New&Interesting

How The Heck Do You Finance The Deal?

If I had a nickel for every time someone asked me that question I would have an extra million dollars just lying around and would be able to give it to someone to buy my house. Financing is really the key to opening up your investing business right now.

Over the last eighteen months or so the financing picture has changed drastically. In February of 2007 you could get a 100% LTV non-owner occupied loan with a mediocre credit score, no proof of income or assets and just a signature. Now if you can get funding at all, you have to have a great credit score, fully documented assets and income and a large down payment. Not only that but you need to have seasoned money for the down payment and reserves. The pendulum has swung back the other way almost to the extreme.

How The Heck Do You Finance The Deal

If you or your buyers are going to use conventional funding sources, you need to make sure to have your act together. Ensure that everything is documented perfectly. This is the main reason why it is much tougher to sell your rehabbed properties. Buyers are not prepared. The good news is that if you buy the house right, you are sitting pretty to sell your properties creatively and to make a great profit.

This brings me back to financing, it is more important than ever to use private lending in your business. Learning the ins and outs of Private Lending can be the difference between thriving in this economy or shutting your doors and missing the best opportunity for wealth creation in our lifetimes.

Unfortunately most people don’t understand how to find Private Lenders, or how to be one for that matter. Investors are afraid to talk to people about what they do and ask them if they are happy with their investments. It is amazing what happens when you talk to people. You can find money coming out of the wood work. The other night I was flying home from St. Louis and chatting with a college professor about our lives and jobs. At the end of the 3 hour flight I had a potential new private lender and had sold one of my new courses about how to be a private lending.

Most people are in a position where they just lost some significant money in the stock market. Their mutual funds are stagnant or have gone down as well. People are afraid, very afraid. They don’t see any options available to them except a T-Bill that earns less than 3% annually.

I show them how they can earn a safe and secure return by lending me money that will be secured by real estate. I talk with them to find out their goals and determine if what I do will fit their criteria or not. I never try to force anyone into an investment. It will never work for either of us if I do. I am careful to stay well within the SEC and State department of securities guidelines.

I am careful to only approach people when I have a relationship with them rather than hitting someone up when I first meet them. I get to know them and their goals. I am not a financial planner. I do not present myself as one on TV or through what I say to people. By building a relationship you understand their needs better. You also stay well within the law, which is always a big thing for me. I really don’t look good in stripes.

Your assignment this week is to talk to people about your investing business and discover if they are happy with their investments. Find out what they earning from their investments. Don’t push them to reveal everything to you immediately; you can follow up with them later. Next week I will talk about what to say to get them to open up to you.

Wealth Acceleration Strategies for Real Estate Investors

We will all agree that real estate is the best way to build wealth. Using real estate helps by using one key method that almost every other investing strategy does not offer. That being Leverage or borrowing against your property to control something more valuable than the amount of money invested. I can hear you yelling; “What about trading stocks on margin?” Yes, you are right that with a trading account you can trade limitedly on margin or only putting a fraction of money up for the stock. But that is very limited compared with real estate.

I have done a 100% LTV mortgage on an investment property before. Now since the Sub-prime melt down you will not be able to do that for a while. But still, people routinely buy property with less than 20% of the purchase price down.

Assume you are going to buy a single family house to rent out for 5 years and then sell my house. So you buy a $400,000 single family house purchased using a 80/15/5 conventional mortgage. What does that mean? 80% LTV first mortgage, 15% LTV second mortgage and 5% down payment. You bring $20,000 plus closing costs to the escrow company when you buy my house. So for $20,000 you control a $400,000 piece of property. Your monthly payments on your mortgages are $2,100 including your taxes and insurance. You receive $1,800 rent on the house. And it is vacant for 1 month out of every 12 months because of finding new tenants. Now this is a very conventional deal but very realistic in our current market.

Let’s take a look at the numbers:

So looking at the numbers this way it does not look like a very good investment. Paying someone to live in your property $27,000 for 5 years. Remember this does not take into account any repairs or tax implications these are just the raw numbers. But let’s look at it a different way. We are going to assume for the sake of argument that the property appreciation is 10% annually using round numbers. This a absolutely achievable in the Seattle market but will vary depending upon area.  Here is really what you are controlling:

Purchase Price: => $400,000

Future Value 60 Months 10%annually: => $644,204

Total Equity Growth: => $244,204

Total % => 61% total growth

So your investment of $20,000 plus your additional expenses of $27,000 of holding cost will bring you an additional $197,204 over that same 5 years. How many of you would spend $47,000 to make $244,204 bringing you a rough profit of around $190,000. That is really the true path to wealth in real estate investing. The use of leverage is really what makes this happen for you. If you were to just invest the same $10,000 at a 10% annual interest you would only make $6,105 instead of the more than $190,000. So using the leverage only found in the real estate make you very wealthy when used over time.

