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PUBLISHER
Linda Pliagas LEGAL COUNSEL Boesch Law Group CONSULTANTS Steven Kendis, GRI Bruce Kellogg ADVERTISING Jason Burke Kasey Barrett Patricia Rodriguez EDITORIAL STAFF Tim Houghten Stephanie Mojica
COPY EDITOR Bruce Kellogg Stephanie Mojica PHOTOGRAPHER John DeCindis PUBLISHED BY Pliagas Enterprises VICE PRESIDENT Nikolaos K. Pliagas CONTRIBUTORS Sensei Gilliland Randy Hughes Lori Greymont Matt Theriault Mike Conlon
Kathy Fettke Carl Schiovone Steve Bighaus Pam Blanco Grant Trevithick Bruce Kellogg Leon McKenzie WEB MASTER Maria Landicho MARKETING Holly Lynn Rosa Houghten EVENTS & EXPOS Shanelle Koellish Michael Ringwald
805.693.1497 | Visit www.Realty411.com
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contents
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12 The Truth About Income & Real Estate Investing 15 Holding Title in a Land Trust or Limited Liability Company 19 How Real Estate Performs in Times of Inflation & Deflation 23 There’s Big Money in Conquering Your Fear: And Here’s How to Do It! 26 Investor & Author Mike Conlon Teaches How to Invest in Mobile Homes 29 Can Investors Still MAKE MONEY Flipping Property? 32 The Benefits of Using a Private Lender 37 Tips from the Pros Steve Bighaus Discusses What to Look for in a Lender 41 How to CHOOSE Your Next Rental Investment Tips 43 WHAT IS YOUR WHY? 48 Seller Finance 101: What is it? How it Works. How You Benefit. 52 Best Real Estate Leads for Rehabbing Homes
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The Truth
About Income & Real Estate Investing BY SENSEI GILLILAND
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he art of transacting real estate investments for generating income, and why investing in rental property may not be the move for you, yet… Real estate is absolutely the cornerstone of wealth. It is highly reliable, and an essential element for building and preserving finances. However, some find getting started, and getting the results they hoped for, is a challenge. Over the last 22 years of coaching and training investors, I’ve found that comes down to three main things. 1. Getting lost in the different investment options 2. Making it more complicated than it needs to be 3. Failing to have a solid action plan
MYTHS & MISCONCEPTIONS ABOUT REAL ESTATE INVESTING
* MYTH 2: You’ve Got to Do a Lot of Deals
* MYTH 1: There is One Superior Way to Invest
How many houses does someone need to own or flip per month to live a comfortable life? See most people I encounter think they must do five to 10 houses per month. Then they just get daunted by the size of that, or they set unrealistic goals, which diffuses their motivation, and they never get started. It’s true that there are investors and business owners out there hustling, doing 10, 20 or more deals a month. Big goals are great. Yet, most don’t need to do anywhere near that. Every deal is different. But if you could make $5,000 wholesaling a property, or $50,000 flipping a house, or $500 a month on a rental, how many would you really need to live well? >
One of the biggest hurdles today is not only the increasing number of real estate websites and gurus out there, but that so many are more focused on sales, rather than true education. Too many try to promise that their strategy is ‘the superior’ solution. The truth is that wholesaling, fixing and flipping houses, private lending, and investing in rental properties can all work. I’ve personally done all of these. I still do today. The best strategy really comes down to your personal preferences, your timeline, capacity to invest, and goals. Some people love rehabbing houses and would do it regardless of the money. Others just want a completely handsfree way to invest and would never dream of taking on a DIY project for any amount of money. For many it is a matter of the right strategy at the right moment, and diversifying and moving up over time.
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Two wholesale deals a month would make you over $100,000 per year. Rehabbing and flipping a house every 2 months could pocket you $300,000 per year. Ten modest rentals could give you $50,000 in passive income per year. Or you could loan your capital to some good house flippers as a private lender and make 10% returns, and beat the pants off the performance most are getting in the stock market. * MYTH 3: You Should Focus on Building the Biggest Stash of Cash Having big figures on your bank statements, a sixfigure 401(k) balance, and a home safe stuffed with cash might make you feel great. There are definitely benefits of having liquidity and some serious reserves. Yet, no matter how much you’ve got, you can burn through it fast. Check out the stats and you’ll find the average retirement account
balances dives around 50% within the first five years of retirement. Today we’ve got to be prepared to live 30 plus years after retirement age. We also need to be prepared to survive and provide, even if we can’t get up and go to work tomorrow. Ongoing passive income streams are far more valuable than cash in the bank. I’d rather have just $100,000 in the bank and $100,000 in perpetual annual income from rentals, than having $1M in the bank, and no passive income sources. * CREATING A BATTLE PLAN * Whether you need $70,000 or $700,000 a year to life comfortably and afford the lifestyle you want and to sustain it, you need a plan. If you are starting out with nothing, then you may need to start with wholesaling, and then move up to fixing and flipping, and then invest that capital through private lending and acquiring income producing rentals. Or maybe if you already
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have some capital or properties, you just need to restructure your portfolio to optimize your cash flow and wealthbuilding potential. It doesn’t have to be that complicated or confusing. It can take work and hustle, but if you are passionate about your goals, you can achieve them through real estate. It’s all about having a plan that’s right and that works for you. That’s what I do. I help investors, from brand new beginners to those with established portfolios, to create a straightforward stepby step battle plan to get where they really want to go, in a way they can stick to. If you are not sure exactly what the right way to start is, or if you are getting the most out of your investments, then visit www.BlackBeltInvestors.com and setup a free strategy session, with me, and I’d be glad to show you how I’ve helped thousands of others get on the financial path they always dreamed of. ♦
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Holding Title in a Land Trust or Limited Liability Company Randy Hughes, known as “Mr. Land Trust” shares his expertise and insight.
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have written a lot about the virtues of holding title to your investment real estate in a Land Trust, but confusion persists. Most attorneys advise their clients to title their property in a Limited Liability Company (LLC). The reasoning is that LLC’s give better asset protection than Land Trusts. While it is true that LLCs provide better asset protection than Land Trusts it makes no sense to put more than one property in ANY one entity. Think about it, didn’t our grandparents tell us “not to put all your eggs in one basket?” What exactly does this mean? When our country was primarily occupied by farmers (and many of them were chicken farmers), it quickly became common knowledge that when you were collecting eggs in the chicken coop, you did
not use just one basket. The reason why you used more than one basket was if something happened to that one basket (i.e you dropped it, stepped on it, something fell on it, the cows sat on it, etc.), you could lose ALL your eggs. With multiple baskets you could at least end up with something to eat. This logic holds true with real estate too. If you hold the title to your property in any one entity (i.e. Land Trust, LLC, Corporation, etc.) and a claim occurs against one property it can infect/affect the other properties. This is just common sense, but since only 5% of the lawyers in the USA are asset protection specialists, poor advice abounds. Think about this logically. If you own five properties and they are all titled in an LLC and a lawsuit occurs against just one property... all the properties will be affected. Oftentimes in a lawsuit a judge will order that no assets be transferred by the “owner” (read: your LLC) even before the jury has
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rendered its verdict! This means that you can’t sell or refinance ANY of the properties in your LLC until the lawsuit is over. Most lawsuits take years to resolve. Are you getting to see the picture here? I hope so. >
No one will learn to protect your assets like you will. No one will lose sleep over setting up a good asset protection plan to protect you and your family...other than you! So, take the bull by the horns and get to work.
