money.” Be definite as to the amount.

Second

Determine exactly what you intend to give in return for the money you desire.

Third

Establish a definite date when you intend to possess the money you desire.

Fourth

Create a definite plan for carrying out your desire, and begin at once, whether you are ready or not, to put this plan into action.

Fifth

Write out a clear, concise statement of the amount of money you intend to acquire, name the time limit for its acquisition, state what you intend to give in return for the money, and describe clearly the plan through which you intend to accumulate it.

Sixth

Read your written statement aloud, twice daily, once just before retiring at night, and once after arising in the morning. As you read—see and feel and believe yourself already in possession of the money.”

Real Estate As Leverage

Napoleon Hill

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Strategy Forecast

Actual

January Forecast

Actual

February

Revenue Model Forecast

March Actual

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Strategy Forecast

April Actual Forecast

May

Revenue Model Actual Forecast

June Actual

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Strategy Forecast

July Actual Forecast

Actual

August

Revenue Model Forecast

Actual

September

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Strategy Forecast

Actual

October Forecast

Actual

November

Revenue Model Forecast

Actual

December

As you build your forecast, itâ&#x20AC;&#x2122;s now time to determine what information you need to give your Field Partners to ensure your revenue targets are met. For example, if you are going to double your revenue within a specific strategy, what do you need to do to accomplish that new revenue goal. In the space provided, create action plans that will align your Field Partners with the revenue you expect to make.

Strategy

Whatâ&#x20AC;&#x2122;s Needed

By Whom

When

We suggest that you keep this revenue modeling as your monthly tracking sheet and customize it, so it really tracks the key activities of your business. For example, real estate companies can track their marketing campaigns to the number of responses they receive, to the number of phone calls it takes to remarket a property, and can tell you the dollar figure it takes to generate new revenue. We encourage you to engage your bookkeeper in this revenue modeling activity. Many of our clients invite their bookkeepers to participate in their coaching calls to ensure that their bookkeeper is tracking their business to the appropriate strategies. The following is an example of a revenue model.

Real Estate As Leverage

February Projected Qty. Sold

Projected Cash flow

Actual Qty. Sold

Actual $ Produced

Arkansas Georgia New Jersey Pennsylvania

3 5 9 8

$300 $300 $400 $400

4 3 12 7

$458.85 $499.50 $799.60 $1,365.00

Total

$9,200

$9,700

Revenue Stream

did not meet my projections met my projections exceeded my projections

Once you have confirmed your revenue model works, which indicates the type and amount of real estate you’re going to purchase per month and the pace at which you’re going to purchase, you need to, in detail, prepare your remarketing plan. Your remarketing and sales database has to keep up with the number of transactions you’re bringing into your real estate program. You don’t want to get out of balance by having too many properties and having too many buyers and tenants or vice versa. The following is a marketing calendar that we use to future pace our real estate programs.

Real Estate As Leverage

Marketing Plan Refer back to your yearly revenue model that you created in the Revenue Modeling lesson, and create a Marketing Plan for the next 12 months.

Month January

Activity ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

February

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Marketing Plan Activity

Month March

April

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Marketing Plan Month May

June

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Marketing Plan Activity

Month July

August

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Marketing Plan Month

Activity

September

October

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Marketing Plan Month

Activity

November

December

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What are the 3 things I learned from this lesson:

1 2 3

ACTION

What 3 actions will I take as a result of this lesson and by when:

______________________________________________________

______________________________________________________ ______________________________________________________

To whom will I be accountable? ______________________________________________________

Real Estate As Leverage

Chapter Three

Investors and Field Partners

Real Estate As Leverage

Chapter Three

Investors and Field Partners A rich, irreplaceable lifetime of wealth-building experience is available to you. This segment offers you the corner stone to begin building sustainable wealth for the rest of your life â&#x20AC;&#x201D; yes, for the rest of your life. Only 1% of the wealthy know the REAL secrets to success. This segment is about revealing those secrets and more so that you can accelerate your journey to become truly wealthy.

What is Wealth?

Wealth, according to most traditional studies, is having an annual income of $120,000 or so, owning a quarter-million dollar home, and an additional half-million in savings and investments. For some of you that is a great goal ... for others, you may want more, a lot more. Wealth, according to our definition is accelerating your asset base and those assets, invested well, giving you passive income so your money is working for you instead of you working for your money. Whatâ&#x20AC;&#x2122;s your definition of wealth? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ What is your net worth? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ What is your passive income per month? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________

Real Estate As Leverage

When you are wealthy, living your financial freedom day life—what will be a typical day/week/month? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ When you’re living a life of financial freedom, who will you need to be? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Your Wealth Acceleration begins largely in Building a Wealth Cycle Foundation ... where you decide what type of investor you will be and in which areas you will invest. Again, a wealth cycle is where you produce income, pay yourself first into your asset column, then invest those assets into cash-producing assets.

Income Pay yourself a percentage of your income ...

Wealth Account Into your Wealth Account, which ...

Assets Gets invested into your assets

As you begin to make your plan for building wealth, you need to determine what kind of investor you are. In this next section we’re going to explore active and passive investors and clarify distinctions of the kind of investor you are and the kind of investors you want to attract for your real estate business. 62

Real Estate As Leverage

Are you an Active or Passive Investor?

What kind of investor are you? This is a decision that most people rarely, consciously, make ... but realize that by not making a conscious decision, it will happen by default. We need to explore whether you want to be active or passive in your investments, as this will dictate how you will participate in a certain strategy. It’s important to realize that avoiding this decision sets you up to be prey for all of the people who need investor money (i.e. insurance, stocks, bonds, etc.). If you haven’t decided whether you’re going to be active or passive, then you clearly haven’t decided what your investing strategies would be. This leaves you reacting to opportunities rather than pro-actively driving your investing strategies.

Active Controls Vs. Passive Controls

Things to consider when making this decision: • How much time and energy do you want to commit? • Do you enjoy the process of investing in your particular niche? • Are you willing to experience the learning curve? • How much control are you willing to give someone else if you don’t have the time? • How much control do you want to keep yourself if you don’t understand it? • How much responsibility are you going to take for your results? What other considerations do you need to make for yourself? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

__________________________________________________________________

There’s no right or wrong decision ... but, if wealth is your goal, you just need to decide on which strategy works for you and drive that strategy accordingly. It’s important to note that, if you want to personally take on any one of these investing niches as an active investor, there’s a serious learning curve in each area.

Real Estate As Leverage

Specifically, there’s a learning curve in each of the real estate strategies that you will be taking on. This is not to deter you—you just need to be realistic about your undertaking. This is why we encourage investing to be a team sport. Partner with people who know what they’re doing (i.e. a Field Partner) and share the learning curve (i.e. become a part of an investing group where you invest on your own—but are learning together as a team). So, how do you decide?

Active Day trade Real Estate—Find properties and work with an active team Actively run a business Analyze private placement memorandums (PPMs)

Passive Give your money to a broker and let them trade for you Contribute to 401K / Pension Plan Give your money to a real estate Field Partner—let them manage the asset Invest in a partnership but you have a silent role.

Investing For Wealth

What is an investment strategy? Many people have thought of investing as a onetime transaction or a process that someone else like a financial planner, CPA, banker, mate, parents, etc. should manage. This is YOUR role. Your number one job in accumulation of wealth is to CONFIDENTIALLY LEAD YOUR WEALTH PLAN. As you consider being a passive or active investor and/or working with passive and active investors, your job is to lead your team. Successful investing is about learning, experience, duration, diversification and leadership. In an investment strategy, diversification means that you buy many investments, rather than just one or two. Sounds simple enough, so why is the implementation of this process so difficult? I would say because of your LACK of learning, experience, duration, diversification and leadership. The best laid investing plans are destroyed by some of the worst psychology. As you’re determining your investing strategy, you will start to develop criteria for investing (i.e. how much time do you want to allocate toward your investments, how active do you want to be in the decision making and management of your investments, what is your expected rate of returns). Many people refer to this criteria as your money rules.

Real Estate As Leverage

What are some money rules that you have now? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

__________________________________________________________________ What money rules are you committed to honoring from this point forward? __________________________________________________________________

__________________________________________________________________ __________________________________________________________________

Diversification is about asset allocation. Most successful investors have a wide variety of asset classes, and then select a number of investments within each of those classes. As we discussed previously, there are multiple strategies for investing in real estate. Listed below are additional investments that you may be considering.

• • • •

Cash & Cash Equivalents Bonds Stocks Real Estate

Residential long-term holds, residential short-term, commercial,

multi-unit, land development and more.

• • • • •

International Securities Precious Metals Natural Resources Commodities Collectibles

Following is a chart where we want to introduce the concept of control with the concept of diversification. Let’s review that chart for a moment.

Real Estate As Leverage

YOU

As you decide on the diversification of your real estate assets, it is important to consider levels of activity and control. The more of your portfolio you have in the inner circle, the higher degree of active investor status you must maintainâ&#x20AC;&#x201D;the further out on the target your asset allocation strategy is, the less you are active in the processâ&#x20AC;&#x201D;and have less control. We encourage a diverse blend of asset allocation and the highest amount of controls on the whole portfolio. To do this YOU MUST 66

Real Estate As Leverage

LEAD YOUR WEALTH TEAM. We will be talking more about leadership and wealth team management further into the program. As mentioned previously, the use of other people’s money (OPM) and the use of Field Partners has been one of the most strategic processes we have ever put together. The benefits of using investors and Field Partners are ACCELERATION OF YOUR WEALTH LEVERAGE OF YOUR WEALTH AND VELOCITY OF YOUR INVESTMENT PLAN. Most people consider OPM a bank, a lender, a hard money lender. The distinction we want to make about OPM is that it’s other people’s private money (your doctor friend, your dentist friend, your retired neighbor who has a large 401K) ... this is what we consider OPM. Real Estate businesses have grown and investment deals are put together all the time with the use of OPM and other people’s credit (OPC). This is how you leverage opportunities to diversify and accelerate your wealth. Most investors who offer you their money and credit are considered passive investors. Passive investors have money and an interest in real estate and either don’t have the time to find properties or don’t want to spend the time managing the business. Traditional real estate businesses and investments have been structured in syndications, limited partnerships and others. We’re going to introduce you to a nontraditional way of putting real estate investments together such that each party in the deal stays “whole” and is completely legal. By that we mean, all the individuals get to exercise their 1031 exchange (tax deferred exchange by which a person can carry forward the gains of one property into the next property without any tax implication) and additionally move forward into other investments with new team members. This supports the ultimate goal of wealth building. The benefit to this method is that each individual gets to take full advantage of the benefits offered through investing in real estate. Whereas in a syndication or a Limited Partnership, only the entity has the benefit of the 1031 exchange privilege. The investor can still make a lot of money but the individual investor within the syndication or limited partnership will get taxed on their capital gains vs. carrying or deferring the tax to another property. Following is a chart of traditional and what we consider non-traditional deal structuring. We’re not discouraging the use of traditional partnerships, and we want to introduce you to an alternate way of structuring your partnerships and inform you of the distinctions so that you know the impact on the investor and you can articulate these distinctions as you market your real estate program.

Real Estate As Leverage

Traditional Syndication/Limited Partnerships

• •

Non-Traditional Limited Liability Companies

General Partner

X% Investor(s) LLC

Limited Partners includes multiple investors)

X% Field Partners LLC

Limited Partnership

Limited Liability Company

1 entity structure Multiple investors brought together by a Private Placement Memorandum (PPM)

•

Investors receive a preferred return or a return based on the percentage of their dollars invested.

•

Investor does not qualify for the 1031 exchange

• •

Multiple Entity Structures

The investor and field partners are brought together by an operating agreement

•

Investors receive a preferred return or a return based on the per centage of their dollars invested.

