Real Estate Investing Blog at CREonline.com

9 Mistakes All New Real Estate Investors Make

William Bronchick, J.D. — Tue, 15 May 2012 22:00:05 +0000

1. Not Knowing the Market Numbers

Knowing your market is as important as any other factor in real estate investing. This means having a neighborhood-by-neighborhood analysis of the supply curve and average days on market. Both of these data formulas can be found through a real estate broker using the MLS (Multiple Listing Service).

2. Mistaken Value

If you don't have experience rehabbing homes, don't try to estimate repairs yourself

Most new real estate investors use Zillow, e-appraisal, or Trulia (or worse, an average of the three) for determining the value of a property. This is fatal–learn to do a “comparable sales” analysis.

Get your own data, too. Relying on the listing broker to give you comps for properties is like asking the barber, “How’s the haircut.” Learn to find your own comps using public data websites like Trulia.com.

3. Underestimating Repairs

If you have no experience in rehabbing homes, then you shouldn’t be estimating repairs yourself. Get at least 3 difference contractors to give you bids. Get these bids in writing with detailed breakdowns of labor and materials.

4. Poor Choice of Contractor

A bad contractor won’t have a license, will bill you by the hour, and/or won’t work by a written contract drawn by you. A good contractor agreement is essential, have a local attorney draw one up for you. Make sure you get signed lien releases every time you write a check.

5. Bad Contract

Most real estate courses have crappy contracts because they are not written by attorneys. My advice is to learn your local Realtor form and draw up a few addenda. An attorney can help you with this.

6. Wrong Legal Entity

Most real estate investors form an LLC for their investing practices. Is this right? Maybe, maybe not. There any many tax issues involved in choosing an entity that should be review with a tax professional, NOT just an attorney (unless the attorney in question has tax knowledge, like me!).

7. No Marketing Plan

Most real estate investors hire a real estate agent to find them deals and that’s it. There aren’t enough good deals on the MLS to make a living on, so you need a better plan to market to FSBOs, foreclosures, estates, divorces, and other sources of motivated sellers.

8. No Script

OK, so got a motivated seller on the phone and now what? Uh, uh, uh – what questions do you ask? Have a written script you keep by the phone, so you always know what to say.

9. No Business Plan

If you fail to plan, you plan to fail. You’ve heard that before, but how many investors actually write a business plan? The truth is very few. Take some time to write a good, detailed business plan that you can follow as your goal.

Wholesaling Real Estate: The New Virtual Trend

Jim Ingersoll — Tue, 08 May 2012 18:55:50 +0000

I recently received a detailed email from a frustrated real estate wholesaler stating that he is sending thousands of postcards every month and is still rarely able to connect with a motivated seller.

Spending a lot of money on marketing and not getting a return can lead to big-time frustration for a wholesaler, which is why I advocate using effective guerrilla marketing techniques that I discussed in earlier blog articles:

Wholesaling is a great way to get started into real estate because it does not require good credit and takes very little money to get started. Wholesaling allowed me to escape my “Corporate America” job. I wholesaled in very high volume for a few years, which created a nice income stream to replace the salary from my job.

Wholesaling real estate in high volume is not for everyone because it is a lot of work, but I believe the recent market changes we are experiencing will lead to a strong resurgence for the demand of good wholesalers.

Wholesaling Real Estate Is All About “Deal Making”

Wholesaling real estate is all about making money in the middle of the deal. To be successful, you need to be a successful wheeler-dealer because wholesaling is all about deal making.

First, you have to make a deal with the motivated seller to allow you to control his property and market to find a new buyer. Then you have to work directly with your new buyer to seal the deal on the final sale.

See how you are in the middle? Wholesalers work directly between the motivated seller and the investor-buyer to carefully craft the entire transaction.

You Control the Property Without Owning It

Wholesalers must learn to “control” real estate without owning it. This can be accomplished with option contracts or joint venture agreements. Once the house is properly controlled, the wholesaler has equitable interest in the property and can resell the house, sell the option, or collect a nice assignment fee.

When the wholesaler properly controls a house and contracts with a new buyer, he can enjoy the benefits of wholesaling in a risk-free environment that provides a very nice income stream.

One key to staying out of trouble is being up-front with the motivated seller so they know your wholesaling game plan. You do not want to mislead the seller as that can add risk into your transaction if you do not resell the house or run into obstacles when closing.