Furthermore, if you lose the lawsuit and a lien/judgment is recorded against the “owner” (your LLC), you have ALL your equity tied up (in all properties held inside the LLC) until a resolution can be negotiated with the Plaintiff. This puts you in a terrible negotiating position and you will likely be the big loser. You would also likely be restricted on your ability to transfer memberships in your LLC. One of the benefits of getting older (and hopefully wiser) is experience. Not only your own personal experience, but that of your peers. Over the last 44 years of investing in rental real estate, I have seen many investors destroyed by poor planning and bad advice from others (professionals and nonprofessionals). The real problem is by the time you discover you have been given bad advice, it is too late to do anything about it. You cannot buy fire insurance on your house when it has already caught fire! No one will learn to protect your assets like you will. No one will lose sleep over setting up a good asset protection plan to protect you and your family...other than you! So, take the bull by the horns and get to work. It is my suggestion that all real estate investors put each of their properties into separate Land Trusts (so each is insulated from the other). This is easy to do once you have the knowledge and forms. It is also very cheap to do because forming a Land Trust costs NOTHING! Zip, nada. Why not get the “best of both worlds” and link the great privacy benefits of a Land Trust together with the asset protection benefits of an LLC for some dynomite asset protection? This can easily be done by making the beneficiary of the Land Trust your LLC. There are many other structures that I discuss in detail in my Land Trusts Made Simple ™ home study courses. Please go to: www.landtrustsmadesimple.com for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: www.landtrustwebinar.com. Also, feel free to call me with any questions. I actually answer my phone! 18666967347. ♦
“Ninety percent of all millionaires become so through owning real estate.” Andrew Carnegie 16
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Cody L Cox ~ Portfolio Manager Cody@TrinityNationalHoldings.com Mobile: 503.784.1417 Fax: 503.685.6339 Office: 503.985.6293 Toll Free: 866.285.2729 www.TrinityNationalHoldings.com Solving Problems. Putting People First.
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n this article we’re going to take a look at how real estate performs in various macroeconomic climates. If you’re following the news and the actions of not only the US government but most of the major governments in the world, then it is very reasonable, maybe even a foregone conclusion, that we are headed for massive inflation in the not too distant future. If things get even more out of control we could even experience hyperinflation. On the other hand, a case can be made that we’re heading for massive deflation, just like in the Great Depression. It is out of the scope of this article to go into details on the factors leading to these two scenarios. However, if you are a real estate investor, or are considering investing in real estate, then it is important to understand how real estate investments perform in each of these two scenarios. What happens in periods of high inflation? The purchasing power of the dollar declines. As a result, creditors are getting paid
How Real Estate Performs in Times of
Inflation & Deflation By Lori Greymont back in dollars that are worth less then they lent out and as a result they raise interest rates. Creditors like interest rates to be a few percentage points above inflation. So let’s use some numbers as examples. If inflation hits 12%, then interest rates could easily go up to 15 to 20% so creditors can make money. But at 15% the cost of a mortgage skyrockets and most people can’t afford to buy a home. This happened in the ’70s and many other times in history. As fewer people qualify for
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mortgages, rental demand increases and rents go up. Rental property owners, especially those with fixed interest rate mortgages, receive higher rental income while their biggest expense stays fixed. Thus their cash flow increases. One important note here. In times of high inflation, properties with shorter rental periods generally perform better so residential rental property with 6 to 12 month leases are a good bet. Commercial rental properties such as office complexes and shopping centers, which often have 5 to 10 year leases can actually see cash flow go down as expenses such as utilities, insurance, main tenance, etc., increase while rents are flat. How is appreciation affected by periods of inflation? During times of high inflation, the cost of the raw materials needed for new construction increases, which also directly affects overall property prices. As the costs of materials, labor, and legal rise, prices of existing properties are positively impacted. >
But what if we’re headed for another Great Depression? We certainly hope that is not the case, but let’s take a look at how real estate performs in deflationary times. If residential real estate performs well in inflationary times then you might expect that it would not perform well as an investment in times of deflation
but as we’ll see that is not the case. In times of deflation, there isn’t much money available to buy anything. This lack of money creates a lack of demand, and the lack of demand forces prices down and that includes real estate prices. However, real estate has just gone through a major deflationary period while other commodities such as gold, silver and oil have had major upswings. So real estate has less room to fall and less risk than other commodities. But here’s the kicker, cash flow real estate has a huge advantage over other assets during deflation: the cash flow! Even if the value of a rental property drops during a period of deflation, the rent checks still give you a return on investment each month. Other investments do not. Plus, it’s easy to find renters during deflation because banks don’t have the money to lend for
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mortgages. People can’t buy homes, so they have to rent. If you expect a period of deflation, your real estate investment will perform best with longer lease periods so increase your lease durations as much as possible. In summary, you can see that residential rental properties do very well in times of inflation and they have advantages over other investments in times of deflation.♦
P.S. – Our team of experienced real estate professionals can help you create a customized investment plan and find properties in the best rental markets in the country that fit your plan. To reach Summit Assets Group, please call: 4082689777.
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There’s Big Money in Conquering Your Fear:
And Here’s How to Do It! By Matt Theriault
“Show me the money!” You say, Ok, I will.
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t’s actually in plain sight and yours for the taking, if it weren’t for that one thing that stands between you and it. That thing is fear. Fear is what stands between the money you’re making right now and the money you want to make. Just on the other side of that fear exists an abundance of wealth, freedom and happiness. Big money! If you could only figure out how to conquer that fear, that big money would be yours. Such a simple concept, but it almost seems insurmountable, doesn’t it? What? You’re not afraid of anything? Fear isn’t your problem? Well... if the lack of time, money, credit and/or knowledge has stifled your real estate investing progress, fear is your problem. The reason most would not admit that fear is their problem is because fear comes in so many different shapes, sizes, names and intensities that they don’t recognize it for what it really is. It’s not always called fear, sometimes it sounds like:
•I’ll call that FSBO tomorrow. •There aren’t any deals out there right now. •I can’t qualify for a loan. •The REO agent won’t call me back. •The market is saturated with other investors.