•

Investor in most cases gets the full real estate depreciation brought through to their personal tax return and the investor does qualify for the 1031 exchange

In the diagram above, you will see that we have a Field Partner and an investor. The Field Partner is the active investor who’s “in the streets” acquiring and remarketing the properties. The investor in the example above is passive, providing money and possibly credit. In several of our companies, there’s a third partner who is the “deal creator.” For example, how I got started in real estate is that I partnered 3 factors. I partnered experience with money with someone in the field and over time I’ve become that experience for other teams and now my role in many of my real estate transactions is to find extraordinary Field Partners and put them together with passive investors who all have the same real estate investment criteria. The leverage and the diversity of this type of investing accelerates your wealth through increased equity and cash flow. The question that always arises is: how do you find good Field Partners? In the earlier part of the program we talked about how you find the properties, the markets and the neighborhoods. We would suggest finding a Field Partner first—one who knows real estate, knows their market, knows the neighborhoods, has proven results 68

Real Estate As Leverage

and someone who enhances your ability to get into the real estate business. In fact, I believe if you look for the market and the neighborhood on your own first, without a Field Partner, it could take you 3-6 months to get into the market, whereas, if you find a Field Partner who’s in the market, knows how to acquire and is in the market, your lag time could be as short as one month. What you’re looking for in a Field Partner is someone with local proven experience. You find them on the Internet, many real estate programs have discussion boards you can access to meet other investors, real estate investment associations, network ... remember the six degrees of separation ... and you have to live out loud about what you want or you’ll never get it ... especially in this model of real estate. Once you find a Field Partner, you will want to do a strategic interview (which we’ll show you later), you’ll want referrals of people that they’ve worked with and you’ll want to see financials on current real estate to assure you they know how to buy and remarket real estate in that market. Many of you may be thinking these people are real estate agents - not necessarily. Field Partners are typically entrepreneurs who know how to run a local market and love the business of active real estate and what they’re missing in their program is money and that’s where you come in and both of your needs are met and accelerated. Who are investors you might know interested in investing in real estate? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ ____________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Who are the Field Partners you may know? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

Real Estate As Leverage

So how do you put a Field Partner and an investor together? For many of you starting, you may be one of these parties—the Field Partner who has time and is willing to locate the real estate or you may be the money partner who wants to take a passive role. As you think about where you can get investor dollars, think very creatively. Investor dollars extends beyond being just cash in the investor’s pocket. OPM can also be anyone you know who has an IRA that’s not currently active in their job. This includes SEP, a ROTH, a 401K and more. All of these qualified plans can be self directed through a legal custodian and used as OPM for your creative real estate deal. For more information about this method of OPM, please email loral@ wealthfoundation.com or call 800-248-3320 for a free assessment. There will be some real estate transactions that are going to be best suited for accredited investors (i.e. they make $200K or are worth $1million) and other deals where non-accredited investors (i.e. friends and family) would be more suitable. As you’re putting your real estate deals together, please keep all of these considerations in mind, consult your coach, your mentor, your attorney and stay within Security Exchange Commission (SEC) guidelines. Another component of putting the investor, the Field Partner and the whole deal together is how you/re going to finance the deal (which is an entire program unto itself). For example, if you’re doing a short-term hold on a real estate transaction, interest only financing could be a good option. If you want to hold this real estate in a long-term position, you’re probably going to want to look at 15 or 30 year financing especially in a low interest environment. To ensure your strategies work, you’ll need to run the financial numbers with the current interest environment and a much higher interest environment. For example, today’s interest environment is only 5-6% and will your real estate transactions still be viable in a 9-10% environment. Be careful how you finance today given your long-term goals, so you don’t get in a financial mess in 3-5 years. On the following page is a graphical description of 4 companies, how they operate and how the deal was creatively put together. There will be more on this in the next chapter.

Real Estate As Leverage

Company

Market

Type of Program

Investment Return

Company 1

Operates in 3 states, various neighborhoods

National lease option program

Investor is paid a 13% preferred return and 50% equity.

Company 2

Operates in 1 state

Buy, Hold and Rent in a soon to be expanding area

Investor is paid a 10% preferred return or a percentage of the performance of the property, depending upon negotiation.

Company 3

Operates in mid-west

Multi-Unit purchases

Investor is only putting in cash, no credit and is paid on the performance of the property and will own an equity share.

Company 4

Operates only in accelerated markets

Purchases new spec homes

Investor purchases a long-term rental or flips for fast cash.

What you notice in the above examples is that every company has a different program. THE NUMBER ONE REASON WHY MOST PEOPLE ARE NOT ATTRACTING FIELD PARTNERS OR INVESTORS IS THAT THEY DON’T KNOW HOW TO STRUCTURE THE DEAL ... because they don’t have a program. If you think back to when we talked about acquiring and remarketing properties, I was adamant that you have to have a strategy to buy real estate. So when you have a strategy and clear program people know how to participate with you. What doesn’t work is when you say, “Hey do you want to buy some real estate - just give me your money.” Interesting concept, but it’s too vague. It doesn’t tell the investor what they get, doesn’t tell the Field Partner what they get, are we buying long or short-term, .. . there aren’t enough specifics to get involved. So, what’s important if you decide to use this process, is to define a very clear program that you could present. Before we move on to the next section, let’s link some concepts together. Why I believe this is a highly strategic process is that you’re linking passive investors who want to buy real estate with active field partners and you’re diversifying your assets, your risk and your controls into a variety of markets and investing strategies. So, if one market in one area of the country has a decline but you own real estate in areas that are having expansion and you own more real estate in areas that are just starting to absorb, you mitigate your risk and your overall asset plan continues to perform.

Real Estate As Leverage

What are the 3 things I learned from this lesson:

1 2 3

ACTION

What 3 actions will I take as a result of this lesson and by when:

______________________________________________________

______________________________________________________ ______________________________________________________

To whom will I be accountable? ______________________________________________________

Real Estate As Leverage

Chapter Four

Creative Deal Structuring “Creative people are uneasy about the status quo; they live on the edge of their competence. They place themselves in situations where they don’t know what is going to happen. They accept confusion, uncertainty, and the higher risks of failure, as part of the process”

David Perkins

Real Estate As Leverage

Chapter Four

Creative Deal Structuring To this point, we’ve talked about the primary 3 strategies of building your real estate business.

1. How to acquire the property

2. How to remarket or sell the property

3. The Use of Investors and Field Partners

Now it’s time to start putting these pieces all together. What you’ll notice is that real estate is a business with a lot of moving parts, it’s not linear or sequential. Many of these activities are going to be happening at the same time and is what’s required to bring the deal to close. As you’re starting to form the relationship between the Investor and the Field Partners and begin looking at putting real estate deals together in general, you want to start to put the most creative deal together possible. Creatively structuring the deal means you’re using all resources possible, the right entity structure, the right contracts and the best financing to ensure you execute on your strategy. Before we get too far into this conversation, let’s talk first about what the distinctions of entities are and what contracts you may need to complete the deal. Then we will look at how to put it all together.

Entity Structuring

Protecting your wealth and your real estate assets is very important and done through proper entity structuring. We are very aggressive in working with real estate businesses and investors about this conversation of entity structuring. What most people don’t understand is that real estate, unlike other assets, has a higher degree of liability because you typically have another person involved (i.e. renting from you, leasing from you, etc.). If something happened to this person on your property, they could sue you, which puts all of your other assets as risk. What entity structuring provides is the following: 1. Asset Protection 2. Protecting Yourself from Unnecessary Liabilities 3. The Use of Privacy for Protection 4. Maximizing Tax Strategies

Real Estate As Leverage

The goal of proper asset protection is to minimize your risk and to grow and sustain the asset base for generations. Our goal is that you have sustainable wealth. The charts following describe the various entities used in real estate transactions.

C Corporation

A C Corporation is a separate legal entity from the people who own it. It has a life of its own. It can own assets, incur liabilities, and provide goods and services to the general public. Every C Corporation starts out as a C Corporation and remains as such unless it makes a subchapterâ&#x20AC;&#x201D;an S election. C Corporations are often the first step in reducing taxes and protecting assets. They can additionally provide tax deductible expenses. C Corporations offer approximately 300 deductible expenses of which you can take advantage. If you want to take your company public, you will need a C Corporation structure to do that. The C Corporation additionally offers the benefit of having a fiscal year end either 3/31, 6/30, 9/30, or 12/31.

S Corporation

S Corporation: As we said previously, an S Corporation, starts out as a C Corporation. It is then converted by a simple filing of form 2553. By making this election, you are choosing to have the corporationâ&#x20AC;&#x2122;s income treated like the income of a partnership or sole proprietorship. The income is passed through to the shareholders of the corporation. S Corporations have approximately 75 allowable expense deductions. They can be used as part of a multi-corporation strategy and for newer businesses. S Corporations can flow this loss through to the individual which reduces their personal income, while losses to C Corporations do not pass through to the individual.

Trusts

Trusts are powerful in two ways. First, they take the property outside of the reach of creditors. Secondly, they take the property outside the reach of beneficiaries with insatiable financial appetites. So, if you want to give a loved one a gift, and especially the benefit of the income it generates, but you are unsure of their ability to properly manage it, a trust may be the solution.

Real Estate As Leverage

Limited Partnership

Family Limited Partnership

Limited Liability Company (LLC)

A Limited Partnership has two aspects to its structure: one or more General Partners and one or more Limited Partners. Generally speaking, Limited Partners share in the profits of the partnership but are shielded from its liabilities. They have no say in the management of the partnership’s activities. In most Limited Partnerships, the Limited Partners are passive investors. The General Partner has the benefits and responsibilities of actively managing the Limited Partnership’s activities. In exchange for this, the General Partner also has unlimited financial and legal responsibility for the losses or liabilities of the Limited Partnership. A great way to protect the General Partner against this unlimited liability is by making the General Partner a corporation. Limited Partnerships are often used to hold real estate and other investments, where the parties involved don’t wish to be on equal footing. In other words, they work well when the investors want to remain passive and they desire to have someone else (i.e. the General Partner) manage the partnership’s activities. Simply put, Family Limited Partnerships are limited partnerships where the large majority of participants are family members. They follow the same basic rules and enjoy the benefits of a regular Limited Partnership. They are powerful for asset protection purposes and they are a great estate-planning tool. Limited Liability Companies are a newer type of entity, but they have now been around long enough to be time tested. It is a separate entity for asset protection purposes. If sued, only the assets of the LLC are at risk. The participants in an LLC are called Members, and unlike a Limited Partnership which is designed for the participants to be treated differently, an LLC’s members are all on equal footing. This gives all members an opportunity to actively participate in the LLC’s activities. It is a great vehicle in which to hold real estate and other investments.

Real Estate As Leverage

As previously described, traditional real estate transactions were held in limited partnerships. In our process of using investors and Field Partners, we primarily use Limited Liability Companies (LLC). The LLC tends to have the most flexibility, and transferability allowing very creative deals to be structured. Depending on your strategy, S Corporations are used for management companies, while the LLC holds the title of the property. The 3 diagrams that follow provide examples of how some companies are structured and how the real estate titles are held.

D i a g r a m 1

S Corporation

50% Field Partner

Management Company

50% Deal Creator

Contracts the Management Company (using a Management Contract) LLC holds title to the Residential Real Estate

50% to OPM/OPC Investor

Investor LLC

25% - Field Partner (FP)

FP’s LLC DC’s LLC

25% - Deal Creator (DC)

The property LLC is held in direct proportion of ownership within each of the party’s individual LLCs. The property LLC has an operating agreement that outlines the structure of the deal, the agreements and the exit strategy. The operating agreement also assigns management to the S Corporation management company.

Real Estate As Leverage

D i a g r a m 2

50% Field Partner C Corporation

S Corporation Management Company

Property #2 LLC Holding Title

Property #1 LLC Holding Title 50% Investor, LLC 25% Field Partner, LLC 25% Deal Creator, LLC

50% Deal Creator C Corporation

Property #3 LLC Holding Title

50% Investor, LLC 30% Field Partner, LLC 20% Deal Creator, LLC

20% Investor, LLC (Equity) 50% Cash Flow to Investor 40% Field Partner, LLC 40% Deal Creator, LLC

D i a g r a m

S Corporation Management Company

Property #1 Multi Unit LLC Holding Title 25% Investor, LLC 25% Investor, LLC 25% Deal Creator, LLC 25% Investor Manager, LLC (This friends and family team is staying together for the 1031 exchange.) 78

Real Estate As Leverage

DC’s C Corporation

Property #2 Multi-Unit LLC Holding Title 30% Investor, LLC 30% Investor, LLC 40% Deal Creator and Manager, LLC (This team has a Tenancy In Common Agreement.)