“Virtual” Wholesaling with the MLS

One growing trend over the past several years has been “virtual” wholesaling.

One growing trend over the past couple years has been “virtual” wholesaling. Wholesaling houses directly off the MLS (Multiple Listing Service) is definitely a trending technique for wholesalers.

How does it work?

Wholesalers search the MLS for the very best deal in their local market and put it under contract with a contingency. The contingency can be “subject to suitable financing” or an inspection period.

Once the house is under contract, they can resell it to a new buyer and create a profit based on the spread of what they are able to buy and sell the house for.

They are still in the middle of transactions, like all wholesale deals. This is a method I see Realtors beginning to use to essentially collect a commission and a wholesale fee, as well.

Pay Attention to Details

When wholesaling off the MLS there is more risk than when working directly with a motivated seller not on the MLS. The risk is even higher if the property is an REO (real estate owned), as the wholesaler will need to sign a large pile of addenda from the asset management company. Sometimes the addenda have requirements such as deed restrictions and encumbrance restrictions that can kill the deal if the wholesaler is not careful.

And if you are wholesaling HUD homes, you need to be aware that the closings are “witnessed” by a contracted HUD representative. There are a number of things that have to go just right in order to wholesale off the MLS.

But is it possible to wholesale MLS listed house? Yes, it is possible, and it can create a nice income stream. Just be aware that your risk is higher and that the transactions require a lot of things to be carefully controlled to get the closings completed.

Lightning-Fast Funding, No Credit Needed – Use Hard Money

Ben Yonge — Thu, 26 Apr 2012 19:28:32 +0000

You’ve always thought outside the box. In kindergarten, you colored so far outside the lines that your parents had to pay for a new desk. In high school, you created a new club every year. (Spelunking – really?)

So now that you’re an adult, why are you suddenly so content to follow the “status quo” when it comes to your investments? Maybe it’s time to challenge the standard credit guidelines and try hard money investing instead. After all, it’s more your style.

A hard money loan is a form of real estate financing that’s based on the value of the property to be purchased rather than the credit of the borrower. Hard money loans are most often used for house flipping or other investing strategies that require a quick turnaround. It’s like another tool for your toolbox, and as you’ll see, the benefits of this unique financing strategy are worth learning about. Here’s how hard money loans can help:

Fast Financing

When you get your money faster, you can jump on the best deals right away.

In a perfect world, you’d have all the time you need to make your investments. Sadly, it’s not a perfect world. You never know when the right opportunity will come along – and when it does, you don’t want to be stuck sorting through your finances or waiting to get approved for a second mortgage.

That’s where a hard money loan is a big help. They have lightning-fast approval times (which in reality is around five days). When you get your money faster, you’ll be able to jump on the best deals instead of watching them slip away.

Score Steep Discounts

If you’re an experienced investor, you (hopefully) have a whole list of strategies you use to cut costs. It’s time to add hard money investing to that list.

Because whether you’re buying your property at a foreclosure auction or from a private owner, every single seller would prefer a fast, lump-sum payment. To get their hands on more money faster, sellers are often willing to tip the scales in your favor.

Free Up Your Equity

If you make a living flipping houses, you can’t have your investment funds tied up for months and years on end. You need to buy, fix, flip, and move on to the next opportunity. Here’s how many investors free up their equity fast – they take out a hard money loan, purchase a property, fix and flip it, and pay off their loan in full with their profits. It’s a strategy that’s faster and simpler than juggling several mortgages at once.

Hard Money Loan – Your Plan B

Face it, you can’t always bring your A-game to every sale. You might find a property that’s perfect, but what do you do when your credit isn’t? You take out a hard money loan, that’s what. These loans don’t follow the same guidelines used by traditional lenders, so if your credit isn’t cutting it or if you aren’t in the right place financially to take out a second mortgage, a hard money loan could be the answer to your problem.

Look, there’s nothing wrong with doing what’s expected of you sometimes. No one’s saying you need to challenge the “status quo” for each and every thing you do, like paying your taxes, showering regularly, and calling your mother (which you should actually do more often). But your investment strategy? You can always use a new perspective there.

So next time you purchase a property, consider financing your purchase with a hard money loan. That little boost of outside-the-box thinking could have a big impact on your investing success.