•I’ll wait until the election is over. •The market hasn’t hit bottom yet. Fear, or any variation of the word, isn’t mentioned in any of the above examples, but they are all founded on fear. Until you recognize fear for what it really is and learn how to conquer it, the big money you seek will forever exceed your grasp. Through my own personal experiences and now through several years of coaching others in their real estate investing, I’ve come to know fear for what it is 99.9% of the time: False Evidence Appearing Real (F.E.A.R.). >
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Although I can’t think of any fear at the moment that I’ve experienced as being real, I’m sure there’s an exception, so I left the .1% open to satisfy that exception. Fear, literally, is a distressing emotion aroused by impending danger, evil, or pain. Fear is a basic survival mechanism related to the behaviors of fight, flee, escape, or avoidance. The capacity to fear is a part of human nature. This emotion is both learned and inherited; it is a lesson that has been passed on from generation to generation beginning millions of years ago when humans initially learned to fear the likes of saber toothed tigers and hungry wolves (now that’s what I call impending danger, evil, or pain!). The last I checked, threat from these beasts did not interfere with my last attempt at closing a deal. How about yours? Probably not, but everyday fears that seem just as daunting do. What is important to understand is that the vast majority of fears we face cannot be categorized as impending danger, evil, or pain. There are few things out there that will kill us or cause us physical harm. As long as we look both ways when crossing the street and steer away from dark alleys at night, most danger, evil, and pain can be virtually eliminated from a person’s life. Then why does fear still stop us? The answer is simple. Whether a threat is real or imagined, the mind will not automatically make the distinction. The mind will initially categorize everything as a sabertoothed tiger, and unless you ignore that initial assessment and consciously recategorize your fears for what they really are...
False Evidence Appearing Real, you will forever fall short of your personal potential. Simply put, the fear we experience today is strictly psychological. It’s imagined. It “appears” real and dangerous, but it’s not. Whether it’s the lack of time, money, credit and/or knowledge that’s hindering your real estate investing, you’ll want to know that it’s not those things that are stopping you. It’s the fear, or the unknown, around those circumstances that stop you; And this is our clue as to how to conquer fear. The “fear conqueror” is action. Not only will action produce your results, it will conquer and cure your fears. Conversely, inaction, indecision, and procrastination fertilize fear causing it to grow. Simply put, take action in the face of your fears and your fears will disappear. But! Easier said than done, right? Indeed. But, there’s an exercise you can use to make taking action in the face of fear easy. Yep, easy. Imagine what your income, or your
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life for that matter, would look like if taking action in the face of fear were easy. The sky is the limit! In the interest of helping you reach the sky, I’m about to introduce to you the “easy” way to conquer fear so you can take actions that will produce the results you desire. I call this easy exercise the False Evidence Test. When executed with integrity, the test flushes out the false evidence within the fear that stops us. When the false evidence is revealed for what it is... “false,” taking action becomes much easier. I use this exercise regularly in my investing workshops to get people over the fear of submitting purchase offers for real estate, but it will work for any fear. To demonstrate how it works, I’ll lead you through the exact exercise I do with my students. Go to www.FalseEvidenceTest.com for a short video demonstration of this easy exercise. The sooner you do this, the sooner your fears will disappear so you can start making that big money. ♦
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y company, Affordable Communities Group, LLC (ACG), based in Cary, NC, specializes in purchasing distressed mobile home communities at distressed sales prices, rehabbing the properties over 915 months and then either obtaining a refinance from a financial institution or flipping the
not listed on any public websites. In my business, knowing the brokers and establishing a track record with them is very important. We like the greater Cincinnati – Dayton market because of its large population (over 3 million combined) and strong base of employment. The multifamily business, whether apartments or mobile home parks, is all about having strong employment near the property. Lot rents are solid in this market as well , ranging from $325 $375.
We purchased the two parks for $1,150,00 all cash. One park had 306 spaces with 55 resident occupied homes and 120 empty homes. The other park had 84 spaces with 34 residentoccupied homes and 3 empty homes. Both parks had been in steady decline for 5 years. In fact, we had to tear down 101 homes at the large property because they were in such bad shape (a goal in any purchase is to save as many homes as possible). >
INVESTOR AND AUTHOR MIKE CONLON TEACHES HOW TO
Invest in MOBILE HOMES By Mike Conlon
property for significant gain. We have done 16 full cycle deals (buy, sell, rehab) for sales proceeds exceeding $65 million over the last 9 years. We also currently own over 3,000 mobile home spaces amongst 12 parks throughout the Southeast and Midwestern U.S. for cash flow purposes. We have just recently finished a 12month rehab project amongst two parks in the northern Cincinnati market that we run as one combined park, (they are 10 minutes apart). We use one manager to cover both parks. We purchased the deal on October 26th of 2012. Both parks were REO (bank owned) parks that we bought via a brok. This was an offmarket deal that was
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The first move we made was to “zonedown” the properties to create immediate higher occupancy. We zoned the larger park down to 132 spaces by creating one lot from two spaces. We did the same with the smaller park going form 84 spaces to 60. Existing residents loved the larger lots, but our goal was to get it prepared for financing, which means we need a minimum of 65% physical occupancy (actual homes on lots) at both parks. The “zoningdown” process took us approximately 4 months to accomplish with a total cost less than $20,000. Less density is almost always well received by local municipalities. Many investors ask me why I would “zonedown” a park instead of simply filling it up with a repo home. Although we added 5 repo homes to each park, this process is time consuming and expensive. A typical repo home will cost you $15,000 — $20,000 to purchase, move, setup, and rehab. “Zoning down” parks is a much cheaper way to get occupancy up immediately. Once we zoned the park down, we executed our “rehab playbook” to perfection with the following steps: 1. Repaved the roads – cost $79,000 2. Trimmed many trees – cost $21,000 3. Rehabbed 22 existing homes and sold them to residents – net cost $88,500 4. Added 5 repo homes at each park – cost $180,500
at the larger park is that 8 owners of nice RV’s are leasing lots form us in the back of the park. Total rehab costs for this deal were right under $500,000. I was fortunate to use a bank line of credit for half of the rehab. Our total cost into the two parks is $1,650,000. We now have 126 residents combined from both parks (up from 89 a year ago when we took over). We will add 610 more repo’s in the Spring to get to 70% occupancy. We just had the parks appraised and the valuation
was $3,225,500. We will get all of our original capital and rehab funds back upon a refinance this Spring. More important, the parks have been positive cash flow from day one (I can’t stress the fact enough that you never buy a negative cash flow property) and the monthly net cash flow (after all expenses and mortgage payments) now exceeds $15,000/month. You can see a positive article about our project written by the local newspaper on our website, just go to: www.acgmhc.com ♦
Mike Conlon is the founder and majority owner of Affordable Communities Group, LLC based in Cary, NC. He is also the author of Unconventional Wealth: The New Mainstreet Millionaires that is available through Amazon
The additional cost in this project was the teardown of 101 homes, which cost $111,625. A little bonus
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Can Investors Still
MAKE MONEY Flipping Property? By Kathy Fettke, Real Wealth Network
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an Francisco and San Jose led the nation in house flipping, according to Trulia. Will that trend continue? And if not, what will be the best strategy this year for making money in real estate? Extraordinary returns can be made by flipping houses (finding rundown properties, fixing them up, and then selling for a profit), but substantial losses can also occur. The key is understand market cycles. In markets where home prices are increasing every single month, it’s a lot easier to make a profit flipping property. You can make mistakes, do less renovation, and sometimes do absolutely NOTHING to improve the property and STILL make money. However, as we now know all too well, the opposite is true when home prices are flat or declining. In a down market, the chances of being able to buy at a low enough price to turn a profit get slimmer, leaving you with a very risky investment. While home prices have been steadily rising for several years, will that continue? What are the signs we should be noticing? Certainly we need to be paying attention to affordability. We also need to be aware of what could happen to a market if interest rates were to increase. Supply and demand is always important – is inventory increasing or decreasing? Many markets have seen home prices surpass 2006 peak levels, and we already KNOW that was a bubble.