The property LLC is held in direct proportion of ownership within each of the party’s individual LLCs. The property LLC has an operating agreement or a Tenancy In Common Agreement that outlines the structure of the deal, the agreements and the exit strategy. The operating agreement also assigns management to the S Corporation management company. The S Corporation then additionally assigns management to the DC’s C Corporations. The diagrams on the previous pages outline some very creative deal structuring and what keeps each individual whole is the way the deal has been conctracted and how each of those contracts outlines exact agreements, roles, responsibilities, performance requirements and exit strategies. Before we give you a list of contracts necessary for real estate transactions, we’ll give you one very creative strategy that includes all 3 financial goals of equity, cash and cash flow. Although this is a small deal, we want you to understand the concept. A Field Partner purchased a single family house for $13,000, then put $5,000 in rehabbing the property. The short-term investor/deal creator purchased outright for cash at $18,000. Then, the deal creator brought a long-term investor who had money and credit and we sold the house to the long-term investor for $30,000. The investor/deal creator and the Field Partner shared the $12,000 gain. The long-term investor financed the property on a 30 year fixed note, then the Field Partner leaseoptioned the property on a 3-year lease at a purchase price of $38,000. The monthly cash flow in this property will average $300/month and be shared between the Field Partner, the deal creator and the investor. This deal yielded a $12,000 cash payout, a long-term equity position and a monthly cash flow. To continue this strategy and create wealth, it will clearly need to be a volume game - purchasing multiple properties and at some point, these same principles will be applied in a land development or multi-unit deal. Depending on the amount of money you have to begin your real estate business and how you use your resources will ultimately determine the scope of the deals you begin with ... and grow into. Our encouragement on any level is to structure your deals creatively.

Real Estate Contracts

Later in this program we’re going to talk about your wealth team and how necessary a real estate attorney is to be part of that team. The reason we do such creative deals and at such a consistent rate is that we have great attorneys who design specific contracts. Following is a list of contracts (just to name a few) that are required for you to put creative real estate transactions together. A few of these contracts are offered as templates in the appendix area of this program. You will need to consult your attorney for any agreements/contracts not listed.

Real Estate As Leverage

• • • • • • • • • • • • • • • •

Purchase Sale Contract Lease Option Contract Rental Agreements Letter of Intent Non-Disclosure / Non-Compete Operating Agreement Management Agreements Shareholders Agreements Unanimous Consent Agreements By-Laws for Shareholders Tenancy In Common Agreements Non-Solicitation Agreement Subscription Agreement Private Placement Memorandum (PPM) Power of Attorney (POA) Promissory Notes

When you’re creatively structuring deals, you have multiple considerations for you and your investors. As noted previously the entity structuring and the contracting of the real estate deal is imperative, you need to work with your attorney to ensure that all Security Exchange Commission (SEC) guidelines are being followed. This includes inappropriate pooling of investor dollars without the right structure or contracts. You and your attorney need to take into consideration dealer vs. investor status for the strategy of your real estate. A very basic guideline is that if you are flipping properties in less than a 12-month period, you could be considered a dealer depending on the number of deals you’ve done and how you’ve structured them. Typically, for dealer status entities, we would use a LLC taxed as a C Corporation. Our preference and intention is to stay an investor, not a dealer, in most circumstances. If you’re new to real estate and are unaware of the distinctions between the investor and dealer status, please consult your attorney and tax strategist. Your strategy, the law and tax implications many times are not clearly laid out lines ... I always say, when legal, strategy and tax meet, they may not align. This is where your wealth team members, CPA and attorney are on the same phone call to determine the best solution. You describe the transaction you want to do and use their legal and tax expertise to assist in creatively structuring your deals. If you’re interested in coaching/mentoring on how we creatively put deals together, you can call for a free strategy session at 800-248-3320 or email me at loral@wealthfoundation.com. 80

Real Estate As Leverage

Let’s spend a little bit of time on tax strategies and how discuss how real estate deals done creatively keep money in your pocket and real estate deals done without any tax planning could put you in the red.

Maximizing Tax Strategies There are two tax systems in the United States: a) the tax structure for employees b) the tax structure for businesses Employees get taxed on what they earn and that money is taken out of their paycheck before they even get their check to spend what’s left. The corporate structure allows you to earn money, incur appropriate business deductions, then you’re taxed on what’s left.

2 Tax System Earn

Earn

Tax

Spend

Tax

The vision, the intent and the strategies that you have clarified for your real estate business will help a corporate/tax strategist determine which entity is best for you. Which entity you choose will determine which tax benefits and strategies you can enact.

Real Estate As Leverage

Our observation has been that most new business owners and investors are paying expenses as personal deductions and not taking advantage of their full business deductions. The following is a list of typical business deductions that you can take advantage of to minimize your tax burden:

• • • • • • • • •

rent (office or home office deduction)

phone

meals

computer equipment

office supplies

• • • • •

utilities

• • •

legal fees

entertainment automobile insurance gas

hiring family members to work in the business travel

accounting/bookkeeping fees

gifts

staff education

Consult with your CPA or tax strategist to ensure you’re getting the maximum in deductions or hire a Wealth Foundation Coach. Call 800-248-3320 for a FREE Incorporation and Tax Strategy Call. In the space below, list those deductions you have not been taking full advantage of, that you will start to take from this point forward.

Real Estate As Leverage

The key to maximizing tax strategies and maintaining the appropriate protection of your business is proper documentation. This includes documentation of your accounting records. These 5 specific things are required if you wish to be able to deduct an item as a tax deduction: 1. 2. 3. 4. 5.

Cost of item Date of purchase Description of the nature of the purchase The business purpose of the purchase The business relationship of the purchase (i.e. going to dinner with a client, new customer)

Based on the information you have learned in this lesson, what are some of the action steps that you will take to protect your business? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ As we discussed earlier in the program, having a financial baseline of where you are personally and a baseline of where your business is - is one of the first steps to starting your real estate business and your wealth plan. Once you have your baseline, we require all of our clients to do what we call a Financial Forecast. This ensures you have taken advantage of the maximum tax strategies allowed and reinforces new habits to spend legal business deductions vs. the continued overuse of your personal account. The diagram that follows is a sample of a financial forecast. We have also included a blank for you to use as your own financial forecast.

Real Estate As Leverage

Financial Forecast Trust Personal

ABC S Corp

Income

223 LLC

Rental Income Happy Ave. Glad Blvd. Excited Crt.

$ 500.00 $ 750.00 $ 800.00

total $ 500.00 $ 750.00 $ 800.00

John’s Net

$2,500.00

$ 2,500.00

Joan’s Net

$2,700.00

$ 2,700.00

Business Revenue

$2,800.00

Gross Income

$5,200.00

$2,800

$2,050.00

$10,050.00

EXPENSES Home Mortgage Home Office Home Assoc. Fees LLC Mortgage (PITI) Utilities Water Sewage Electricity Auto Expenses LLC Car Joan’s Car LLCs Ins. Joan’s Ins. Plates Gas Parking Education

$ 600.00 $ 125.00

Totals

$1,065.11

$ 2,800.00

$ 600.00 $ 800.00 $150.00

$ $ $ $

57.40 36.50 48.21 25.00

67.00

50.00

$ 468.00 $

98.00

$ $

82.00 28.00

$450.00 $ 58.00 $ $

6.00 50.00 $ 49.95 $707.95

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$1,476.00

$ 125.00 $ 800.00 $ 150.00 $ 57.40 $ 36.50 $ 48.21 $ 25.00 $ 468.00 $ 165.00 $ 450.00 $ 50.00 $ 140.00 $ 34.00 $ 50.00 $ 49.95 $3,249.06

Insert your financial forecast information below. What are your observations?

Trust total

Personal Income

Gross Income EXPENSES

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Our suggestion would be to put these forms into financial spreadsheets and use them as a wealth-planning tool. Most of our clients use their forecast on a regular basis with their tax strategist to make sure they’re maximizing their tax benefits. If you would like templates of these forms online, please visit www.wealthfoundation. com/LOL/forms.asp To summarize, we have gone through the process of how to build a real estate business from property acquisitions to remarketing and selling the properties to the use of investors and Field Partners, how to creatively partner investors and Field Partners, and in this section, how to create the entities, contracts, other legal considerations and maximize tax strategies. As you know, each of these components could have been a program on their own. Our intent was to give distinctions of what we would consider traditional “old-school” real estate vs. non-traditional creative ways to structure deals. And to offer you a process that we use regularly to create sustainable wealth. Our goal for you is that you use real estate as one of your primary wealth building tools. Now that you have the real estate and the deal creatively structured, what’s between you and profitability of this property is ongoing management ... ongoing leadership.

Real Estate As Leverage

What are the 3 things I learned from this lesson:

1 2 3

ACTION

What 3 actions will I take as a result of this lesson and by when:

______________________________________________________

______________________________________________________ ______________________________________________________

To whom will I be accountable? ______________________________________________________

Real Estate As Leverage

Chapter Five

Sustainable Real Estate Management

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Chapter Five

Sustainable Real Estate Management The profitability of your real estate business depends on the sustainability of your management system. Good management begins by doing good investing. The earlier portions of this program are critical to setting up sustainable management, which is why we have spent so much time on the property acquisition, remarketing and teaching you to invest well. Creating an effective management system will require your leadership. There are many areas of real estate management that we will be discussing in this segment of the program.

Property Management

As you begin to do property management, we would encourage you to make property management a profit center within your business. As we showed in the earlier diagrams, the S Corporations were the management companies. It is from these companies that you will manage the properties that you hold long-term. Property Management includes and is not limited to the following:

• Setting up an Accurate Set of Books • Overseeing the Bookkeeper • Managing any Contractors for rehab or repair • Ongoing Remarketing • Collections • Evictions and/or Foreclosures • Regular Reporting and Communications to the rest of the Team • Managing the Systems used to run the Business

Setting up an Accurate Set of Books & Overseeing the Bookkeeper

This is one of the most overlooked aspects of Real Estate Property Management. What we notice is that if you have bad money habits, those money habits will transfer to your real estate business. Your money habits have got to be efficient, accurate and detailed. As you bring more and more people into your organization and investment dollars, the more and more critical this step becomes. PLEASE, hire a bookkeeper who has real estate experience. It is important that your bookkeeper understand your entity structure and the financial goals of your real estate program. We have both local and virtual bookkeepers for our real estate companies - let me share some tips on how to manage either a local or a virtual bookkeeper:

• Determine which accounting software you will use.

We recommend Quickbook Pro because it has the capacity to manage by class, multiple

Real Estate As Leverage

properties to the profit and loss level. Additionally, Quickbooks can be accessed online by multiple users which streamlines your communication and reporting process

• Establish a chart of accounts with your bookkeeper. • Set up a standard process for booking the real estate into the accounting

system, how your closing documents and amortization schedules are booked will determine the accuracy of your reporting

• Have agreements with your partners on your spending forecast • Establish procedures for check authority, expense reporting, coding and

investor statements

You will need an entire system to manage the accounting of your real estate. The above tips are just to get you started. Once you have multiple properties, the assignment of each property to the S Corporation management company streamlines your set of books; you’ll only need to run one set of books for multiple properties. As long as you’re booking each property independently and can track the profit and loss & balance sheet for each property. Schedule a process for paying all mortgage payments on time. NOTHING will halt you real estate business faster than missing a payment for a passive investor. For those of you who are just getting started, we offer free consultations because we realize this piece is critical to get set up properly. To know more about the consultation, please email loral@wealthfoundation.com or call 800-248-3320 and we will refer you to a specialist.