Now most of you know that I am a big proponent of creative real estate investing and may think that there is something hypocritical about talking about going and getting a loan and investing for the long term. Remember. This is tactics that I use to make money to invest long term for growth. So this is very true of all real estate. So please take the time to develop a strategy to use the best of both worlds.

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The Grunt Work of Motivated Seller Marketing

When I am asked by new and experienced investors about how to find deals I stun them when I tell them that I have motivated sellers seek me out. They are at a loss because either they are not getting any leads or those leads that they are getting are by people who do not need to sell my house quick they just want to sell.

I have never understood why people would do their marketing in such a general manner. They are getting leads from all over the place. Worse yet they are getting people who are really just kicking the tires, rather than serious people who need to do business the way that we do business. I know the reason that most investors do their marketing in this way is because that is what they see other investors doing or they were told to do that from a seminar speaker.

I always have been asked about using the “Yellow Letter”. This is a letter that is hand written or appears to be hand written on a yellow legal pad of paper so that it looks like an investor actually took the time to mail each one individually. This is a good technique used in the proper neighborhoods. It does get people calling in and it makes the investor seem very busy.

I spoke with several speakers about this mailing and one confided in me that he teaches this method because the investor gets responses from it and that it makes him, the speaker, look good. The funny thing about it is that this speaker knows that the number of useful leads is actually below average from his other mailings.

When I do my marketing I do it in such a way that I only talk to motivated sellers rather than every Tom, Dick and Harriet that wants to sell their house. I would rather direct them to my website or automated information line rather than talking to all of these people.

Recently I had a mentoring student who used the Yellow Letter call me frustrated. She mailed out thousands of yellow letters and had over 200 phone calls in less than two weeks. Her days were spent trying to get the answers to her questions from these people. At the end of the exercise she swore that she would be happy with just buying a single house from those leads.

Frustrated at spending over a week following up and tracking down she had come to realize that there was not a single motivated seller in the bunch. All wanted full retail; a few others wanted more than the house was worth and a few figured that by discounting $10K was enough for an investor to make a profit on the deal. She finally realized that putting people through some prequalification before she spoke with them is much better than dealing with all of these phone calls.

No Money or Credit Investing is a Crock!

No Money or Credit Investing is a Crock! Why are you still teaching it?

I am going to take a time out from my article series this week. I received an email from a person who got into real estate investing a couple of years ago practicing “No Money Down” investing. I have talked to him several times over the last year or so and yes, he got himself into a pickle.

He watched those same TV infomercials that you and I have seen late at night. He heard about this wonderful world of real estate investing with no money down. He decided it was for him. The problem is he did not educate himself. He decided that he knew enough watching those 30 minute success story shows that he could go out and do it himself.

He began by working with a real estate agent and mortgage broker. Please keep in mind that this was in a good market during 2005 to 2007. He found a typical “good deal” on the MLS that his agent “told” him was a good deal. He went to a mortgage broker who lined up a “really good” no down payment, interest only, negative amortizing loan that allowed him to roll in his closing costs. He then rented out those properties with negative cashflow.

He did this several times. Over and over again, he buy my house at full retail. Over leveraged it and then rented it out for less than his monthly payments. You know, this is a real life version of the old story that if there is enough “Gross Revenue” there has got to be some “Net Revenue” around here somewhere.

He was all set… All set for disaster that is!

Anyway, with the market change and renters not paying on time and then having to evict them; problems started. The adjustable loans began adjusting and then the financing criteria began changing, so there were no loan programs to do a “cash out” refinance. Soon he was in a bind. Long story short… he is in big trouble. He lost his credit and properties and everything else. Foreclosure and Bankruptcy, Ouch. Unfortunately this is typical in today’s real estate market.

But in his email to me he asked why I still taught “No Money or Credit” investing. Well frankly, because it works. I believe in getting trained properly to do what I am setting out to do. I don’t believe in trying to learn from a mortgage broker and real estate agent who are just trying to make commissions off of my transactions. I would rather spend $5,000 or $10,000 for training where I can multiply that same money over and over again.

If I paid that same money in commissions I only learn from that one transaction. Paying someone who has been there and done that, I learn from every transaction that the teacher has ever done as well as from the people in the audience.

I am not blaming the broker or agent for this transaction. (Well, yes I am… but really they did their job, which was selling their service to the investor. Not teaching him to be an investor.) The root of the problem was the investor. He didn’t educate himself and didn’t know enough about the endeavor to make money.

He still sees me and other people who teach successful creative real estate investing techniques as the problem rather than he who got in over his head and listened to the wrong people as the problem.  I teach “No Money or Credit” Investing. The difference is I have yet to put a mortgage into my name and I have a solid exit strategy going into the purchase of the property or selling my property.