Is it possible or even sustainable for prices to continue to increase in those markets? THE REALITY OF FLIPPING HOUSE The truth on the ground is far more complex than most real estate gurus would have you believe. Inexpensive houses are getting harder to find, and yet more and more speculators are hunting for them – driving prices up. Even foreclosures are selling for close to their true market value, before any renovations have been done! Those who are lucky enough to find deals often have to deal with mold, foundation, or pest problems – and yet prices don’t reflect the amount of work required. Fixing the problems could wind up eating up far more money and time than initially planned. This can make flipping houses a fulltime and difficult job – especially for those who are new at it or already have fulltime jobs. Please proceed with caution before jumping into a flip. Partner with someone who has done it successfully many times before. AN EASIER WAY TO MAKE MONEY IN REAL ESTATE Most people are too busy to put in the hours of time it takes to find, renovate and resell property. The good news is, you don’t have to! It’s possible to see high returns in real estate with little of your own time and effort by simply pursuing passive real estate investing options instead. And these opportunities abound. In fact, this is EXACTLY the right market cycle for passive real estate investing! >
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According to the Joint Center for Housing Studies at Harvard, renters made up 31% of households in 2004. By 2012, that number climbed to 35%. The rentership rate for people between 30 and 64 is the highest it has been in over 30 years! And professional management allows you to enjoy the returns on your investment without having to deal with the daytoday stress of being a landlord. When we buy a quality property in a safe neighbor hood near jobs and good schools in a solid market, and then rent that property to a qualified tenant for more than the expenses, we create a lifelong passive income steam for ourselves. And every single year we do this, we get a raise because rents are increasing along with inflation. There are obviously some tricks to doing it right so that the rental property is truly passive. But those tricks are easy to learn. Make sure the home is fully renovated to like new condition so that you don’t have to deal with ongoing repairs. Buy near employments centers in low crime areas with good schools. And look for property where rents are 1% of purchase price in order to get enough cash flow to cover expenses. If you live in California or other highpriced markets, finding a property that meets this description is nearly impossible. California property is not known for cash flow. In fact, most Californians don’t even know the term! They only know appreciation (or devastation when the market turns). They do not know the concept of investing for monthly passive income because it simply doesn’t exist in highpriced markets.
instantly via your phone. The need to drive by your property every day has become obsolete. At Real Wealth Network, we believe in having a much bigger backyard! We search the entire country for areas that are ripe for investment. We look for areas with job and population growth, affordability and landlord friendly laws. Mostly, we want to invest in these areas where rents are much higher than the expenses so that investors can pocket the difference as monthly passive “cash flow.” It’s a Seller’s Market in California – Time to SELL and EXCHANGE for Something Better The way to get rich is to buy low and sell high. If you already own real estate in a highpriced market, this is a good time to SELL since you can ask for top dollar and get multiple offers. Then, with your profits, you can turn around and BUY LOW in areas that are still up and coming. We are currently helping many of our Real Wealth Network members to take advantage of the IRS 1031 exchange that allows them to sell their lowperforming investment properties and exchange them TAX DEFERRED for much higher cashflowing property. They are thrilled to discover they can triple and even quadruple their monthly income, and in many cases, are able to retire NOW, years and even decades earlier than they expected! Passive investment in real estate can be one of the most powerful options available to the average person. ♦
CREATING A MUCH BIGGER BACKYARD
Want to learn more? Visit RealWealthNetwork.com for free education, mentoring and a strong, trustworthy network to help you learn more about your options and maximize your returns. We can help you find the best markets for investing, and introduce you to experienced property managers, turnkey income property providers, syndicators and highly reputable real estate agents nationwide.
While many “real estate gurus” say that people should look for investments in their own back yard, unfortunately that doesn’t work for people who live in highpriced markets. But thankfully, we live in a world that has become much smaller thanks to technologies like Google Earth, cheap nonstop flights and the ability to send photos
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The Benefits of Using a Private Lender
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etting started as a new real estate investor or to bring your existing business to the next level of success will generally require investment capital. More and more investors are taking advantage of using private lenders to achieve their business goals. The advantages of using a private lender over conventional lenders or hard money lenders can be summarized as follows:
• You may be able to agree to terms more suitable to you.
• You may be able to finance
100% of the project plus expenses (many traditional banks and lenders will require you to have some “skin in the game”). • Less underwriting scrutiny of you and the particular project. • Quicker response. • Avoid the oversight that many lenders are now putting in place during the life cycle of the project. • Private lenders may not require you to have any documented experience. Finding Your Private Lenders Once you have decided that using a private lender is the right and
By Carl Schiovone perhaps the only possible direction for you to take, it is now time to explore your opportunities of locating people who may be interested in funding your projects. Generally, a great place to start looking is among your personal and business circle of influence. This may include the following:
• • • • •
Family Friends Coworkers Acquaintances Local real estate groups
I do get some pushback from people when I suggest that they approach family and friends for investment capital because some feel uneasy asking them for money and the possible implications if things don’t work out exactly to plan. Just keep this in mind, you are asking them to participate in a business opportunity, not a hand out. Furthermore, many of these people are already taking some form of investment risk; so why not in you? >
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Keep it Legal and Get it Down on Paper Just because using a private lender may be a simpler and less formal process than what you would typically experience with either a hard money lender or conventional lender, this does not mean you will forgo all of the required documents and due diligence that will protect both you and your private lenders. Make sure to discuss the terms and conditions of the private loan with your attorney and have them prepare all of the necessary documents. It is always advisable to encourage
skill set in order to effectively analyze opportunities that may come your way. In the excitement of the hunt for your project, you will need to know when it is time to move forward or pass on an opportunity. In fact, as part of your discussions with your lender, you should illustrate why the project is a solid deal by sharing the assumptions and results you have made. In addition, you should proactively identify the barriers and risks you may face and how you plan on mitigating them. Remember, by identifying this
experience some challenges that could have been prevented. Transparency If there is one thing that can ruin any business relationship is holding back information that is critical to your lender. With real estate investing, things may not always go to plan. However, what is important here is how and when you communicate when there are challenges. Always share information that affects your lenders as soon as possible and during that discussion, communicate possible ways to get
“I can’t tell you how many times I have seen this play out with my students. Properly documenting your past performance in your Credibility Report will go a long way in securing new lenders.” your lender to also have their attorney review the documents. Positioning Yourself as a Solid Borrower Even if you personally know the people who will be providing the capital to fund your project, this does not take you off the hook from properly preparing yourself as a reputable borrower. There are some characteristics that your lenders will be expecting from you and include the following: Knowledge of the Business Even as a new investor, it will be critical for you to have the basic