Managing any Contractors for Rehab or Repair

Ideally, your Field Partner would be acting as the general contractor and managing the subcontractors. Whether you hire a general contractor or do it yourself, you need to screen all subcontractors carefully and completely, get written bids, do background checks, contract references and hold them accountable for pricing and timelines. Your contracts should clearly outline the work to be done, breakdown material and labor separately, include a waiver of liability, specify the payment schedule and stipulate all changes must be in writing and signed by all parties.

Ongoing Remarketing

Remarketing and selling the property was heavily addressed in the second strategy. One thing to be aware of when you’re personally managing the property is that there’s management and there’s marketing. Management of the property is maintenance of the property and marketing of the property to make sure the property stays at 100% occupancy (or within 5%). If you’ve decided to outsource the property management beyond your Field Partner, we recommend you negotiate off of the 10% traditional fee that is charged and pay a lower fee by giving incentive for the maintenance and the occupancy rate of the property. The balance of the compensation is earned through a performance based program. 90

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Collections

Collections will vary depending on the kind of property you’re managing. In a multi-unit property, you would either have an on-site manager or a lock box for tenants to drop their rent checks. If you have a residential property whether it is a rental or a lease option, collections still remain an issue. Either have a location with a lock box that they can deliver their payment to or easy office access for them to drop off their payments. Don’t ever give tenants your personal address; if need be, contract with a local title company or real estate company so your checks can be dropped off there. Verify the payments immediately and assess late charges immediately. Never vary from this procedure. Send late letters and file for an eviction regardless of their story. Start the process of eviction just in case they don’t pay and if they do pay, you can always cancel it. In this step, you teach people how to treat you and the minute you let one tenant slide, you’ve set a precedent.

Evictions and/or Foreclosures

As stated above, be sure you’re diligent with the tenants who are late and if they miss the final late payment date, file for an eviction and in the case of a WRAP, file for foreclosure. You have to run your real estate business like a business; you’re in business to make a profit. You will need to find, in your local communities, an eviction/foreclosure attorney.

Regular Reporting and Communications to the Rest of the Team

Reporting and communications to the team, if you are the one who structured the deal, this is one of your most important jobs. We tend to pay our investors quarterly so our reporting and communication is quarterly to our passive team players. For the active team players, we meet a minimum of once a week (i.e. Field Partner or deal creator). Those weekly agendas consist of receiving updates on the property status, updates on rent rolls, discussing any investor, tax or legal issues. We would encourage any policies, communications, resolutions to be in writing and ensure someone is taking minutes of your meetings.

Managing the Systems Used to Run the Business

In the words of Michael Gerber, you’re either working in your business or on your business. As you manage your property, the investors, Field Partners, etc. you’re going to need to do some of both. Working “on” your business would include the communications with your Field and investment teams, your CPA, your attorney and the strategy of your overall portfolio. Working “in” your business supports the day to day tactics. Systems To Support The Tactics With your Strategies and Tactics defined, implementing operational systems are critical to the automation of your business. Systems are a foundation to ensure that the strategies and tactics do occur through proper structure. Systems support and ensure that the person responsible for specific actions does them consistently

Real Estate As Leverage

and repeatedly to enhance the quality assurance of the business. Enhancements in technology have improved our ability to create systems quickly and fairly inexpensively. 3 Accounting Systems Accounts Payable Accounts Receivable Bank Reconciliations inventory Cash flow management 3 Database Management Lead generation Lead tracking ACT, Gold Mine, Access - software systems that will lead track Lead communication & follow up The first step is to identify a list of all of the systems that need to be created in the business. Some examples include:

Marketing Systems Website content Direct mail Advertisements Networking Property Management System Property Boss is what most of our companies use. There are multiple options for property management software; youâ&#x20AC;&#x2122;ll want to shop around to ensure the system you decide to use will handle the capabilities you will need in your real estate business.

3 Information Technology Technical support Back up systems 3 Sales Systems and Scripts Sales process Communication / tracking Script revisions FAQâ&#x20AC;&#x2122;s Handling Objections 92

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To begin, identify the list of systems you think are required to run your real estate business. Start at a high level then begin to fill in the detail within each category. This is a process that takes time to develop. When systems are in place, consistency, quality and ease occurs in the business. __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

To assist you in achieving your strategies through property management, we’ll introduce you to a concept that all of our clients live and breathe by. It’s called Revenue Producing Activities. We know you’re busy, but if you’re not productive, you’re not producing financial results. The chart that follows is a structure to help you productively plan your week focused around only those revenue producing tactics that require your personal attention. Review the tactics you’ve defined and check off those tactics within each strategy that are the most critical to producing revenue for your business. Place them in the calendar below. Time cannot be managed; activities can. You will find that it’s just not possible to include every tactic that you’ve identified. That’s all right. Just list those tactics that are the most critical for you to do, as the owner of your business. Realize this will help you prioritize what you need to take care of immediately and also give you an idea of what activities you’re currently doing that take up your time, that you could delegate and hire somebody else to do.

Real Estate As Leverage

Actions Drive Revenue Monday

Tuesday

Wednesday

Thursday

7.00

8:00

9.00

10:00

11:00

12:00

Creating Your Real Estate Management Action Plan

Friday

Monday

Tuesday

Wednesday

Thursday

Friday

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1:00

2:00

3:00

4:00

5:00

6:00

7:00

ACCELERATING PROPERTY PROFITABILITY

The last area of sustainable management that we want address is accelerating the profitability of your properties. Several areas to accelerate the profitability of your property are: Rent Efficiency Many times when you take over a property, the landlord or manager before you was reluctant to raise the rent. Your rent should always be in line with the market and it’s always easy to raise the rent when you bring in a new tenant. Reduce Your Tax Assessment In many cases you can challenge the assessment in an effort to get your tax bill lowered. You have to do this directly with the tax assessor’s office. Add Laundry and Vending Machines if you Own a Multi-Unit Property If you own a multi-unit property install coin operating laundry with other vending machines. Your best option is to lease these from a leasing company - it reduces your maintenance cost. Provide Storage If there’s room on the property, install an aluminum shed and rent them to the tenants for extra fees. Install Car Ports or Garages Rent them to the tenants for extra fees. Provide a Regular Maintenance Schedule Delayed maintenance is very expensive. Pay attention to the small things before they become big things and do repairs as needed. Add Amenities to the Properties (swimming pools, hot tubs, etc). This justifies a rent increase. Good sustainable property management is good diligence and an investment in your property. With good systems, communication and reporting structures and daily activity management you will be assured profits and wealth creation.

Real Estate As Leverage

What are the 3 things I learned from this lesson:

1 2 3

ACTION

What 3 actions will I take as a result of this lesson and by when:

______________________________________________________

______________________________________________________ ______________________________________________________

To whom will I be accountable? ______________________________________________________

Real Estate As Leverage

Chapter Six

Leadership of Your Real EstateTeam “The task of the leader is to get his people from where they are to where they have not been.”

Real Estate As Leverage

Henry Kissinger

Chapter Six

Leadership of Your Real Estate Team

“Leadership is the capacity and will to rally men and women to a common purpose and the character which inspires confidence.” Bernard Montgomery, British Field Marshall

Leadership of your real estate team is one of the most under-discussed areas of your real estate business. Make no mistake, you are the leader of your real estate business, whether you realize it or not. Your job as the leader is to inspire, motivate, hold and communicate the vision to all of those on your team. If you are a “one person shop” you have to do these things for yourself and for the team we encourage you to build! Previously we made reference to Michael Gerber, author of The E Myth, a fabulous book about systematizing your business. As the leader of your real estate business, you need to be clear about your team member’s roles. Some of the questions you should be asking yourself are: Who’s the team that’s going to support you to acquiring the properties? Who’s the team that’s going to help you sell and remarket the properties? Who is your Field Partner? Who are your investors? Who are your team of advisors/strategists? Each player on your team plays a very important and distinctive role. Leadership is not to be taken lightly. As the leader, you’ll be expected to communicate and create structure for this team to operate. As you think about identifying your team and who needs to be working “in” your business and “on” your business, begin to clarify the criteria of the team you choose to lead.

Real Estate As Leverage

Criteria for Your Wealth Team - individuals who are:

aEffective Communicators aCompetent aSelf driven/motivated aLoyal aIntegrity driven aBig vision holders aTeam Players aFocused aPassionate about their work aCreative thinkers who can close aCommitted to your vision the deal aResults-oriented aInvolved in "improvement training" aExcited aWilling to give 110% aPositive aDriven by high values aKnowledgeable of industry aTrustworthy aAble to listen before offering advice aAble to talk straight with compassion

What other important criteria do you feel would be helpful in selecting your real estate Team? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ As you lead your wealth, strategic interviewing will become a skillset very necessary to your success. It’s important that you learn the process of interviewing. The kind of interviewing we’re talking about is more a conversational style of interviewing rather than checking off a list of 10 or so questions. To do conversational interviewing, much like real estate, you have to begin with the outcome in mind. And, during the conversational interview, you’re evaluating whether they can meet the criteria and perform that role. Following is a list of questions that you would ask a variety of team members. Please review these as you will be asked to design your own interview later in this segment.

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Assistant • • • • • •

•

Are they a team player? What’s their experience? Are they passionate about your business? Are they intent about business growth? Do they have any experience in real estate? Will they keep an eye open for opportunities to expand your vision How do they feel about staying late to make sure a need is filled? How open are they to feedback?

Attorney • • • •

Property Manager • • •

•

Sales and Remarketing • •

• • •

Are they self-motivated? What’s their time frame and success rate of occupying properties? What contracting experience do they have? How well do they communicate? Can they achieve your revenue targets?

Do they handle Nevada C Corp. Structures? Can they work on a team? What is their vision? What is your experience in real estate law and contracts?

•

Are they self-motivated? Are they detail-oriented? How many years of experience do they have in real estate management? Tell me about a time when you had to evict a tenant? Tell me what your philosophies about management are. Tell me about your success rate in keeping properties occupied. What strategies do you use for property management?

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Accountant • •

•

• • • •

What are their moral views? Will they advise you on their vision and your vision? Do they work on a team already to give you the best advice? Can they work in a team? Do they handle corporate returns? What is their area of expertise? What do you know about real estate and tax strategies?

Computer Support • • • •

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How available are they? Can they maintain your web site? Do you know networking systems? Do you know back up systems?

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Bookkeeper • •

•

• •

Are they detail-oriented? How many of your clients are real estate businesses? You have limited needs now, but when your needs grow will they be available? What reports can they generate that will help you with business planning? What software systems are they proficient at? Have they worked with virtual teams and know how to support the processes?

Personal Coach/Mentor •

•

Are they interested in helping you build your business? What is their experience with real estate coaching/mentoring? What will they do to support your clients?

Design Your Interview

Below is a general list of questions that you could use to start interviewing your wealth team. Be aware that some of these questions are specific to specific members of your real estate wealth team ... a CPA, Attorney, Property Manager, Field Partner, Investor, etc. Please read through these carefully. You will have an opportunity to design your own interview at the end of this exercise.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

? ? ? ? ? ? ? ? ? ? ? ?

What is the approximate net worth of your five most affluent clients? In which tax bracket are most of your clients?

Do you like to be creative in new tax strategies? Are you familiar with new laws? Are you a team player?

Do you have a prosperity consciousness? Are you a good listener?

Do you understand my vision? Are you self-directed?

What five books have you read lately? What is your area of expertise?

What is your reputation in the industry?

What is your experience with real estate management? Do you see yourself as highly structured?

Once we've agreed on the direction, are you committed to achieving results? Is your preference to lead or follow within the organization? Are you comfortable with decision-making by consensus?

What three accomplishments are you most proud of and why? Looking at my company, how do you feel you would "fit" and why? What are your beliefs as far as interacting with a team? Do you have a problem with being "a little" dishonest? What do you consider your best assets?

Do you have the ability to inspire others? What is your net worth?

Can you provide references?

Can you provide me with referrals?

What is your economic outlook and why?

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? ? ? ?

What percentage of your business is real estate corporate returns? How many corporations have you filed? Who are your advisors/mentors?

What have you learned lately and what is your plan for learning more?