6 Reasons Why Now Is a Great Time to Invest in Apartments

Chad Doty — Tue, 24 Apr 2012 21:12:01 +0000

Winning in real estate investing requires that you follow two simple rules:

Understand which asset classes have the best risk/reward ratio.
Invest in the best locations for your asset class and strategy.

Investing in apartments provides stability and safety, even as other economic sectors endure dramatic swings.

In this article, I’d like to discuss Rule 1 (best asset classes) and review the compelling reasons for why resident-occupied cash flow real estate – specifically apartment buildings – are the asset class of choice for the next 20 years.

Fact 1: Baby Boomers (~76 Million) , the largest demographic group in US history are aging and the largest part of that group is moving into the “Over 55” group. As an age group, those over 55 begin to downsize their homes and rent more. In fact, those over 55 as a group rent more than they own.

Fact 2: The Echo Boomers (~72 Million), the second largest demographic group in US history, are moving into the 18-30 range. This age group contains the largest group of renters and rents for 5 to 7 years before purchasing a home, if at all.

Fact 3: U.S. Immigration is continuing to increase and will grow year over year into 2030. U.S. Immigrants as a group rent far more than they own and often continue to rent even after they could own a home. If you can provide quality rental properties in areas that capture a greater than average percentage of U.S. Immigration along with just national average growth, than you will have positive absorption. This means you will have low vacancy rates and still have the leeway to charge favorable rent for your units.

Fact 4: The national average of home owners vs. renters has taken a very large hit. Due to the artificial increase in the home ownership rate over the past few years, people who were not really in a position to own a home, entered and then departed the ranks of home ownership. We have seen a rapid transfer back to the average, which is driving increasing numbers of renters. Every 1% decrease in the home ownership rate is 1 million new renter households.

Fact 5: Multi-family housing starts are at an all time low. We have seen a 97% decrease in multifamily starts in the United States in recent years. This means that we’re not even building enough units to keep up with current population growth. Due to the current financing market, this decrease in new apartment development will increase occupancy rates nationally over the next few years. It will not be as dramatic at first. Single-family housing vacancy (that can be blamed on over-building) still needs to correct itself, but we believe that correction will happen soon enough and leave apartments in a great position to meet housing demand.

Fact 6: Multi-family Apartment Investments are historically one of the most stable of the commercial asset classes. You can make more growth equity in the Retail or Office asset classes, but you are exposed to a more volatile economic cycle. Apartments have some exposure to the economic cycle, but it’s nowhere near as significant. That is because the population cycle is not nearly as volatile as most economic cycles. As a result, the type of affordable housing that Multi-family Apartments represent will provide stability and safety, even as other economic sectors suffer through dramatic swings.

These 6 facts point to an overwhelming conclusion: More and more Americans will need rental housing in the coming years, and that trend will continue for decades. At 37th Parallel, we see these compelling facts plus great investment opportunities, and we are very optimistic about our future and the future of our clients.

The underlying fundamentals for apartment investments are very strong and we encourage you to learn more about this asset class and how it can improve your investment results: Achieve Permanent Wealth

How to Find a Contractor Who Can Deliver Price, Quality, and Speed

Jim Ingersoll — Tue, 17 Apr 2012 21:56:35 +0000

As we near the bottom of our real estate market, investors are realizing it’s becoming a great market and it’s time to start buying houses again. Investors who buy now can hold onto the investment for very good cash flow or flip the house for an instant income.

Taking a wholesale property and transforming it into an income producing asset usually requires some “rehab” work. I’ve noticed several recent CRE Online Forum posts where fellow investors are asking questions about: How to Find a Contractor.

That is a great question, and the purpose of this article is to help establish a road map to find a good new contractor.

Once you have found the perfect house you will need to begin planning your construction. Before even starting construction, it’s vital that you choose the best contractor for your investment business.

How to Find a Contractor? Think Long-Term

Remember, real estate is a team sport. You will need strong people helping you in all aspects of your investing and contractors are a critical component of your team. When I am looking for a contractor, I am looking for a long-term team member who can help me fulfill three specific needs:

Price
Quality
Speed

It is difficult to find a contractor who is fast, does quality work, and has excellent pricing. The good news is that in today’s economy it is possible to find them.

Licensure and insurance are a must. If the contractors are not properly set-up with general liability insurance or do not want to provide information for your W-9 reporting to the IRS, I would recommend you keep looking for another contractor.