upfront you will go a long way. Keep in mind that most lenders (or their attorney) will inquire about risks anyway, and it looks much better coming from you without being asked. As part of your business plan, you should have identified all skill set shortfalls you may have and include a specific action plan on overcoming the deficiency. If you are a new investor with no or limited experience, it is advisable to have someone who can shadow your decisions and path and guide you along the way. As a performance coach, all too often I see new investors jumping into their first project without the proper skill foundation and many
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back on track and avoid a future reoccurrence. Credibility In order for your business to grow and continue to have your lenders coming back for more opportunities, it will be critical to leverage off of the success of prior projects. Once they see what you can do and have performed as planned, you will find that the people around you will be literally throwing more money your way. In addition, they will be asking if they can bring their family and friends along as well. Talk about free marketing, it doesn’t get any better than that! >
I can’t tell you how many times I have seen this play out with my students. Properly documenting your past performance in your credibility report will go a long way in securing new lenders. As a great way to demonstrate your performance is to invite your lenders and potential new lenders to your projects both before you get started with the project and after it is completed. During this time you can share with them both the initial expectations and how the final results compared. Just think how powerful this can be. During this exchange, if the specific performance you were planning was not completely achieved, you should elaborate on the root cause. Evaluating lessons learned can be a great way to mitigating future errors on the next project. Have an Exit Strategy As part of your overall project or business plan, you may need to consider your exit strategy from the private lender in advance of moving forward with them. There are generally a few options to consider when exiting private money that include:
• Selling the property upon completion of a renovation, the lender will be paid from the proceeds (this is common with a rehab and flip project). • Refinance the property with a cash out conventional mortgage (this is very common on a holdtorent property). • Repaying the loan from the sale of other assets or investment sources. In conclusion, building a solid base of reliable private lenders will help set the stage for you to respond very quickly to the opportunities presented, This can clearly be the path for you to scale the business as large as you want! Once the people in your network actually see that you have the bandwidth to move forward they will bring you even more opportunities. ♦ Carl Schiovone is a Performance Coach with over 33 years of experience and is President of Carl Schiovone & Associates Real Estate Coaching Inc. In addition Carl is the President of East Coast Real Estate Investors Association. For information, visit http://EastCoastREIA. net or http://CarlSchiovone.com.
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Tips from the Pros
Steve Bighaus
Discusses What to Look for in a Lender
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By Steve Bighaus
loan is a loan, right? Wrong. An investment property loan comes with a different set of guidelines and requirements than your typical owneroccupied or even second home transaction. So here are 10 key things to look for in a lender. EXPERIENCE – It is important to interview your potential lender. Whether you have found someone on your own or were referred to a mortgage professional by a friend, family or colleague, ask them questions. How long have they been in the mortgage business? Someone who has been in the industry 10 or more years has truly weathered the storm. What positions have they held? This is more important than you may realize, even if someone has been in the industry for a long time what have they done in it? If they have always been a loan officer, what is their production like?
four financed properties? If they do, it is time to move on to a different lender.
KNOWLEDGE – Going hand in hand with experience what does your loan officer know? Ask them detailed questions about your situation and see how they answer. Do they have an immediate answer for most of your questions or do they need to research and get back to you? Are you a first time investor or buying your seventh property? What do they know about the differences between financing one to four properties vs. five to ten? Ask them questions about the “myths” you have heard in the mortgage industry. Do they tell you that you can only have up to
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SPECIALTY – Rental properties are different. Sure, any lender can offer you a loan on them and chances are most loan officers have done at least one in their career, but is that their focus? If you are looking to build your rental portfolio you want someone that can work with you on your time schedule. Are you looking to buy one property a year or buy 10 properties in the next couple of years? A loan officer that can help you strategize is vital. They should be able to help position you and your finances at the pace that you can handle, not necessarily what you want to handle.The more properties you own the more complicated it gets, so working with someone that specializes in investment properties and can help you goal set for your individual situation is key. Ask your lender what percentage of their business comes from investment property loans. You want someone whose business is at least 50% investment properties helping you out. >
Why ask this? Because Fannie Mae and Freddie Mac are the two largest purchasers of mortgages and they set the guidelines for the loans that you have to qualify for. If your lender’s company doesn’t sell directly to Fannie or Freddie that means they have to sell their loans to a correspondent lender who then sells loans to Fannie or Freddie. If they sell their loans to a correspondent lender you not only have to qualify for Fannie or Freddie guidelines you also have to qualify for any additional guidelines or restrictions that the correspondent lender sets. These extra guidelines are referred to as overlays. If you have ever heard that you can only have up to four financed properties it is because of an overlay. COMMUNICATION – This may seem basic, but you should be working with someone that will return your calls and your emails. Regardless of how you came across someone, they should be getting back to you within 24 hours. No matter how much experience, how long they have been in the mortgage field, how highly recommended they come, you are their potential client, and you should be treated like gold. AVAILABILITY – Going along with communication, are they available to talk with you on the phone or do they only communicate via email? If your lender is on vacation or out of the office, do they have an assistant or partner that you can talk with? Ask them if
they work alone or if they have a partner or a team. Don’t discount them if they do work alone, but if you have an urgent question how would they be able to handle it if they are out of the office? COMPANY AFFILIATED WITH Find out who your mortgage officer works for or with. Do they broker their loans, or do they work for a direct lender? Ask them questions about their company, how long has the company been in business? What are their financial strengths? Will your loan be serviced by the same company or will it be sold off right away? If you don’t ask any other questions about the company, ask this: Does your company sell directly to Fannie Mae, Freddie Mac, or both?
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LOCAL UNDERWRITING – Does your mortgage professional know their underwriters? How many do they work with? Ask them if your loan will be sent to a giant pool to stand in line or if your loan will be underwritten by someone they know. Why does this matter? Aren’t guidelines, guidelines? Yes, but the underwriters that review your loan are human and just as your loan officer has experience, it is important that the underwriter also has experience in reviewing investment property loans. Does your lender have a good relationship with their underwriter? Ask your lender what their under writing turn times are like. Are loans underwritten in 12 days or 12 weeks? >
“Ask your lender what percentage of their business comes from investment property loans. You want someone whose business is at least 50% investment properties helping you out.” RESOURCES – A mortgage professional is worth their weight if they have resources. Do you need a referral to a strong tax preparer, financial planner, or lawyer? Are you starting out on your own and need a referral on where or who to buy an investment property from? Your loan officer should be able to give you names or point you in the right direction. However, if you were referred to them by one of their partners, they aren’t going to bite the hand that fed them, so don’t expect referrals to another competitor. That is just sound business.
PRICING – Let’s face it, pricing, the interest rate and fees that you pay, are important, but it should not be the only reason you choose a lender. If the only strong point in your lender is that they can offer you a better rate or lower closing costs be aware that you may run into pitfalls with your loan along the way. Be sure to ask them some or all of the above points. Saving money is important, but if your loan doesn’t close on time or at all, how much money are you saving?