? In what type of return/tax strategies does your area of expertise reside and what is the average size of return? ? What is your financial vision? What is your financial plan and how is it working toward your vision? Is there any evidence you can show me?

? ? ? ?

What do you invest in and what is your track record?

? ? ? ? ? ? ?

Will you work with a team?

? ? ? ? ?

What is your experience with real estate contracts?

? ? ? ? ? ?

Myths: Do you believe results = $$ or time = $$?

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Whatâ&#x20AC;&#x2122;s your experience in acquiring and remarketing properties? How many times have you evicted or gone to foreclosure? Do you promote financial literacy; are you unwilling to communicate in specific detail when things are difficult? How are you affected by my success? How do you choose your clients?

What mistakes have you made and when was the last time you failed? Would you say $10,000.00 a day is unreasonable as profit? Whatâ&#x20AC;&#x2122;s your philosophy about real estate investing? Why do you recommend what you do and where do you get that information? Do you recommend incorporations?

How do you charge? What is your billing approach? What is your paradigm for wealth building?

What other growth and development or transformational work do you do? Are you afraid of big deals?

Do you have the ability to stick with it?

On a scale of 1-10: how determined are you? What's your personal turn around time?

What is your favorite book & what was the last book you read or are reading?

Real Estate As Leverage

Create Your Own Personalized Interview Questions

Based on the questions you have just reviewed, create your own interview questions and practice them with at least three people before you do them live? It seems easier than it is and you absolutely have to know your outcome. So, practice, practice, practice.

Interview #1

Position:

Interview #2

Position:

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105

Interview #3

Position:

Interview #4

Position:

interview #5

Position:

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Recognize that when you decide to lead a real estate team, you’ll be dealing with a lot of different personalities and their psychology. Each member on the team has a very clear vision for the results they want. Realize that the leadership we’re talking about is peer to peer leadership vs. peer to subordinate leadership ... and peer to peer leadership takes more leadership skills. Your job as the leader is to accelerate your leadership tool belt so you have the communication skills to work your team through issues that are going to arise . Whether you’re dealing with an investor, a Field Partner, a property manager ... it’s your responsibility to lead your team effectively. The chart below is what we call our RALT model. This diagram explains how our results are caused by our thinking.

Limiting Results

Expansive Results

Limiting Action

Decisive Action

Limiting Language

Limiting Thinking

R A L

Decisive Language

No-Limit Thinking

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107

We offer you this diagram to use as a tool as you lead your real estate business. Here are some effective ways to use the tool. During your interviewing, listen to the language and the responses of the person you’re interviewing, if their language tends to be negative/blaming (limited language), know that’s driven by limited thinking which will create limited action and limiting results will show up on your team. Your ability to recognize your own limiting language will help you during your interview process. What’s your limiting language? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ How does it impact your actions? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What is the expansive language that will replace your limiting language? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What are you desired actions? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ We encourage you to continue to work on the RALT model, your language and actions that impact your results and as you build your leadership tool belt, we ask you to evaluated the 5 C’s of leadership. 108

Real Estate As Leverage

The “5 C’s of Leadership” are:

1. 2. 3. 4. 5.

Character Capacity Credibility Courage Communication

Character

Your internal makeup; your personal DNA. To develop a stronger sense of character is to get to know yourself (assess, evaluate and correct).

Capacity

Your mental ability to conceive or perceive, internalize and lead a concept until it is expressed through your vision. The company’s results are your feedback.

Credibility

Your personal integrity; a mirror of your actions as opposed to your words.

Courage

The inner strength required to overcome obstacles and move you toward your vision.

Communication

The ability to transfer your vision into action.

Of these five qualities, on a scale of 1-10 with 1 being low, where are you in your leadership ability and what do you need to do to increase your capacity in all of these areas?

Character

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109

Capacity

Credibility

Courage

Communication

â&#x20AC;&#x153;Courage is fear that has said its prayers.â&#x20AC;?

110

Karl Barth, Swiss Theologian

Real Estate As Leverage

Based on the need to continually grow your leadership skills we invite you to consistently assess where you are in your leadership and your leadership effectiveness. To complete this segment of the program, complete the following exercises. What will you start doing? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What will you stop doing? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What will you continue doing? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

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111

Chapter Seven

The Action Plan “Ideas without action are worthless.”

112

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Harvey Mackay

Chapter Seven

The Action Plan Throughout the Real Estate As Leverage creative real estate management action program, weâ&#x20AC;&#x2122;ve asked you to get clear about what you want to create. In the space below, please begin an action plan defining your real estate business. Your vision __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What are your strategies that ensure your vision will be met? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What are the revenue producing activities/tactics that you need to do every day to produce the results you want? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

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What is your Revenue Model? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Based on the real estate strategy you have chosen, who needs to be on your team? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Who will be your Field Partners? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What are your first steps for property acquisition? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ How will you handle remarketing and/or selling of the property? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ How will you monitor the success of your remarketing and selling program?

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__________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Whatâ&#x20AC;&#x2122;s your plan for attracting investors? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What will you do to enhance your leadership? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Based on what you learned in the program, Real Estate As Leverage how will you creatively structure deals? ___________________________________________________________________ _________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What will you do to consistently monitor your leadership development?

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Integration and Action This program provides a template upon which to grow your wealth. We expect that you will use the information you have learned and gathered to catapult you and your business to its “fastest path to cash.” At the end of each module, space has been left for you to detail what you’ve learned and the action steps you have committed to take. I urge you to take action! This is key to your success. In the space provided, list both the things that you learned in the program and the action to which you have committed.

What I Learned __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

My Committed Actions __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ 116

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Are You Ready for Loral’s Big Table? How many of you are part of a large family - or spent time with one? Did you ever notice when you were younger at a family gathering that there was a “Big Table” for the adults during a meal and then a “Little Table” for all the children? Think about it, the adults sat around the main big table in the dining room where there were always more people than could fit, so the kids were asked to sit at the smaller table - often in another room. While you probably enjoyed the meal and the company of the little table, you still knew you were missing something special by not being at the big table. From out in the other room, you couldn’t hear the main conversation or all the juicy tidbits of information that the “grown-ups” were discussing. You felt like you were the last to know what was currently being passed around, last for seconds and clearly the last for dessert. Did you ever have a strong desire, something inside of you, causing you to say to yourself, of course, “I wish I could sit at the big table?” What did you do with that feeling? Did you go ask the adults if you could sit with them? Did you just get right up, go to the big table, pull up a chair and sit down? Like most of us, did you just sit there, quietly waiting to grow up and be invited to the big table?

CONSIDER THIS YOUR INVITATION! Loral Langemeier invites you to claim your seat at The Big Table. At Live Out Loud we have coached thousands of people who still live their behaviors day in and day out as if they live at a little table. We challenge you to stop asking permission to live your life at the Big Table. We challenge you to step up to Loral’s Big Table today! Gain the confidence, the clarity and the understanding of what it is like to design the life of wealth, creativity, passion and heart that you DESERVE. YES, YOU DESERVE! Claim your seat today. The program is limited to ONLY 40 people.

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The Big Table is a metaphor that rings true to every person who is currently selling themselves short on the life and wealth that is awaiting them. This is your invitation to Loralâ&#x20AC;&#x2122;s Big Table Mentoring & Coaching Program. Call 800-248-3320 or email apply@loralsbigtable.com

For more information on other products or services, please visit: www.wealthfoundation.com

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Chapter Eight

Appendix

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Chapter Eight

Appendix 1.

Personal Profit and Loss Statement

Personal Balance Sheet

Business Profit and Loss Statement

Business Balance Sheet

Financial Forecast

Revenue Model Forms

Lease Agreement

Property Assessment

Option to Purchase Agreement

10.

Sample Option Contract

11.

Promissory Note

12.

Rental Application

13.

Property Inspection Sheet

14.

Glossary

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Personal Profit and Loss Income Item

Expense Amount

Item

Amount

Earned

Passive

Tax

Portfolio

Total

Total Income - Expenses = $

Cash flow

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121

Personal Balance Sheet Assets Item

Liabilities Amount

Item

Total

Assets - Liabilities = $

122

Amount

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Net Worth

Business Profit and Loss Income Item

Expense Amount

Item

Amount

Earned

Passive

Tax

Portfolio

Total

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123

Business Balance Sheet Assets Item

Liabilities Amount

Item

Total

Assets - Liabilities = $

124

Amount

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Net Worth

Financial Forecast Trust Total

Personal INCOME

Gross Income EXPENSES

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125

126

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Strategy Forecast

Actual

January Forecast

Actual

February

Revenue Model

Forecast

March Actual

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Strategy Forecast

April Actual Forecast

Revenue Model May Actual Forecast

June Actual

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Strategy Forecast

July Actual Forecast

Actual

August

Revenue Model

Forecast

Actual

September

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Strategy Forecast

Actual

October Forecast

Actual

November

Revenue Model

Forecast

Actual

December

Lease Agreement THIS LEASE AGREEMENT made and entered into on this by and between (hereinafter described as “Lessor”) and (hereinafter described as “Lessee.”)

day of

, 200__,

WITNESS TO: That the Lessor, in consideration of the covenants and agreements hereinafter set forth, agrees to lease unto the Lessee, that certain real property known as: _____________________________________________________________________________ in the City of , County of _____________, State of , together with all buildings and improvements presently situated or hereafter placed thereon (hereinafter “Leased Premises”).

FOR GOOD AND VALUABLE CONSIDERATION, the parties hereto covenant and agree as follows: 1.

Term. The term of this lease agreement shall be for a period of one (1) year commencing on the __ day of ____________________, 200__ (“Anniversary Date”). This lease agreement can be automatically extended for additional one-year terms and may be terminated by the Lessee only upon thirty (30) days prior written notice being provided to the Lessor. The Lessor shall only have the right to terminate this lease agreement if the Lessee is in default under the terms hereof as further set forth in section 15 of this agreement. The Parties agree to automatically renew this agreement on each anniversary hereof until otherwise terminated, for additional one (1) year terms with written extensions of this lease agreement.

2. Possession. Lessee shall be entitled to possession of the property on the day of , 200 and may retain such possession as long as the lease is not in default under the terms of the agreement in accordance with state law. 3. Lease Payments. a. The sum of $ paid hereto as a security deposit, receipt of which is hereby acknowledged. This security deposit may be refundable under the provisions set forth in section 18 hereafter. b. The first lease payment of $ due the 200 , which is the payment for a partial month. 130

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day of

c. The lease payments in the amount of Dollars ($ ) shall be be made monthly with the first full payment due on the day of , 200 , and a like payment due on the day of each month thereafter, except the month of ________________, 200___, in which a partial payment will be made as set forth in section 2., b. d. Monthly lease payments will increase by 2.0% of the monthly lease payment on the Anniversary Date and the annual increase of the lease payment shall compound from year to year. The lease payments shall be made payable to the Lessor and shall be mailed or delivered to the Lessor at . All tenants, if more than one, shall be jointly and severally liable for the full amount of all payments due under this agreement.

4. Utilities. Lessee shall be responsible for any and all utility charges during the term of this agreement including, but not limited to, gas, electric, sewer and water, cable, telephone, and similar utility expenses, such payments shall be considered as additional rent. 5. Late Payments/Check Charges. In the event the Lessee’s monthly lease payments are not received by the fifth day following the due date, the Lessee agrees to pay a late payment charge of 5% of the delinquent lease payment. If payment is still not received by the 10th day following the due date; an additional 5% late charge shall be due. The late payment charge is due and payable with the delinquent payment. All monies received shall first be applied to the oldest balance due. To constitute a payment being “received,” payment must be delivered to the Lessor to the actual date due – not the postmark date. Lessee agrees to a service charge of $30.00 for any payment check dishonored by a bank (for any reason). In addition, the Lessee agrees to make lease payments for the six (6) months following the execution of this agreement with certified funds only. The late charge shall be in addition to Lessee’s lease payment, not a reduction thereof, and failure to pay any late charge shall be deemed to be a failure to pay the lease payment. All charges in this section, Section 5, shall be considered as additional rent. 6. Insurance. Lessee understands and agrees that the insurance coverage maintained by the Lessor is for the structure only. The Lessor has no responsibility to secure insurance for the Lessee regarding the property for any damages or liability to the Lessee experiences as result of any fire, casualty, liability or other loss. The Lessee also agrees to obtain individual renters or lessees insurance coverage for his/her personal contents and for liability protection.