Decisions for your investment property improvement projects should be with intention and diligence. Although it can be a bit tempting to hire a company with the lowest bid, it would still be wise to hire someone who does the job right, and save money in the long run.

Where Do I Begin?

Here are easy tips on how you can improve your chances of selecting a credible contractor the first time.

Before even starting construction, it's vital that you choose the best contractor for your investment business.

Begin your list with at least three to five general contractors. This list will serve as the starting point. This is where you begin pre-screening them in order to end up with at least two or three good contractors whom you want to bid on your projects.

Referrals from friends, family and relatives can be helpful but you still need to look into what each company has to offer to ensure you get the best deals.

You may want to check ServiceMagic or Angie’s List. With Service Magic the contractors are typically pre-qualified regarding licensure and insurance, and you can find them in a wide variety of categories.

Your 8-Point Hiring Checklist

1. License: Make sure your potential home contractors are licensed and insured. Call your local state business licensing board to verify current licensure and ask about any complaints that have been issued to your potential home contractors. Also be sure to request a copy of both the license and insurance as part of your investigation.

Contractors are licensed as a Class A, Class B, or Class C, and then there are also trade licenses, specifically for HVAC, Electrical, and Plumbing. Here are the classifications:

Class A: Work on a single contract up to $120,000 or multiple contracts up to $75,000

Class B: Work on a single contract up to $7,500 or multiples up to $120,000

Class C: Work on single contact up to $1,000 or multiples up to $7,500

2. References: Talk to some of your contractor’s previous clients and references. There is no better way to evaluate potential contractors than by talking to their previous customers or checking out the finished work itself. If you get the chance to view some of the work that the company has done, don’t miss it. Ask the references specific questions regarding communication, project time-line, surprises, budget, etc.

3. Insurance: An absolute requirement for every contractor is a General Liability and Workers Compensation Insurance. If a certain contractor doesn’t have insurance, you could be the one held liable for any accident that can happen under construction premises while work is going on. Get a copy of the contractor’s insurance certificate from their provider before starting any project. Make sure the information is current.

4. Complaints: Search for contractor reviews and complaints online. Run your own background check on these contractors by searching for reviews and complaints from your potential contractions online. You can check out the Better Business Bureau site or other sites such as ServiceMagic or Angie’s List.

5. Contract: Create and sign a good contract. Sign a good contract that will protect the interests of both parties. Specify the tasks that need to be done, the duration of the project, its cost, and the payment dates. Don’t forget to be specific with the details. This is usually where the conflicts occurs.

The scope of work should include that they are responsible for any issues that may occur during the rehab. Residential rehab bids are often poorly documented with a lot of issues being overlooked, poorly defined, or left out. Include in the agreement the pricing, draws for payments, insurance requirements, and timeline for completion.

6. Permits: You should ask your contractors specifically about how they plan to handle necessary permits for the job. If they absolutely refuse to pull permits, consider this a red-flag.

7. Change orders: Watch out for the change orders. Rehab construction has this element of unknown and other pre-existing conditions. These are conditions that may alter the original construction plan and are left inherent during the bid. Make sure the “change of order” process is clearly defined.

8. Deposit: All contractors will want to have some funds up-front. Be sure that the construction draw process is clearly documented in the contract to avoid future misunderstandings. Be careful of contractors who request more than 50% of the work up-front.

9. Schedule: Speed of construction is a major consideration. Be sure to clearly define the start date and expected completion date in the contract. Your holding costs on your investment will skyrocket if the construction takes forever to complete.

It’s Not About the Lowest Bid

No matter how long the search becomes, in the end what’s important is that you get the best deal for your investment. The best contractor value consists of a combination of quality, speed, and price. When searching for a great contractor, you want to find that balance.

Be sure you find a contractor who will be on your team and have your best interest as his primary objective. Keep in mind that you are providing the contractor with a large contract and entrusting him to do a great job and complete it on-time with minimal hassles.

I would love to hear from you. Leave a comment and share your contractor experiences, and we can all continue to learn from one another.

More Motivated Sellers: The Code Violators

Jim Ingersoll — Tue, 10 Apr 2012 17:59:50 +0000

Did you get the memo from your local code enforcement office? New construction permits are way down, which means the code enforcement officers are looking for ways to increase activity on existing housing.

How can we use this reality to find more houses to buy? Homeowners with code violations on their houses are very motivated sellers.

What’s a Code Violation?