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PERSONALITY – While this is not highly important, you should be able to get along well with the loan officer you work with. They should fit you and your personality and meet your overall expectations of a loan professional. Ultimately you need to be comfortable with who you are using. Make up your own questions to help determine if they fit this factor. ♦ To contact Steve Bighaus, please call 206.930.1801 or email him at: steve.bighaus@snmc.com
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How to CHOOSE Your Next Rental Investment Tips from Pam Blanco from PamTexas.com By Pam Blanco
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eal estate investing is achallenging endeavor. Not only should you pick a property that has strong financials or potential for ROI, but you should also select a property based on how it will perform as a rental property. We’ve compiled some things to look for when selecting a good property: 1. Strong Market values. If you’re planning on holding your property to collect rental income, you need to make sure that the property value will continue to appreciate. Selecting a property in an area with strong values, coupled with a healthy demand, will insure that your property will maintain its investment value. 2. Good Schools. Never under estimate the power of good schools. Even though you will likely never use the property, you will need to get into the mind of your renters. If your house is family friendly, you’ll want to know what the schools are like in the area. If the schools are top
performing schools, your property will have an increased demand amongst families with school aged children. If the property is in an underperforming area, you may have a harder time renting the property out and that should go into your calculations for your ROI worksheet. 3. Close proximity to employment and shopping. Convenience is key for rental properties. While demand
4. Number of rentals in the area. It’s important to not have a lot of rentals in the area because you will have to compete with other landlords and you don’t want to get in a pricing war because at that point no one wins. Large amounts of rental properties can also affect home values if other rental properties are not maintained to the standards that you maintain your properties.
Large amounts of rental properties can also affect home values if other rental properties are not maintained to the standards that you maintain your properties. may be high currently for rental properties, there are still enough options on the market for tenants to pick a place that is more convenient and better proximity to amenities. If the property is hard to get to or in an out of the way location, you’ll need to make sure you account for this in your marketing plan.
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5. Overall condition of the neigh borhood. The neighborhood needs to reflect pride in ownership. This means the majority of the homes are well maintained, in good shape, and accurately valued. If you’re the nicest home in the neighborhood, you may find yourself having a hard time renting or selling the property.>
6. Location, Location, Location! Ensure the property does not back up to major roads or anything that could potentially cause values to decrease. Stepping back from the property and reviewing the surrounding area with a critical eye will be important to the success of your property. Considering how the surroundings will affect your tenants and their lifestyle will allow you to determine if this property is aired before they become rentable and more important if the property rents will be at the level you need to maximize your investment. When you own and purchase property in your own backyard a lot of these details are easier to determine, but it gets exponentially harder when you purchase and own property long distance. Buying outside your market is a great strategy to diversify your portfolio and increase your investment choices, but you will need a good partner in property management and real estate sales. When reviewing an area to invest in you should also select a good property management team. Having a good property management team will make or break your success. Good management teams will keep you updated on all market conditions, including things that could both positively and negatively affect your investment value.
will monitor market conditions to allow you to sell the property if the market is right or find additional properties to add to your portfolio. Good management teams will also closely monitor the property and provide updates on any maintenance items that need to be repaired before they become a major item. For example, as when you drive up to a property and you notice that the secondary drain line to the HVAC system is draining on the outside. This could mean that the primary drain line is clogged and should be addressed before it backs up into the house. Finally, the management team should provide interior inspections that address items not being taken care of by the residents, catching them early enough to prevent bigger issues that would normally be discovered upon move out and help reduce the make ready cost to get the property ready for the next tenant. ♦
Buying outside your market is a good strategy to diversifying your portfolio and increasing your investment choices, but you will need a good partner in property management and real estate sales. They need to visit your property at least every month and should always include exterior photos of the property so that you are in the loop on the condition of your property on an ongoing basis. Your team will provide current rental information as well as updated market info on the area. Bonus points if your property management team also has licensed agents and/or brokers. This will allow you to have seamless transition from purchase to rental, and they
For more information, please visit: http://pamtexas.com
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WHAT IS YOUR WHY? By Grant Trevithick
Are you interested in becoming a real estate investor? Do you want to be your own boss? Wouldn’t you rather keep all the fruits of your labor for yourself, instead of making some company rich? Do you want the freedom of owning your company, working whenever you desire? Most of us have watched the TV shows of other people buying and flipping houses. It is amazing to see that someone can search an entire city, find the property they want, do the research to determine what the offer should be, negotiate the deal to purchase the property, secure the financing, close on the
purchase, prepare the repair budget, do all the repairs, market the property, find the buyer, negotiate with the buyer, and negotiate all the requirements to finally get to the closing table. It is amazing that each of these investors do all this in only 50 minutes, with three to four commercial breaks, and always seem to make a lot of money out of each house. Wow, if it were that easy, I would want to jump into the game as well! It surely would beat having to get up each day and head into an office, attend meeting after meeting, make
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nice with an incompetent boss, do all my work, and then go home and do the same thing every day for the rest of my life. That does not sound like fun… so perhaps we can escape this trap by being a real estate investor. After all, I can make as much money as I make in a year doing three to four houses, at least according to the television shows.>
The reality is there are two types of real estate investors: the normal real estate investor and the successful real estate investor.
WRONG! Virtually every real estate investor that I have ever met only talks about the glamorous part of the business. They only talk about how much money they make and how much fun they are having. First off, most of the ones that do the talking are the ones that have never bought or sold a house, at least according to my experience. The reality is there are two types of real estate investors: the normal real estate investor and the successful real estate investor. The normal investor attends a lot of classes and reads a lot of books. They may even sign up with one of the local or one of the traveling mentors / gurus. They attend a lot of the networking groups for investors. They may look at several properties, but have never pulled the trigger to actually buy one. They talk a good game, but are more of the posers than the doers. Then you have the 1%. Yes, only 1%. The statistic that I heard many times is that the top 1% of all real estate investors make 98% of the money. My experience proves this out. We have trained thousands of people, while we have one of the industry highest success rates for those that have attended our training (a lot of our students ended up buying houses), yet very few of them have the dedication that is required to truly be successful.