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7. Risk of Loss and Damage. Lessee agrees that the property is at all times at Lessee’s risk and should said property or Lessee suffer any loss, damage or injury, Lessee agrees, notwithstanding, to purchase and pay the amounts due here under in full according with the terms hereof without right of offset or abatement. Any such charges shall be considered as additional rent. Lessee agrees to secure insurance to protect it from any and all fire, casualty, negligence, liability or other loss of its personal or other property, and person, and acknowledges that Lessor is not liable for any loss as a result of Lessee’s failure to secure such insurance, regardless of the cause of such loss or damage. 8. Maintenance, Waste, Liens. During the lease term as a condition of the Lessee’s continuing right to use and occupy the premises, Lessee agrees and promises, unless Lessor otherwise provides in writing, as follows: a. To use the premises for residential purposes only for Lessee and Lessee’s immediate family. b.

To not make or permit use of the premises for any unlawful purpose, and shall at all times, at Lessee’s own expense, maintain all building and improvements on such property in good condition and repair; to not use or keep in or about the premises anything that would adversely affect coverage of the premises under a standard fire or extended insurance policy; to not make excessive noise or engage in activities which unduly disturb neighbors; to obey and comply with all federal, state and/or city codes or ordinances; to keep the premises in clean and tenable condition and as good repair as on the first day of the lease term – normal wear and tear accepted.

To maintain a reasonable amount of heat in cold weather to prevent damage to the premises, and if damage results from Lessee’s failure to maintain a reasonable amount of heat, Lessee shall be liable for this damage. To keep such property free from mechanics and all other liens and hold harmless there from and reimburse Lessor in defending against any such liens.

Lessee’s failure to comply with these provisions shall be grounds for immediate termination by Lessor of this Lease, provided that Lessor shall provide to Lessee written notice of Lessee’s failure to comply and if Lessee fails to take steps necessary to correct the default within thirty (30) days of notice from Lessor, this Lease shall then terminate.

9. Improvements. Lessee shall not do or permit any renovation or remodeling on the leased premises without first obtaining written consent from the Lessor. In the event written permission is obtained, improvements must be completed by a contractor licensed to do business in the area where the property is located.

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10. Damage by Fire or Casualty. If the leased premises are damaged by fire or other casualty to such an extent that renders it untenantable, Lessee may move out, unless Lessor promptly proceeds to repair and rebuild. Lessee may move out if the repair work causes undue hardship. If Lessee remains, the lease payment shall abate to the extent Lessee is deprived of normal, full use of the premises, until the premises are restored. The Lessor shall in no way be obligated to rebuild or restore the leased premises. If repairs are not made, which determination shall be in the sole discretion of the Lessor, then in such event, this agreement shall terminate, and the Lessee is entitled to refund of the security deposit paid pursuant to section 1 of this agreement. 11. Landlord Rights to Enter. Landlord may enter the premises occupied by the Lessee at reasonable time, with twelve (12) hours advance notice, to inspect the premises and comply with applicable laws or regulations. Lessor may enter without advance notice when a health or safety emergency exists or if the Lessee is absent and Lessor believes entry is necessary to protect the premises or the building in which they are located from damage. 12. Negligence. Lessee agrees to be responsible for all acts of negligence or breaches of this agreement by Lessee and Lessee’s guests and invitees, and to be liable for any resulting property damage or injury, and Lessee shall be responsible for any destruction, damage, impairment, or removal of any part of the premises caused by an act or omission of the Lessee, or by any person, or animal, or pet on the premises at anytime, with the express or implied permission of the Lessee. 13. Due on Assignment or Sublease. Lessee agrees that they shall not assign this agreement nor sublet the premises or any part thereof without the prior written consent of the Lessor. If Lessor permits an assignment or sublease, such permission shall in no way relieve Lessee of Lessee’s liability under this agreement. 14. Lessor’s Right of Termination. If Lessee defaults in the payment of any lease payment due under the terms of this agreement, or defaults in any other obligation contained herein, or if such property or any part thereof is seized or levied upon or attempted to be seized or levied upon under any legal process issued against Lessee, or if a debtor’s relief proceeding or a bankruptcy, receivership, or insolvency shall be instituted or filed by or against Lessee, or if Lessee shall enter into any arrangement with creditors, such events will be, considered a breach of this Lease, which shall automatically terminate said lease agreement. 15. Remedies. It is understood and agreed between the parties that time is of the essence of this contract, and in case Lessee shall fail to make any of the lease payments above required, the Lessor may at its option terminate the Lessee’s right to possession after a three (3) day written notice by Lessor for nonpayment of the lease payment. If Lessee shall fail to keep any other agreement herein contained an upon notice being given as required by New Jersey law, then

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Lessor, at the Lessor’s option, shall have the following remedies, in addition to other legal rights and remedies, to-wit: a. To terminate this lease agreement. b. To institute an action or other proceeding for the enforcement of any payment of any delinquent lease payments or the performance of any other covenant or agreement herein contained. In the event of termination, all rights and interest created or then existing in favor of Lessee as against Lessor hereunder shall thereupon cease and all other rights acquired by Lessor hereunder shall revert to and revest in Lessor without any act of re-entry or any other act of Lessor to be performed, and without any right of Lessee of return, reclamation or claim for compensation for monies paid on account of the lease of said property, and such payments therefore made under this lease agreement, including but not limited to, all monthly lease payments made, are to be retained by and belong to Lessor as the agreed and liquidated damages, and Lessor, in the case of such termination, shall have the right immediately, or at any time thereafter, to take possession thereof, together with all improvements and appurtenances thereon or thereto belonging. The remedies afforded Lessor hereunder are cumulative and concurrent and shall be in addition to any other rights or remedies permitted by law or equity. Lessor or Lessor’s assigns shall have the right to enforce one or more remedies hereunder, successively or concurrently, and such action shall not operate or stop or prevent Lessor or Lessor’s assigns from pursuing any further or other remedy hereunder, or which is permitted by law or equity. In the event of the completion of eviction, Lessee agrees to surrender to Lessor, forthwith, peaceful possession of said property. 17. Non-Waiver of Performance. Lessee further agrees that any extension of t i m e or payment or the acceptance of a part thereof or failure of Lessor to enforce promptly any other provision of this lease agreement by Lessee, shall not be construed as a waiver on the part of Lessor of the strict performance of all of the conditions and agreements set forth herein, and Lessor may, nevertheless, without notice, enforce the performance of this agreement as herein provided, upon any breach by Lessee of any of the conditions and obligations set forth herein or upon failure to make prompt payment according to any extension granted. 18. I nspection, Inventory and Return of Security Deposit. Within five (5) days of the commencement date the Lessor or its representative and the Leasee shall jointly inventory the leased premises. Upon making the inventory a written report thereof detailing the condition of the premises and all furnishings or appliances provided by the Lessor shall be completed in duplicate, and one such duplicate Inventory record shall be attached to the Lessor’s copy of this

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lease agreement and the other duplicate inventory shall be furnished to the Leasee for attachment to the copy of the Lesseeâ&#x20AC;&#x2122;s lease agreement. Thereupon, the inventory record shall be a part of and incorporated into this agreement and the same shall be considered to have been prepared and signed as a part of the same transaction during which this agreement was executed. Upon expiration of this lease, the Lessor shall inspect the premises and if the condition of the property be damaged in any way (reasonable wear and tear excepted), then Lessor will notify Lessee in writing describing the damage and indicating its intention to keep the security deposit to repair the damages in its sole and absolute discretion.

19. Due on Assignment or Sublease. <WARNING>. This agreement contains non assignment provisions. The Lessee understands and agrees that it shall not sell, assign, sublease, lease, rent, transfer, or convey in any manner the premises leased, any part thereof, or any right or privilege connected therewith, in the property covered by this agreement or in this agreement itself voluntarily or involuntarily, by operation of law or otherwise, without the prior written consent of Lessor. 20. Defects. Lessee acknowledges they have been informed of the following know defects:

Lessorâ&#x20AC;&#x2122;s Initials

Lesseeâ&#x20AC;&#x2122;s Initials

21. Notices. Any notice which may be required by terms of this agreement shall be given in writing and forwarded by regular United States Mail to Lessor or Lessee at their current mailing address or at such other address or addresses as the parties may hereafter respectively designate. Both parties hereby agree to notify the other party immediately upon change of address or daytime telephone number. Lessor: Name: Phone #: Address: City: State Zip Lessor: Name: Phone #: Address: City: State Zip

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135

22. Construction. In constructing this agreement, it is understood that Lessor and/or Lessee may be more than one person and that where the contract so requires, the singular pronoun shall be taken to mean and include the plural, the masculine, the feminine and the neuter. 23. Severability. Each covenant, condition, and provision of this agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any covenant, condition or provision shall be held to be void or invalid, the same shall not affect the remainder hereof, which shall be effective as though the void or invalid covenant, condition, or provision had not been contained herein. 24. Governing Law. This agreement shall be construed according to the laws of the State of 25. Essence of Time. Time is of the essence in this agreement. 26. Entire Agreement. This agreement constitutes the entire agreement between the parties relating to the property. It supersedes any and all prior memoranda, earnest money agreements, and all other prior documents made by the parties in connection with the transaction described herein. Oral agreements and understandings of the parties, if any, respecting the subject matter of this agreement, have been integrated herein. 27. Addendum. If the property is a residential dwelling built prior to 1978, see the attached addendum for a disclosure of information and acknowledgment of lead-based paint and /or lead based hazards as required by regulation. 28. Binding Effect. This agreement shall be binding upon the heirs, executors, administrators, successors, and assigns of the respective parties thereto. 29. Comprehension of Document. Lessor has advised Lessee to have this agreement reviewed by legal counsel of their own choice. Lessee warrants and represents to Lessor that before execution this agreement, Lessee has fully reviewed the terms, contents, conditions, and effects with their legal counsel if any and that in executing this agreement, no promise or representation of any kind has been made to Lessee by Lessor or by anyone acting for Lessor except as expressly stated in this agreement. Lessee has relied solely upon Lesseeâ&#x20AC;&#x2122;s judgment after consulting with their legal counsel, if any. 30. Subordination Clause. Lease Agreement shall be subordinate to any mortgages on Leased Premises. 31. Attorney Fees. Any attorneyâ&#x20AC;&#x2122;s fees incurred by Lessor on behalf of Lessee for 136

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not fulfilling the obligations set for in this Agreement shall be considered as additional rent.

IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement on day and year first above written. (LESSEE)

Social Security Number

(LESSEE)

Social Security Number

(LESSOR) State of County of

) ) )

ss.

ACKNOWLEDGED AND SWORN TO ME THIS Notary Public

day of

, 200

My Commission Expires:

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137

Option to Purchase Real Estate Agreement THIS AGREEMENT made and entered into on this and between “Grantor”) and “Grantee.”)

day of , 200 by (hereinafter described as (hereinafter described as

WITNESS TO: That the Grantor, in consideration of the covenants and agreements hereinafter set forth, agrees to provide to the Grantee an option to purchase that certain real property known as: in the City of , County of , State of ,together with all buildings and improvements presently situated or hereafter placed thereon (hereinafter “Optioned Property”). FOR GOOD AND VALUABLE CONSIDERATION, the parties hereto covenant and agree as follows: 1.

Option to Purchase. For and in consideration of the payment of the Option Payment as set forth in section 2. Grantor does hereby grant to the Grantee an exclusive Option to Purchase the Optioned Property at any time after one year from the date of this agreement and prior to the day of , 20 ; provided however, in order to exercise the Option to Purchase, the Grantee must have made all rental payments required under the Lease Agreement executed contemporaneously herewith, and must otherwise be current under all terms of the Lease Agreement.