Localities have minimum standards for housing that include safety, sanitation, and suitability. When a housing inspector finds a house that does not meet these minimum standards, it will be tagged with a code violation.

Code violations are a great resource for finding motivated sellers.

There are various levels of code violations. The most severe is building condemnation. When a house is condemned, it typically receives a large red sign attached to the front door. When driving through neighborhoods, look for houses that have been tagged with a condemned sign like the one in this picture:

Homes can be tagged with violations for being unsafe, open to the public, or for a badly leaking roof. Code violations can also be for minor issues such as high grass, excessive trash in the yard, or even an unregistered car sitting in the driveway.

Regardless of the infraction, it creates an uncomfortable situation for the homeowner. The code violation must be addressed or the homeowner will face a judge in court and receive a fine.

Code violations on a house can be a great resource for finding motivated sellers. You can often track down the owners and make them an offer to buy their house. In most cases, the owners of the home are not intentionally neglecting their home, but simply cannot afford to keep up the with necessary repairs to keep it in safe, operational condition.

How to Find Code Violations

One way to find the code violators in your area is to go to the city or county offices and request it. Some localities have a list they will gladly share, since it is public record. This is true of one of the cities I like to visit just outside of Richmond, VA. They always have their “Red Tag” list printed and ready to give me.

Others localities may push back and say it is not available. If that is the case, you should cite the Freedom of Information Act and ask for the form to formally request it. Since code violations are part of public records, the localities cannot refuse to provide them to you.

The Freedom of Information Act is a federal law that was originally enacted in 1966 by President Johnson. It is a short and easy form to complete and forces the locality to release the information that you request.

Make Friends with the Inspectors

Another way to find the code violators in your city is to talk to the inspectors in the streets. If your path crosses an inspector on the street, it’s a nice opportunity to get the real inside scoop on the code violators. They can tell you who they have recently tagged and sometimes give advice on how to contact the homeowners

Once you have the list of code violators, drive by the homes and select the ones that interest you. Contact the owner by phone or letter. You can generally find the owner’s name and mailing address in the tax assessor’s online records.

Marketing for code violators is another guerrilla marketing technique for real estate investors. It is essentially a free source of motivated seller leads. This method works well for investors looking for rental properties to buy with seller financing, or flippers looking for discounted houses that need work, and it works great for wholesalers looking for houses to control.

6 Easy Steps for Tapping into the Vacant House Goldmine

Doug Smith — Thu, 05 Apr 2012 12:00:16 +0000

Many investors start out by driving through neighborhoods, writing down the address of an ugly or vacant house, and sending “we buy houses” letters and postcards to the owners. It’s called “driving for dollars,” and it has made many investors a fortune. I should know because I’m one of them!

The profits from targeting vacant houses are appealing, but all of the tedious work of driving up and down streets is not. That’s why you can hire someone to do this for you once you make enough money from pursuing these vacant houses.

4 Ways to Identify a Vacant House

Here are four things to look for so you can identify a vacant house:

Overgrown lawn
Newspapers in the driveway
A rubber band sealing the mailbox shut
Fliers on the door

6 Easy Steps for Finding Vacant Houses

Until you can afford to pay someone to do the legwork for you, here’s what you’ll need to do:

Overgrown grass and weeds is a big clue.

1. Identify the part of town where you want to buy houses. The homes should be in LOW-INCOME areas but not in “war zones.” You simply won’t find enough vacant houses or motivated sellers in most of the nicer areas. If you would live in the neighborhood, it’s probably too nice.

2. For three to five hours per week, drive through the neighborhood and write down the addresses of the houses that are vacant. Some people like to say the addresses out loud into a voice recorder. It’s up to you.

3. If you see anyone in the neighborhood who appears to live there (maybe they’re in their front yard or in their driveway or walking down the street), stop them and say something like, “Hello, I’m looking to buy a house in this area. Do you know of any vacant houses? Do you know of anyone who needs to sell?”

4. As you drive, mark off the streets you’ve traveled on a map so that you don’t cover the same streets twice.

5. After you’re done each week, type the addresses into a computer and mail the owners a letter that basically says, “I drove by your house the other day, and it appeared to be vacant. I buy houses. Please call me.” You can get the owner’s mailing address from the appraisal district’s website.

6. Continue to mail letters and postcards to each vacant house owner. Mail up to five or six letters before quitting. Persistence works!