To be a successful investor, you must know What Is Your Why? Why do you want to become an investor? Are you doing this to escape a boring and a mundane life? Are you doing this just to become rich? Why do you think that you want to be an investor? Are you willing to work hard? Are you willing to work 6 days a week, and sometimes 7? Are you
willing to work on the holidays? Are you going to be available to do business whenever your clients are ready? (My definition of an entrepreneur is someone that is willing to work 100 hours a week so you do not have to work 40.) Are you willing to fail more times than you succeed? Are you willing to be discouraged and disappointed? Are you willing to spend hours and hours in your car each day? Leaving early in the morning and get home late in the evening? Are you willing to put 30,000+ miles on your car / truck each year? Are you willing to
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work when it is 105 degrees in the summer? When it is thundering and raining? How about when it is 5 degrees and snowing? Or icing? Are you willing to clean out dirty nasty houses? Dealing with flea and bed bug infested houses? Drug houses? Are you willing to clean dirty kitchens, with food left over for weeks or even months? Scrub toilets that are just plain nasty and disgusting? Are you willing to listen to the most heartbreaking excuses and still ask someone to get out of the house? Are you willing to spend thousands of dollars on lawyers taking houses back when the seller uses the law to avoid paying their mortgage payments and yet do not want to move out? Are you willing to be discouraged, wonder if you will ever buy and or sell another house again, feel like a total failure? And still get out of bed each morning and do what has to be done? Funny, they do not show that part of the business on television, do they? If you cannot answer, “absolutely, sounds like fun” to each one of these, then real estate investing is not right for you. If you can think of anything else to do that would allow you to reach your goals, then my best advice is forget being a real estate investor and pursue that other avenue. If, on the other hand, you cannot imagine doing anything else, then perhaps you might have what it takes to be successful.>
Real estate investing is a marathon, not a sprint. If you do investing right, it is not a get rich quick scheme. Working our model, you can become a millionaire in a short period of time, if you are willing to work hard enough and run the business in an honest manner. But only if you know your Why. And only if your Why is strong enough. For me, I love helping people. In our company, our first and primary goal is to always put our clients first and do whatever we can to help them. We buy houses that people are trapped in, giving them the financial freedom move on without the burden of their mortgage. We then sell those houses to good families that desire to have a part of the American Dream, owning their own home, but cannot get a mortgage from a bank (for whatever reason). We help investors by realizing their dreams of becoming a successful investor. And last but not least, we donate the first ten percent of all our profits to charity to help those less fortunate. That is my why. That is what yanks me out of bed every morning, excites me to make each day as full as I possibly can, with me ready to contribute and help as many people as possible. Of course, along the way we make enough money to become financially comfortable, but our Company never makes money our number one priority. And I think that is what makes us successful. What is Your Why? ♦
Grant Trevithick, after a successful career in EDS and AT&T, is now the owner of Owner Finance Homes LLC and Owner Finance Academy LLC. Owner Finance Homes LLC operates throughout the DallasFort Worth area in Texas, buying houses and selling with owner financing. Owner Finance Academy trains people to become real estate investors using owner financing. The Company is accredited by the Better Business Bureau with an “A+” rating.
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SELLER FINANCE 101 What Is It? HOW IT WORKS. How You Benefit. By Bruce Kellogg
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n a real estate transaction, seller financing takes place when the seller and the buyer agree that the seller will lend some of the purchase price to the buyer to facilitate the sale. This is often labeled “owner will carry” (“owc”), and is a well trodden path in residential, commercial, and land transactions.
HOW IS IT DONE? As in any real estate transaction, buyer and the seller negotiate the terms of the loan, including the amount, due date, interest rate, and monthly payment. Other terms could include a late charge and a “due on sale” clause, and more.
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The documents consist of a promissory note and a deedof trust or mortgage, depending upon the laws of the state for securing loans to real property. Depending upon the state, an attorney, escrow company, or title company will prepare the documents for the parties, making the process very straightforward, though not necessarily simple. >
NEGOTIATING THE TERMS Down payments are usually between 10% and 30%, depending upon the buyer’s financial position, the buyer’s creditworthiness, and the seller’s need for cash. A credit report on the buyer is essential. It is possible to have a loan where the payments are interestonly, but some degree of amortization is preferable so the buyer is building up equity and can refinance more readily in the future. The interest rate should be a “market rate”, or less if lending to a friend or family member. Excessive interest rates do nobody any good, just making it harder for the buyer to succeed with the property. The length (“term”) of the loan is negotiable based on the needs of the parties. The note could be written with one or more “options to extend” in case conditions for refinancing are not favorable when the loan matures. The idea is not to create a condition where the buyer cannot pay off the loan when it comes due. WHAT ABOUT COLLECTING PAYMENTS, AND PROPERTY TAXES? Sometimes with seller financing the buyer will neglect to pay the property taxes or keep the premises insured. The best way to prevent this is to hire a “loan servicing company”. They will do everything, and even foreclose, if the need arises. The cost is reasonable, and the pieceofmind is priceless! WHAT IF THE BUYER DEFAULTS?
There are three alternatives. The obvious one is to hire an attorney or foreclosure company to legally recover the property. Then, it’ll be necessary to make repairs and resell the property, or rent it out. This should be chosen if the buyer’s default appears to be permanent, and cannot be corrected. If the buyer’s default appears to be temporary, a job loss for example, then it’s best to suspend payments. Once the situation is resolved, modify the note to include the missed payments and proceed as before. The third alternative is to sell the note at a discount and let someone else deal with the default. Discounts on defaulted notes are typically 40 – 80%. This is a terrible idea! Don’t do it!!! WHAT IF THE SELLER NEEDS MONEY LATER? There are several alternatives here, also. The first is to sell the entire note at a discount. Since the note will be “performing” (i.e., not in default), the discount could be in the 20 – 30% range, which isn’t so bad if you need cash. But maybe you don’t need to use the entire note. You could sell just part of the note, or just a certain portion of the payments. There are markets for notes across the country and over the internet. Notes can be very “liquid” nowadays. Finally, you could borrow against the note. The legal term for this is “hypothecation”. Private parties, banks, credit unions, and “factoring companies” all do note hypothecations. Check the internet first.
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BENEFITS TO THE BUYER There are two primary benefits to the buyer. The first is that the buyer can negotiate a “customized” loan with the seller to accommodate the buyer’s circumstances. Banks and mortgage brokers usually sell their loans on Wall Street, so the loans are standardized. These don’t necessarily fit everyone! In addition, commercial lenders charge “loan origination fees”, also known as “points”. Most sellers do not charge fees for lending, and in many states they cannot. This saves quite a bit for the buyer. BENEFITS TO THE SELLER There are two benefits to the seller. The first is that carrying some financing facilitates the sale. No doubt about it! Secondly, the note that is carried back generates a regular monthly income stream that is secured directly by the property. This makes it a very good, longterm investment. ♦ ABOUT THE WRITER: Bruce Kellogg has been a Realtor® and investor for 35 years. He has transacted about 500 properties for clients, and about 300 properties for himself in 12 California counties. These include 14 units, 5+ apartments, offices, mixeduse buildings, land, lots, mobile homes, cabins, and churches. He is available for listing, selling, consulting, mentoring, and partnering. Readers can reach him directly at: Bruce@brucekellogg.com, or (408) 4890131.