Option Payment. Grantee agrees to pays to Grantor upon the execution of this agreement the sum of $________________ as an option payment, the receipt of which is hereby acknowledged by the Grantor. This option payment may be non-refundable but shall be credited to the Purchase Price at the time the option is exercised.

Exercise of Option to Purchase. In the event the Grantee elects to exercise its Option to Purchase, then in such event Grantee shall provide to the Grantor written notice of its intent to exercise the Option to Purchase. In the event that Grantee delivers to Grantor a written notice of intent to exercise this purchase option and the Grantee then fails to close the transaction and purchase the property within sixty (60) days of its notice, then and in that event this Option to 138

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Purchase shall expire and shall be null and void and the Grantee shall have no future option to purchase the Option Property.

4. Purchase Price at Time of Exercise. The purchase price of the Option Property which the Grantee agrees to pay and Grantor agrees to accept shall be the total sum $_____________________. The purchase price shall be reset by the Grantor in its discretion, every ten (10) years from the date of this agreement and shall be evidenced by attaching an addendum to this agreement at that time. Grantor and Grantee specifically agree that the following payments shall be a credit towards the purchase price of the Property: a. The nonrefundable Option Payment described in section 2. shall be credited to the Grantee towards the purchase price at the time of closing. b. The Grantee shall be provided a credit, at the time of closing, in the amount of _________________________________and No/100 Dollars ($__________) for each timely, monthly rental payment paid by the Grantee during the term of the Lease Agreement for the payments made during the first five (5) years of the Lease Agreement; and ___________________________ and No/100 Dollars ($_____________) for each timely, monthly rental payment received in year (6) six through year (10) ten of the Lease Agreement. No monthly credit will be awarded for payments made according to the Lease Agreement for any period beyond year (10) ten of the Lease Agreement. c. The balance of the purchase price remaining due after the credits in subsections 4. a. and 4. b. above shall be paid in cash or other good and collected funds at closing. 5. Terms of Sale of Real Property. a. General Provisions. At the time of the closing of the Option to Purchase, the sale of the Real Property shall be as set forth in this section 5. b. Inspections and Condition of Property at Time of Purchase. IF THE OPTION TO PURCHASE IS EXERCISED, THE GRANTEE AGREES THAT THE PROPERTY IS TO BE SOLD IN AN ‘AS IS CONDITION.’ GRANTEE FURTHER UNDERSTANDS AND AGREES THAT THE GRANTOR DOES NOT WARRANT OR GUARANTEE THIS PROPERTY REGARDING ITS HABITABILITY OR FITNESS OR AGAINST ANY DEFECTS OF ANY KIND, WHETHER OPEN OR HIDDEN; NOW EXISTING OR LATER OCCURRING. GRANTEE FULLY UNDERSTANDS THAT THE GRANTOR HAS NO DUTY TO REFUND ANY OF the lease payments, 139

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OPTION MONEYS, OR PURCHASE PRICE ON ACCOUNT OF ANY SUCH DEFECTS NOR PAY FOR ANY REPAIRS. THE GRANTOR SHALL NOT BE BOUND BY ANY TERMS, CONDITIONS, STATEMENTS, OR REPRESENTATION ORAL OR WRITTEN, NOT CONTAINED IN THIS AGREEMENT, WHICH IS THE FINAL AND ENTIRE AGREEMENT. GRANTEE ACKNOWLEDGES THAT IT HAS BEEN GIVEN FULL OPPORTUNITY TO INSPECT THE PROPERTY INCLUDING ALL HEATING, AIR CONDITIONING, ELECTRICAL, MECHANICAL, PLUMBING AND ROOF SYSTEMS, AND BY INITIALING BELOW, HAS AGREED TO HOLD SELLER HARMLESS FOR THE CONDITION OF ANY AND ALL OF SUCH SYSTEMS. Grantee acknowledges it has been informed by Grantor of the following known defects: ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ Grantor Initials _______/________

Grantee Initials __________/_________

Delivery of Deed and Title Insurance. Grantor shall, within sixty (60) days after receipt of the written notice of Grantee’s intent to exercise said Option to Purchase, deliver to Grantee, at Grantee’s expense, a Commitment for Title Insurance prepared by a title insurance company of the Grantor’s choice. Defects in title, if any, shown by such title commitment, shall be remedied by the Grantor within (60) days after notice of any defects, and Grantor shall deliver to Grantee at the time of closing a Warranty Deed to the property. Grantor agrees to convey said property to the Grantee by Warranty Deed free and clear of all liens and encumbrances, except property taxes and assessments and such other standard exceptions for public utilities, restrictive covenants, easements, and the like, and shall pay for the issuance to the Grantee of an Owner’s Policy of Title Insurance based on the compliance with the terms and conditions of the title commitment.

Prorations. Grantor shall pay all general real estate taxes and all installments of special assessments attributable to the Property for the years prior to the calendar year of Closing. All such taxes, installments of special assessments becoming due, accruing or attributable to the calendar year of Closing and rents shall be prorated between Grantor and Grantee on the basis of such calendar year, as of the date of Closing. All deposits shall be transferred to Grantor at closing. If the amount of any tax or special assessment cannot be ascertained at Closing, proration shall be computed on the amount of the preceding year’s tax and special assessment, if any.

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Grantee shall assume and pay all such taxes and installments of special assessments accruing after the Closing.

Failure to Exercise Option to Purchase. If the Grantee shall, for any reason, fail to exercise this Option to Purchase and purchase the Option Property in the manner provided in this agreement, Grantor shall then retain the Option Payment paid to Grantee, as set forth in paragraph 2., and Grantee shall have no right a refund or to receive back any part of such Option Payment amount. Further, Grantee shall have no right to receive back any amount or credit for a lease payments received by the Grantor during the terms of the Lease Agreement.

Termination of Lease Agreement. In the event the Grantee breaches the Lease Agreement or vacates the premises and/or is removed from the premises according to the Lease Agreement or by law, then this Option to Purchase shall terminate and any rights that the Grantee may have had to purchase the Option Property shall expire and be null and void. Upon termination of the Lease Agreement for breach of any of its conditions and terms, the Grantee shall relinquish all rights, privileges, and financial consideration, including the option credits as set forth in above and appreciation in market value of the property, and all consideration or monies expended for improvements to the Option Property.

Sale of Option Property by Grantee. Should Grantee desire to sell the Option Property and receive written consent from the Grantor to do so, then the terms of the sale set forth in sections 1., 2., 3. and 4. of this agreement shall apply and Grantee shall be deemed to be exercising its Option to Purchase hereunder.

Income Tax Considerations.â&#x20AC;Ż Grantee acknowledges that for federal income tax purposes, this transaction shall not be considered a completed purchase and sale, with the result that Grantee will not be entitled to the related tax benefits until the Option to Purchase has been exercised. Until such exercise and closing of the sale, all tax benefits shall inure to the Grantor.

Notices. Any notice which may be required by terms of this agreement shall be given in writing and forwarded by regular United States Mail to Grantor or Grantee at their current mailing addresses or at such other address or addresses as the parties may hereafter respectively designate. Both parties hereby agree to notify the other party immediately upon change of address or daytime telephone number.

Grantor: Lessor:

Name: Phone #: Address: City: State Zip Name: Phone #: Address: City: State Zip

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141

Construction. In constructing this agreement, it is understood that Grantor and/or Grantee may be more than one person and that where the contract so requires, the singular pronoun shall be taken to mean and include the plural, the masculine, the feminine and the neuter.

10. Severability. Each covenant, condition, and provision of this agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any covenant, condition or provision shall be held to be void or invalid, the same shall not affect the remainder hereof, which shall be effective as though the void or invalid covenant, condition, or provision had not been contained herein. 11. Governing Law. This agreement shall be construed according to the laws of the State of . 12. Essence of Time. Time is of the essence in this agreement. 13. Entire Agreement. This agreement constitutes the entire agreement between the parties relating to the property. It supersedes any and all prior memoranda, earnest money agreements, and all other prior documents made by the parties in connection with the transaction described herein. Oral agreements and understandings of the parties, if any, respecting the subject matter of this agreement, have been integrated herein. 14. Addendum. If the property is a residential dwelling built prior to 1978, see the attached addendum for a disclosure of information and acknowledgment of lead-based paint and /or lead based hazards as required by regulation. 15. Binding Effect. This agreement shall be binding upon the heirs, executors, administrators, successors, and assigns of the respective parties thereto. 16. Comprehension of Document. Grantor has advised Grantee to have this agreement reviewed by legal counsel of their own choice. Grantee warrants and represents to Grantor that before execution this agreement, Grantee has fully reviewed the terms, contents, conditions, and effects with their legal counsel if any and that in executing this agreement, no promise or representation of any kind has been made to Grantee by Grantor or by anyone acting for Grantor except as expressly stated in this agreement. Grantee has relied solely upon Granteeâ&#x20AC;&#x2122;s judgment after consulting with their legal counsel, if any. IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement on day and year first above written. _____________________________________________________________________________ (GRANTEE) Social Security Number 142

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______________________________________________________________________________ (GRANTEE) Social Security Number ______________________________________________________________________________ (GRANTOR) State of ______________ ) ) ss. County of _____________ ) ACKNOWLEDGED AND SWORN TO ME THIS _________ day of ____________, 200___. ___________________________________ Notary Public

My Commission Expires:

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143

Property Assessment

Date Address City Â

State

Owner

Phone

Agent

Phone

Zip

List Price $ Fire Sale Price $

(after fix up)

Closing costs for buyer on purchase $ Fix-up estimate $ Describe work to be done ___________________________________________________________________________________ ___________________________________________________________________________________ ___________________________________________________________________________________ ___________________________________________________________________________________

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Option Contract This option contract is made this and

(date) by and between (Seller), whose address is (Buyer), whose address is

The Seller, for and in consideration of the sum of $ inhand and paid by the Buyer with other good and valuable consideration, hereby gives to the buyer the privilege of purchasing, on or before (date) the following described real estate: ______________________________________________________________________________ (address of property under option) The terms for said option shall be: Purchase price: $ Terms: ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ The Seller agrees to furnish title insurance showing good and marketable title to said real estate in case the privilege of purchase hereby given is exercised upon the terms above written, to convey said real estate to the Buyer by good and sufficient warranty deed, free and clear of all liens and encumbrances. In case the privilege of purchase hereby given is not exercised and conditions thereof full performed by the Buyer and written notice of such exercise and performance given to the Seller on or before (date), said privilege shall thereupon wholly cause, no liability to refund the money paid thereof shall arise, and said title insurance shall be redelivered to the Seller, and this instrument shall at once be delivered to the Seller for cancellation. The Contract shall be binding upon and shall inure to the benefit of the heirs, personal representatives, and assigns of all the parties hereto.

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Option Contract (contâ&#x20AC;&#x2122;d)

In witness whereof, the parties hereto have subscribed their names and affixed their seals the day and year above written.

Seller

Buyer I hereby certify that on this day, before me, an officer duly authorized by the Sate of

, and the County of

to take acknowledgments, personally appeared to me known to be the person described in and who executed the foregoing instrument and

that

acknowledge before me executed same.