Don’t let the price of gas or the sometimes time-consuming nature of hunting down vacant houses deter you. Many poor investors have been scared away by those two things, and that’s a great thing because it just means less competition and more profits for you!

5 Factors You Must Consider When Investing in Apartment Buildings

Phil Wazonek — Tue, 03 Apr 2012 19:31:12 +0000

When I am considering investing in an apartment building, the ultimate question in my mind is: Is this a good deal? Sounds obvious, but I am amazed at how many investors don’t know how to recognize a good deal. Learning to recognize a good deal takes research, education, and experience.

Here are the five most important issues to consider when investing in apartment buildings.

1. Cash Flow

Will this property cash flow? This is the most important issue to consider, and it depends on a lot of factors, including:

Strength of the local rental market (vacancy and delinquency)

Type of market you are buying into (C class buildings usually have more tenant turnover and higher repairs and maintenance than A or B class buildings)

Interest rate on your financing (is it conventional financing or a hard money loan?)

Size of your down payment

All of these factors considered, ask yourself, “Will this realistically provide income for me?” Also, ask the question, “How will this property cash flow compared to other potential properties?”

For example, a $150,000 house that rents for $1,000/month has a better income potential than a $300,000 house that rents for $1,600/month. A four-unit building that costs $400,000 may bring in $3,000/month in the same neighborhood.

Buying in the right neighborhoods and in the right stage of a real estate cycle will result in appreciation and profit.

Whether the property will provide income to you begs the question of whether income is important to you. Is it? Do you earn other income that would allow you to spend more of the income refurbishing the building? Do you need more income now, or is future equity growth more important?

There are no right answers to these questions, but they are factors to consider when looking at a potential purchase.

2. Leverage

Leverage is important in investing because the less cash you put down on each property, the more properties you can buy. If the properties go up in value, your rate of return goes up exponentially. However, if the properties go down in value, and you have a lot of debt on the property, the result can be negative cash flow.

Negative cash flow can be either “bad” or “good.” The “good” kind is short-term and makes you money.

For example, all the foreclosures we’ve bought had high vacancies and needed rehab work. So we needed the financial capacity to get through the negative cash flow until we could stabilize the property and create a very good positive cash flow. Then we had options to either sell the property or to refinance and pull out most of our money.

“Nothing down” investing is very attractive for the high-leverage investor, but should be approached with caution. If you are a long-term player, leverage will generally work in your favor if the markets in which you invest appreciate in the long run and your income from the properties can pay for most of the monthly debt service.

3. Equity

Does the property you are purchasing have equity or can you create equity? Equity can take a number of forms, such as:

Discounted price

Fixer upper – “upside” potential

Rezoning opportunity

Poor management

Foreclosure

There are many ways to create equity, but buying into equity is your best bet. Find a motivated seller who wants out of his property and is willing to give up his equity for less than full value. Or buy a property that needs work that can be done for 50 cents on the dollar or less. In other words, if the property needs $10,000 in work, make sure you get a $20,000 discount on the price or better.

4. Appreciation

Buying in the right neighborhoods and in the right stage of a real estate cycle will result in appreciation and profit. However, timing a real estate cycle is difficult and is very speculative. If you buy properties without equity or cash flow solely for short-term appreciation, you are engaging in a risky investment.

Buying for moderate long-term (10 to 20 years) appreciation is safer and easier. Look at long-term neighborhood and city-wide trends to pick areas that will hold their values and grow at an average 5 to 7% pace. Combine this tactic with reasonable cash flow and buying into equity, and you will be a smart investor.

5. Risk

Risk is a consideration that too few investors consider. Ask yourself, “What if my assumptions are wrong?” In other words, do you have a “Plan B”?

If you bought for appreciation and the property did not appreciate in value, can you rent for positive cash flow? If you buy with an adjustable rate loan and the rates go up, will this put you out of business?

If you have a few vacancies, can you handle the negative cash flow, or will it break the bank for you? Expect the best, but prepare for the worst.

Warning Signs of a Bad Deal

The Numbers Don’t Add Up. You’re in this game because you want to make money. If the numbers don’t add up, and the seller won’t drop the price or give you better terms, move on.

Missing Numbers. If the seller can’t provide you with the year-to-date profit and loss statements, plus the actual numbers from the previous two years, move on to another deal.