He would have been fine if he would have took it slower, found a deal and then used his buy and hold exit strategy with the proper fixed rate mortgage that allowed cashflow. The problem was he lived in Southern California and when the market tanked, so did he.

Remember there are Winners or Whiners, you choose which you want to be. Take responsibility for your own actions. He made the mess and he is cleaning it up. In a few years he will be in a position to try again. It is his choice to be a Winner rather than a Whiner!

Determining the True Value of the Deal

I don’t know about you, but when I first got started in this business I had a hell of a time determining the true value of selling my property, when I bought it, as well as the After Repaired Value (ARV). There were so many variables in determining the value it just eluded me.

When I first began learning about investing everything regarding value was cut and dry. Run comps using the MLS, Real Quest, Data Quick or some of the free comp-ing services from title companies. They would give you the sale prices and the list prices of all of the properties within a radius around the subject property.

I did learn that proximity, size, age number of bedrooms and baths are important when determining the value. Amazingly enough you can have two houses built in the same subdivision, same age and size and yet the value of the properties can be radically different.

Contrast that with a house built by the same builder but in the next development over and the prices can be different as well. All of this has made for a very confusing problem when determining the value of selling a home.

A perfect value would be having a house that was the same size, same number of beds and baths in the same neighborhood built by the same builder and the comparable property was sold and closed only 30 days previously. You can then be assured that the values would be the same.

Then you have to take a look at the motivation level of the seller and the buyer; just because the appraised value would be the same the market value could be radically different. Suppose the seller was willing to offer better terms for the sale or the buyer was in a pinch and needed to close quickly. This could add 3-7% to the selling price of the house.

I know that I have added many different dimensions to something that should have been simple, determining the value the property. I just want to encourage you to think about the complexity of real estate investing. What may seem like a simple item can become tricky very quickly.

This is one thing that will trip up a beginning investor, but surely not the only thing. This is why I encourage you to work with the Best Expert Professionals like appraisers and real estate agents when first getting started. Once you have done several properties you will become an old hand at figuring out what the property is worth.

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Creative Marketing for Creative Real Estate Investors

We all know that we make money when we buy a house and we pocket the money when we sell my house quick. To have a successful business we need to have good cashflow that covers our expenses and throws off money for us personally. Without this we are not going to be in this business for very long.

In order to get good cashflow we need to have deals come our way. To get deals we need to have leads and to get leads we need to market for them. As you can see marketing is the “Key” to this business. Without good marketing everything falls down on top of us. Unfortunately this is where most people make mistakes.

Either they don’t do enough marketing or they don’t do good enough marketing. Some people think that sending out a postcard once is marketing. Really if you send a mailing once, you are just wasting your money. You need to have multiple steps as well as multiple avenues of marketing.

I advocate that you are using 5 different types of marketing to bring in leads. If you don’t have a marketing budget then you have to use more guerilla types of marketing. You have to do more tasks yourself to stretch your budget. If you have a decent budget set aside you can do more and outsource everything.

You can use many types of marketing to obtain quality leads. Just pick any five and run with them. Here is a list for you to pick from:

Take this list and pick 5 of them and use them on a weekly basis. Send out letters, hand out flyers, hand out 5 business cards per day, place 10 bandit signs per week, and distribute door hangers to your target neighborhood.

Quite frankly, if you are not getting enough lead flow, you are not doing enough marketing. Spend your money where it counts. If one of these methods has not been working for you, change it up a little. Test to see what works and then do more of that.

Marketing is the key to a successful business. Be different; stand out from the crowd by being more effective. Effective marketing is a business builder and will prevent your competitors from taking your deals away from you.

Take action; make a difference for yourself and others.

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Need more information, give us a call at (800) 518-0215. See how Ascent Property Solutions can brighten your future.

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Know Your Exit Strategy Before You Buy That House!

With the current state of the real estate market around the country it is important to be a little more cautious when you are looking at potential deals. I don’t know about you, but I have been getting leads from motivated sellers. They are putting their houses on the market as well as trying to sell my house quick or their properties themselves.

In this market it is more important than ever to do your due diligence by knowing the value of selling a home as well as understanding what your exit strategies can be on an individual basis.

Here is a little primer on exit strategies and when to use them. I typically use 5 types of exit strategies when I am investing. When I buy into a deal I want to have as many exit strategies as I can possibly have that will be profitable to me. When I do, I have much more flexibility with the deal.

1. Wholesaling – I would get a property at a discount from the seller, put it under contract and then depending on how much profit there is in a deal I would then wholesale the deal to another investor on my buyers list or if the deal was slim would wholesale it to an end buyer for a finders fee

2. Rehabbing and Retailing – The deal would have to have an upside potential. Being able to get it at a discount or buying it creatively is a good start. Depending on how much of a fixer it was I would do to the property what I could balancing time and cost to maximize the sales price. Typically I don’t like to do ugly houses where I would need to do a major remodeling job. I like to get in and out in a hurry putting my predefined minimum profits to see if the deal is truly a deal.