Witness my hand and official seal in the County and State last aforesaid this

day of

Notary Public My commission expires:

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PROMISSORY NOTE For value received, the undersigned, Inc., (hereafter referred to as “Maker”) promises to pay to the order of, at joint tenants (hereinafter collectively referred to as “Holder”), at ____________________________________________, or such other address as the Holder may designate, the principal sum of $ USD, with interest on the unpaid principal computed from ____, 200___, at the rate of ( ) percent per annum, to be repaid as follows: Maker agrees to pay principal of $ with the then accrued interest on or before _____________________, and to make quarterly payments of interest on the principal amount beginning on the ____ day of _____________, 200___. There shall be no prepayment penalty for the principal amount of the debt, and Maker may prepay the then due principal and accrued interest, at any time. If Maker does not pay the principal or interest when due hereunder, the Holder may declare the total principal and interest for the year term, immediately due and payable. Failure to do so at any time shall not constitute a waiver of the right of the Holder hereof. Demand, protest and notice of nonpayment and dishonor of this debt is waived by the Maker hereof. Should Maker fail to make any payment hereunder when required, Holder shall be entitled to pursue Maker for such nonpayment and shall additionally be allowed the recovery all of it’s reasonable collection fees, including but not limited to it’s attorney’s fees, cost of litigation and all court costs. The terms of this Note and the collection hereof, shall be in governed in accordance with the laws of Nevada. Executed on this ______ day of _____________ 200___. By: ______________________________

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Rental Application Applying for Unit #

Address

Rent $ Name

SSN

Spouse

SSN

Present Address

Employer Position

Supervisor

How Long How Long

Phone

Address

Salary

Other income (source and amount) Spouseâ&#x20AC;&#x2122;s employer Position

Supervisor

How Long

Phone

Address

Salary

Other income (source and amount) Current Landlord Address

Phone

Previous Landlord Address

Phone

Previous Landlord Address

Phone

List children who will be occupying property? Name

Age

Name

Age

Name

Age

Name

Age

List anyone else who will be occupying property: Name

Relationship

Age

Name

Relationship

Age

Name

Relationship

Age

Name

Relationship

Age

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Application for Rental (contâ&#x20AC;&#x2122;d) Bank

Checking/Savings Acct #

Bank

Checking/Savings Acct #

Nearest relative not living with you Name

Phone

Address Name Address

I/We the undersigned, acknowledge that all information given above is true and complete, and authorize (insert your company name) to verify any or all of the above statements. Signature

Date

Signature

Date

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Property Inspection Form Owner

Phone

Address ARV:

Asking:

MAO:

Offer:

Bedroom/Bath:

Sq. Ft.

Construction: Frame

Light Fixtures

Brick

Yes

Stucco

Costs

Repairs:

Other

Quantity

Total

Ceiling Fan ______________________________________________________________________________ Bedroom Lights ______________________________________________________________________________ Hall Lights ______________________________________________________________________________ Bath Lights ______________________________________________________________________________ Outside Lights _____________________________________________________________________________ Kitchen Lights _______________________________________________________________________________________ Smoke Detectors _________________________________________________________________________________

Appliances Dishwasher ______________________________________________________________________________ Free Standing Range ______________________________________________________________________________ Range Hood ______________________________________________________________________________ Refrigerator

Inspection

Yes No

Costs

Repairs

Does house need roof? __________________________________________________________________________________

__________________________________________________________________________________ Does house need floor coverings? __________________________________________________________________________________

__________________________________________________________________________________ Does house need exterior paint? __________________________________________________________________________________

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Real Estate As Leverage

Inspection

Yes No

Costs

Repairs

Demolition/trash removal?

__________________________________________________________________________________ Does house need HVAC system? __________________________________________________________________________________

__________________________________________________________________________________ Does kitchen need replacing? __________________________________________________________________________________

__________________________________________________________________________________ Do baths need replacing? __________________________________________________________________________________

__________________________________________________________________________________ Does house need plumbing? __________________________________________________________________________________

__________________________________________________________________________________ Do windows need repair/replacing? ____________________________________________________________________________________

____________________________________________________________________________________ Does house need new doors? __________________________________________________________________________________

__________________________________________________________________________________ Does house need new siding? __________________________________________________________________________________

__________________________________________________________________________________ Foundation/floor problems? __________________________________________________________________________________

__________________________________________________________________________________ Landscaping? ___________________________________________________________________________________

__________________________________________________________________________________ Does house need electric work? __________________________________________________________________________________

__________________________________________________________________________________ Porches/decks? __________________________________________________________________________________

__________________________________________________________________________________ Sheet Rock? __________________________________________________________________________________

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Glossary of Real Estate Management Terms Action

a suit or judicial proceeding

Agent

one who is authorized by another person or company to act in that person’s or company’s behalf

Allowances

a sum of money set aside in a construction contract for items that have not been selected or specified in the contract

Amendment

a modification or addition that supplements another written document

Amortization schedule

a timetable of mortgage payments over the course of a loan that shows how much is applied to both the principal and interest

Appreciating asset

an asset that increases in value, such as real estate

Articles of incorporation

a document that creates a corporation under a state’s general corporation laws

Assemblage

the combining of two or more contiguous properties into one large property; an assemblage often makes the one large property more valuable than the sum of its parts

Assignment

a transfer to another of one’s interest in a right property

Build-out

the space improvements put in place according to a tenant’s specifications

Buyer’s premium

an advertised percentage of the high bid or a flat fee added to the high bid to determine the total contract price to be paid by the buyer

Buying signal

a communication from prospects or customers indicating they are strongly considering making the purchase, typically delivered in the form of a question

Bylaws

rules that govern how a corporation may conduct its business

Cause of action

152

a claim for some type of relief

Change order

a written document that modifies the plans and specifications and/or the price of a contract

Claim

an alleged right to money, property, or other type of relief

Real Estate As Leverage

Community property

Property in which each spouse is considered to own one-half

Conditions of sale

the legal terms that govern the conduct of an auction, including acceptable methods of payment, terms, buyersâ&#x20AC;&#x2122; premiums, possession, reserves, and any other limiting factors

Co-signer

any person who signs a loan made to someone else and assumes equal responsibility for repayment

Credit history

the record of how an individual has borrowed and repaid debts

Creditor

one to whom money is owed by a debtor

Curb appeal

the appearance of a house or other building from the curb

Debt

any obligation of one person to pay or compensate another

Debtor

one who owes another something or is under obligation to pay money or fulfill some other obligation

Deed of trust

a document that gives a lender the right to sell property if the borrower canâ&#x20AC;&#x2122;t repay the loan

Deposit

money given as security for the temporary use of property and to be refunded if the property is left undamaged

Depreciating asset

an asset that decreases in value, such as automobiles, appliances, electronics, and furniture

Due diligence

the process by which brokers and funding sources assess the information and documentation related to the transaction

Earnest money

a deposit of money paid by the buyer for real property as lawful and beneficial use of the land of another

Equity

the value or interest and owner has in real property over and above any mortgage debt or other liens against the property

Escrow

the system by which money, documents, personal property, or real property are held in trust for others by a disinterested third party until the terms and conditions of the escrow parties are completed or terminated

Eviction

the physical expulsion of someone from land through legal proceedings

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Federal Deposit Insurance Corporation (FDIC)

a federal agency whose mission is to maintain the stability of, and public confidence in, the nationâ&#x20AC;&#x2122;s financial system; the FDIC insures deposits and promotes safe and sound banking practices

Federal Housing Administration (FHA)

a federal agency that insurers loans offered by certain commercial lenders

Federal tax lien

a lien of the United States on all property and rights to property of a taxpayer who fails to pay a tax for which he is liable to the federal government

Fee

payment for services rendered or to be rendered

Fixed-price contract

a contract with a set price for specified work

Forced appreciation

situation when the value of a property goes up as a result of improvements and/or more profitable use

Foreclosure

a legal proceeding to enforce payment of a debt secured by a mortgage that is in default through the sale of the property

General contractor

an individual or company that contracts with the owner of a property to perform certain work on the property; a general contractor may use employees or subcontractors to complete the work but is responsible for the execution, supervision, and overall coordination of a project, and may also perform some of the tasks Green note

a note created for immediate resale to an investor

Hard money lender

a funding source that loans money on real estate based on the value of the property with little consideration to the creditworthiness of the owner; typically, the loans are short-term at higher interest and points than those made by conventional lenders and are for 50 to 70 percent of the propertyâ&#x20AC;&#x2122;s value

Incorporate

an action that involves filing all necessary documents with the applicable department of a state to establish a corporation

Investment-to-value ratio

the measure of security of a mortgage holderâ&#x20AC;&#x2122;s position and the likelihood of recouping all investment money in the event of a foreclosure

Joint tenancy

a form of ownership in which the property is owned equally by two or more persons who have rights of survivorship

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Real Estate As Leverage

Land contract

a form of real estate purchase in which the buyer makes installment payments toward the purchase of the property and has use of the property but does not receive title to it until payment is made in full

Lease

an agreement by the lessor to temporarily give up possession of property while retaining legal ownership; an agreement by the owner/landlord to turn over, for all purposes not prohibited by terms of the lease, the specifically described premises to the exclusive possession of the lessee for a definite period and for a consideration called rent

Lessee

one who holds an estate by virtue of a lease; a landlordâ&#x20AC;&#x2122;s tenant

Loan-to-value ratio (LTV)

the percentage of the value of a property that a lender is willing to lend against; a measure of how heavily mortgaged a property is and how likely the owner is to default on the debt

Market value

the price that a piece of property would command on the open market

Mortgage note

a negotiable promissory note secured by a mortgage on specific real estate property

Mortgage

a pledge of real property for the security of a debt whereby the debtor maintains the right to the property

Mortgage

the entity that lends money to purchase real property and identified as the creditor and holder of the mortgage note

Natural appreciation

term referring to the situation when the value of a property goes up with the market

Passive income

income from sources other than a job, such as income from rental properties and other investments

Payment schedule

a pre-agreed-on schedule of payments to a contractor usually based on the amount of work completed

Positive cash flow

a situation when income from real estate or business exceeds the expenses incurred

Private mortgage insurance (PMI)

a type of insurance often required by lenders when the buyerâ&#x20AC;&#x2122;s down payment is less than 20 percent; the goal is the protect the lenders from default when the buyers donâ&#x20AC;&#x2122;t have a strong equity position in the property

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Quitclaim deed

a document that can be used to both transfer ownership of a property and release a personâ&#x20AC;&#x2122;s claim on a property; a quitclaim deed conveys only that right, title, or interest that the grantor has and doesnâ&#x20AC;&#x2122;t warrant that the grantor actually has any particular title or interest in the property

Recording

the placing of any instrument that affects the title of a property in the public records of the county where the property is located

Rent

payment for the use of property

Return on investment (ROI)

the amount of profit generated by an investment before taxes an appreciation

Sealed bid auction

an auction generally conducted by mail; the bids are sent in and opened at the same time, with the highest bidder winning

Seller financing

a type of financing whereby the seller of the property holds all or part of the mortgage (the same as owner financing).

Stated income loan

a loan designed for self-employed borrowers; the lender accepts whatever income the borrower states as truth

Subcontractor

an individual or company to whom the propertyâ&#x20AC;&#x2122;s owner, of a contract; subcontractors typically specialize in one aspect of the construction work

Sublet space

space that is being offered for the lease by tenant rather than a landlord

Tax deed

deed from a tax collector to government body after a period of nonpayment of taxes according to statute; deed to a purchaser at a public sale of land taken for delinquent taxes

Tax evasion

the fraudulent and willful underpayment of, or nonpayment of, taxes; evasion is distinguished from tax avoidance, whereby proper interpretation or relevant tax law is made to legally minimize tax liability

Tax lien

a lien for nonpayment of property taxes that attaches only to the property on which the taxes are unpaid; a federal tax lien may attach to all the property of the one owing the taxes

Tax sale

a public auction where property is sold to the highest bidder in order to recover delinquent property taxes

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Tenancy in common

a form ownership is which tenants do not have rights of survivorship and my own unequal shares in proportion to their contribution

Time and materials contract

a contract that specifies a price for different elements of construction or rehab work, such as the cost per hour of labor, overhead, profit, and the like

Title insurance

insurance that indemnifies the ownership of property is challenged by the discovery of faults in the title

Title search

an investigation of documents in the public records office to determine the state of a title

Title

ownership

Warranty deed

a document used to transfer ownership of a property that warrants the grantor has the title he claims to have

Wraparound mortgage

a type of mortgage whereby the amount of the loan encompasses all liens holder, who then makes the payment on the senior encumbrance

Zoning

the mandate of local government through laws an ordinances as to the use and purpose of real property in specified areas or districts as well as any associated limitations or other requirements

Real Estate As Leverage

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Wealth Foundation

Live Out Loud, Inc. P.O. Box 10151 San Rafael, CA 92912 www.liveoutloud.com www.loralsbigtable.com To place additional orders, please call 800-248-3320 Email: wealthfoundation.com

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