Made-up Numbers. Pro forma numbers are pure guesswork. They may be educated guesswork, but they are still a projection. Lenders won’t give these made-up numbers any weight and neither should you. This is where your experience plays a big role. After a while, you will quickly be able to figure out “who is blowing smoke” or if the numbers make sense.

Troubled Property. A property may look good on paper–the numbers are real and they add up. But a site visit paints a different picture. Perhaps it needs major repairs because the seller has been deferring the maintenance, hoping to pass the headache on to the buyer. Don’t let it be you.

Wrong Area. Don’t spend your money trying to reverse a trend. If the neighborhood is in decline, the property carries that stigma. Tenants will be moving on, and so should you.

Months on the Market. Good properties go fast. Bad properties linger in the listings for month after month. With detective work, you can figure out why it’s a dud. And that’s a viable learning experience. But your time will be better spent going after good deals.

I hope this blog article gives you some food for thought. Good luck with your investments! Phil

Wholesaling Real Estate: 4 More Ways to Find Motivated Sellers

Marko Rubel — Thu, 29 Mar 2012 19:52:14 +0000

This article completes our series on “wholesaling” real estate. So, I’d like to give you a few more ways to get wholesaling prospects. In the last article, How to Find the Right Kind of House to Flip, we talked about the “driving & calling” method, and it’s a method that will produce some results. However, it takes a lot of energy and has a limited potential.

That’s okay when you’re just starting out. Here are a few more methods that cost some money, but do bring results faster.

Bandit Signs

Get some bandit signs made up and place them on busy intersections. I’m talking about “We Buy Houses” signs. Now you need to be strategic with your decision on where to put them. Knowing that the best wholesaling prospects are lower-end houses in need of repair, you would choose intersections close to those neighborhoods. As always, make sure you’re not breaking any local laws (called “sign ordinances”).

Newspaper Ads

Placing an ad in a local paper will bring calls. The important thing here is to rotate a few different ads and track the response. You want to figure out which ad works the best over a course of a few months. Here are a few examples of the ads you can test for finding wholesaling prospects:

Do You Have a Problem House? We’ll BUY it “AS IS” Call 4 Cash: (333)444-5555

WANTED!
HANDYMAN PROPERTIES
Call 24hrs Recording (333)444-5555

I LOVE UGLY HOUSES
QUICK CASH – CALL TODAY
Free Rec. Msg. (333)444-5555

Do You Have a Problem House?
We’ll BUY it “AS IS”
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Direct Mail

This is my favorite! To perfect it takes a little more skill than we can cover here, but direct mail is definitely the most effective method and the most profitable one. In essence, you can target foreclosures, vacant houses, out-of-state owners, and any other list you think has the prospects you need.

The list needs to be filtered down by “wholesaling-specific” criteria, like “year built” (should be 15 to 20 years ago – remember, you’re looking for older houses) and “zip code,” which will determine the areas of your interest.

The key to making the direct mail work (besides having a targeted list) is having a good mailing piece (postcard or a letter) and having a SYSTEM to track and manage multiple mailings. We use ProfitGrabber Pro to do that.

Blind Offers

Another effective method. We get a list of active listings that have “wholesaling-specific” keywords in their description, like: needs repairs; needs TLC; as-is; handyman special, etc. Once we have such a list of records, we blast them with a low-ball offer (40% – 60% of the listed price).

With this approach, You need to make 150 – 200 offers to generate some interest. We automated that process with ProfitGrabber PRO, so the whole process takes a few minutes of our time and the system faxes 150 – 200 personalized offers. Then we just sit back and wait to get 3 – 5 counter offers.

Then the negotiation starts, and at that point we may go out to see the house. Notice, we don’t see the properties we’re making offers on before there is more interest. That’s why they’re called “blind offers.”

What to Ask When They Call

Okay, so now that you started to get some calls from the sellers, let’s talk about the four most important questions you need to ask them.

The most important “ingredient” a seller needs to have in order for our creative real estate business to work is MOTIVATION. Therefore, the first important question to ask is “Why are you selling?” You ask this question after you spend a minute or two building rapport with them.

The next question is “What do you owe on the property?” You need to know that in order to determine if they have any equity.

You also want to know what they think the property is worth, so ask that.

Another important question you need to ask is about repairs. Ask them what they think the property needs in terms of repairs.

And the final question is “What do you want.” This will help you determine their motivation, in case you don’t find it sooner. If they want substantially less than what they told you the property is worth, then you know they are motivated.