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B e s t R e al E s t at e L e ads f o r R e h abbi n g H o m es
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any real estate investors are looking for properties that can be renovated for a profit. Finding the right property at the right price, in a condition that it can be easily updated, can be a real challenge. Add to that the tightening of the real estate lead market and your investment business may see issues in the upcoming phase of the market. If you can find the right property, money can be made in renovating properties and reselling them. However, this profit is dependent on the price of the original property and many other factors. As you can imagine, finding the right property can be even more of a challenge if you have a limited amount of leads coming in. There are ways to find the best real estate leads for rehabbing homes if you know where to look. MONEY CAN BE MADE IN REHABBING There is no doubt that money can be made by rehabbing properties. According to an article published by Teresa Mears, the profit can be relatively high. She writes, “Investors flipped 156,862 singlefamily homes in 2013, according to RealtyTrac, which defined a flipped home as one bought and sold twice within six months. The number of flips was up 16 percent from
By Leon McKenzie U.S. Probate Leads
2012 and 114 percent from 2011. The average gross profit for a completed flip or more accurately, the difference between the first sales price and the second sales price was $58, 081.” In fact, investors are even taking advantage of higher priced homes in metropolitan areas that yield a high profit and that are not a result of a foreclosure. Mears said, “Only 21 percent of those flips were forclosure properties,” according to RealtyTrac, down from 32 percent in 2011. And it has proved much more popular in some cities than others. Home flipping was up 141 percent in Virginia Beach, Va., 92 percent in Jacksonville, Fla., 88 percent in Baltimore and 79 percent in Atlanta. But it fell 43 percent in Philadelphia, 32 percent in Phoenix, 17 percent in Tampa, Fla., and Houston, and 15 percent in Denver. In 2013, there was a bigger increase in the flipping of properties that sold for $400,000 or more than in lower priced properties.” FINDING THE RIGHT PROPERTY TO REHAB CAN BE A CHALLENGE Many investors who are just getting started in property renovation believe that they will have plenty of options and a large number of homes of which to choose. That is simply not the case. Real estate investors are seeing that leads in many areas are simply drying up. >
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Mears writes, “Investors have not lost interest in purchasing and flipping homes, In fact, now that we are seeing home price appreciation, they are more interested than ever,” Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty, which covers Oklahoma City and Tulsa, Okla., said in a RealtyTrac news release, “The challenge for many wouldbe flippers in our markets is a shortage of available inventory to flip.” WHY ARE LEADS HARD TO FIND? There have been fundamental changes in the market that have decreased the amount of leads that are available for investors. One of the biggest changes is that it can be difficult to get a mortgage to purchase a property. After the market drop of 2008, banks changed their lending procedures and limited new mortgages to only those with the highest credit ratings. The ripple effect in the market has been that people who own their homes, or who have a current mortgage, are staying put. They don’t want to take a chance of not being able to get a mortgage for a new property. This has resulted in fewer homes for sale on the market in the majority of the United States. Instead of moving, many home owners are simply renovating their own homes and adding needed space with extra great rooms and bedrooms. Another reason that homes for renovation can be difficult to find is that the foreclosure crisis has taken a surprising turn. Instead of
banks putting these homes on the market and selling them quickly at a discount, they are leaving their REO (real estate owned) properties on their books and expecting to receive the current market value for these homes despite the fact that many have suffered damage and vandalism. Kimberly Palmer writes that even if you do find a promising pricing structure, you may still have issues with these homes, “The cheap prices do come with potential downsides: Some homes have liens against them or mortgages associated with them, which can be inherited by their new owners.”
The shortage of leads has been going on for quite a while and shows no signs of slowing down. Trey Garrison of Housing Wire said of the 2015 market, “As of March 31, nearly 71% of homes in the market were stale, meaning they had languished unsold for more than a month,” according to the latest report by real estate brokerage Redfin. New listings shot up 9.2% last month, but the spring housing bounce is so far nowhere near big enough to satisfy demand. Nationwide, the total number of unsold homes rose 5.3% in March to 2 million, but at the current
‘The shortage of leads has been going on for quite a while and shows no signs of slowing down.’ insight. It can also be hard or impossible to inspect such homes in advance of their sale, which means there’s no time to check if the basement is flooded or if the air conditioning still works. These types of unknowns are just what can take a renovation project from profit to cost in just moments. Being able to fully evaluate a property is one of the best practices of purchasing a home for renovation. With the difficulty in getting a mortgage and the shortage of leads, moving your business forward to complete renovations can be a real project.
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pace of sales, that supply would be exhausting in only 4.6 months, according to the National Association of REALTORS®. Normally, the supply of homes on the market in most metropolitan areas would be much longer than just over four months. While it does sound like there is elasticity in the market, only having approximately a fourmonth supply of homes just isn’t enough. The result of not having enough homes on the market can not only make it hard to find a home, but has resulted in increased prices on the homes that are available. >
This, too, is not good news for those investors who want to purchase homes as increased prices can lead to decreased profits. FINDING A HOME THAT MEETS REHAB CRITERIA As investors look for alternate ways to create options in the real estate market, there are specific criteria that can help investors to succeed. Mears indicates that these are the most important factors:
• “Finding a good house at a low enough price to make the deal work • Finding reliable contractors to do quality work at a reasonable price • Finding money to finance the deal • Selling the home at a price that will cover expenses and provide enough profit to compensate for the time invested These criteria are the ones that have the most impact on the success of your project. Taking the time to find a house that has a low price gives you extra room for repairs and additional space for profits. Having reliable, professional contractors is the key to ensuring that your renovation project is completed on time and within the budget needed. A good contractor can also help you to
pass needed city inspections and permitting. Having a way to finance the purchase and all of the costs associated with it is also a critical aspect of renovation. Finally, finding a selling price that not only covers the cost of the property and the repairs but also offers you a healthy profit is important. These are criteria that can help you to profit. The most crucial aspect of this is finding a good home as a project in this market with few leads. IS THERE AN ANSWER? For those investors who want to purchase homes to rehabilitate, there are options that can save money and create opportunity. Knowing where to look for these leads is critical to investors who are serious about building their businesses. There are virtually untapped areas of the market that can help you to find properties for
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your investment business. Probate, bankruptcy and divorce cases can provide you with amazing opportunities to purchase homes for a discounted price. Probate properties are usually put on the market as a requirement by the court to ensure that bills associated with a loved one’s death are rectified. Guided by a court appointed Executor, this individual, usually a family member, friend, attorney or accountant, has the power to sell property. Generally, the Executor is willing to sell property for thirty to fifty percent less than the current market value. This is due to the fact that medical bills, legal fees, funeral costs and taxes need to be paid in order for the probate to be closed and heirs to receive their share of the estate. Executors may also be exceptionally willing to sell property if they live out of state or far away from the property >
they are managing. This can create issues with property maintenance and upkeep. Bankruptcy leads can be found as the result of court proceedings in which an individual is facing financial challenges. These sales can include everything from residential homes to businesses and commercial property. If you find a bankruptcy deal that will work for your business, make sure to have your attorney review the documents the first time you complete this type of transaction. The verbiage required by the courts can be a little bit different than traditional sales. Divorce leads are another area where you can get great deals on homes to rehab. In fact, many times the court will order a home to be sold in order to complete the divorce, making both parties more than eager to sell the home at a competitive price. Be forewarned, though, that relationship issues may cause one party to refuse to sign to complete the deal. Have your attorney review the sale documents and ensure that you can remove yourself from the contract if there is a delay due to a disagreement between the divorcing parties. WHERE CAN YOU GET PROBATE, DIVORCE AND BANKRUPTCY LEADS? Knowing that these leads are available is one thing. Knowing where to find them is another. Luckily, there are professional services, such as industry leader U.S. Probate Leads, which can provide these leads to you. Specific to each county, these leads can be delivered right to your inbox. Using a professional lead service can save you time and frustration in having to go to the courthouse, sift through leads and try to find the ones that will work for your business.♦
Contact us to learn about our flexible pricing and our quick delivery services. Call now or visit our website at www.usprobateleads.com
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