And finally, it’s always good to ask “When do you want to close?” It shows motivation, and it’s one more opportunity to ask “Why so soon?” and find out more about their situation.

Over these six articles, you got some basic idea how the wholesaling business works, now the most important step for your success is to TAKE ACTION. So create your action plan and start TODAY. Go out and drive some neighborhoods and start dialing! Good luck, and if you have any questions, I’ll be on the Real Estate Investing Forum.

13 Warren Buffett Quotes for Real Estate Investors

Doug Smith — Tue, 27 Mar 2012 21:25:53 +0000

If you follow the news, it’s likely that you’ve become concerned about the state of today’s housing market. And it’s no wonder. Just open up the real estate section of any paper, and you’ll see nothing but negative headlines.

To prove my point, here are some recent headlines: “Foreclosure Crisis Continues,” “Home Prices Tumble,” “Housing Woes Won’t End Soon.” I could go on.

I’m not saying that these headlines and articles provide false information. For the most part, their statements are true. But what I am saying is that you should not be using this information to make your personal investing decisions.

You must ask yourself: Am I investing in a market? Or am I investing in a DEAL? If the deal is right and your exit strategy is clear, then the market conditions become much less relevant.

For guidance on investing in troubled times, who better person to turn to than Warren Buffett? I’ve taken 13 of famous Warren Buffett quotes and listed them below. Then, I’ve translated it into practical advice for real estate investors like you. Let’s get going…

Quote #1

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

REI Translation: Today’s market fluctuations are your friend because they’ve scared off your competition–other investors. They’re also your friend because the fluctuations have created a flood of motivated sellers. And as any savvy investor knows, buying from motivated sellers is the only way to make it in this business.

Quote #2

“Only when the tide goes out do you discover who’s been swimming naked.”

REI Translation: Keep plenty of tools (investing techniques) in your tool belt so that you can adapt to a changing market. What worked best in 2006 doesn’t work best in today’s market. Today, we’re seeing first hand that those with only one investing strategy are taking a beating.

Quote #3

“Our favorite holding period is forever.”

REI Translation: To build true long-term wealth, you must buy and hold real estate.

Quote #4

“Risk comes from not knowing what you’re doing.”

REI Translation: Those who don’t know how to properly analyze, enter, and exit real estate transactions think today’s market is risky. Those who fully understand the intricacies of creative real estate investing continue to participate and profit.

Quote #5

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

REI Translation: Now’s the time to buy. In real estate and in life, it’s almost always best to act opposite to the herd.

Quote #6

Today’s market fluctuations are your friend because they’ve scared off your competition and because the fluctuations have created a flood of motivated sellers.

“Wide diversification is only required when investors do not understand what they are doing.”

REI Translation: Naive people are putting their money into stocks, bonds, and savings accounts right now. Smart people continue to invest in real estate, and they’re picking up more bargains than ever.

Quote #7

“Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”

REI Translation: If you’re concerned that you cannot sell for full value, then buy lower – at about 60% of value – and sell lower – at about 90% of value.

Quote #8

“We will reject interesting opportunities rather than over-leverage our balance sheet.”

REI Translation: Sometimes the best real estate deals are the ones you don’t make.

Quote #9

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

REI Translation: If you’re going to hold a property long term, it’s far better to buy a wonderful house at a fair price than a dump at a bargain.

Quote #10

“A public-opinion poll is no substitute for thought.”

REI Translation: Most Americans think that now is a risky time to get into real estate investing. Do they know more than you? Most likely not. Only a handful of Americans know the specific techniques for profiting in today’s market. And that’s because they read articles like this, they buy REI courses, they attend their local REI meetings, etc.

Most Americans get their “investing tips” from the daily paper. There couldn’t be a worse source. Do you think journalists know how to wholesale houses, do short sales, take over a loan Subject To, etc.? I think not.

Quote #11

“The most important quality for an investor is temperament, not intellect… You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”

REI Translation: Don’t worry what the masses are doing. Follow the advice of successful real estate investors, and use their techniques to profit in today’s market.

Quote #12

“You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making, or whatever it may be. And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it.”

REI Translation: Every deal must work on paper before it will ever work in real life.

Quote #13

“I really like my life. I’ve arranged my life so that I can do what I want.”

REI Translation: Remember, that’s what real estate investing is all about. Arranging your life so that you can do what you want to do when you want to do it.