3. Long Term Buy and Hold – When I am ready to hold houses for long term appreciation and the tax advantages I look at everything combined. The status of my company, do I need immediate cash to run my company? I look at the deal itself, only buying in those areas where the value will either maintain or increase. I also look for the manageability of the property, how much effort is it going to be to find a tenant and to maintain the property long term.

4. Lease Option – This tactic gives me a lot of the advantages of both rehabbing and buying and holding. I can take a property and rehab a profit into it as well as sell it for the same price it will sell for in 12 to 24 months. Tenants can be a challenge finding but they are much less of a management headache. I don’t recommend this as an emergency exit strategy like I have seen so much in the past. You must understand this technique so you don’t put yourself in jeopardy by giving equitable title to the tenant. Do your research and use the proper forms.

5. Last is Seller Financing – Some investors are hesitant to offer this as a solution when selling a house. I like it because I can sell at a higher price to more people. In this tight sub-prime mortgage market it is a great technique as long as you use the right contract and work with the right buyers. You do not have to offer 100% financing but you can carry back a second mortgage to cover some of the buyers down payment. Just make sure that you can get out of all the underlying loans properly so you will not have to make up the deficit with your financing. I want to work with a buyer who can get at least an 80% first mortgage if not more and then I will carry back a not for the difference. This way I am clean of my costs and earning interest on my profits.

This is the first step that I look at when I buy the property. Following this rule I have yet to be burned because I have had at least 2 backup plans. You know what they say about having a good backup plan; it can be the difference between working on your own business or working for your old BOSS.

Go out and review your deals in this light and make some good money for yourself.

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Are You Able To Think On Your Feet?

As a real estate investor, many things can come up during a deal. You have a choice, you can let it throw you for a loop or you can roll with the punches. There have been several times that during a closing the seller revealed something that I should have found out earlier in the process. It stood a chance of blowing the deal out of the water. When I first started investing it did screw up the deal.

After learning more about investing I was able to figure things out and recover quickly from these situations. I talked about the cost of education a couple of weeks ago. These are the reasons that I spend so much on education. I quickly remembered tidbits from these workshops and bootcamps that have stood me well over time.

I was able to recall how other investors were able to deal with these. I also developed a relationship with other investors around the country that I could call to see if they had ran into this before. With all of this I have been able to overcome almost everything that has been thrown at me.

The more you know about investing the more you can deal with the nuances of the transaction. Also, by choosing the right best expert professional to help you, the better off you will be. Obviously you can not know everything about everything. But you can choose to work with those that know a lot about their main job.

Take for example a mortgage broker. By working with someone who knows a lot about their trade they can help your client, whether buyer or seller, understand the issues that have cropped up since the sub-prime headaches have come into existence. This can save you from buying a piece of property that may not live up to your expectations.

Using the proper home inspector can help you track down trouble when you buy my house rather than when you sell my house, allowing you to take proactive measures in your deal rather than reacting to issues that crop up.

Knowing more than one technique will help you when the industry changes. Take for example lease options and the new laws that are being proposed nationally and locally that will hinder these types of transactions. What are you doing now that will help you if that eventuality comes to pass? Start thinking now so that you can survive anything that is going to block your way tomorrow.

Choosing the Right Target Market - Part 2

A couple of weeks ago I talked about choosing to market for houses in areas that were more likely selling a home  creatively. I also went into the fact that I want the price of the house to be around the median for the area because that sells the fastest. Also I don't want to market to houses that are old and would require extensive remodeling before I sell them.

So I first go about looking for neighborhoods that have seen a historical abundance of foreclosures or at least foreclosure notices. Why, because if there have been a number of notices it stands within reason that there will be a number of them in the future as well. Neighborhoods don't change their makeup very quickly.

I like to do a little bit of work narrowing the area where I market, so that I am more efficient and can spend more money per lead. I want to be able to get a higher response rate and be able to hit the leads more often. By doing this I get the chance to know my market and neighborhoods and become the expert while doing so. I narrow my competition at the same time so I am not being compared to another investor by price and how I buy my house.

Being a techie I take things one step farther than most other investors. I upload into Microsoft MapPoint or Microsoft Streets and Maps the excel spreadsheet file of all of the foreclosure addresses in the last several years. I then visually map these out on the screen so that I can view the foreclosure density of neighborhoods. This way I can choose these specific neighborhoods and mail to those houses in the neighborhood that meets my investing criteria.

If I spend fifty cents per address getting a more likely prospect I consider it well worth it. The nice thing is you can buy a mailing list that meets your criteria such as the age of the house, what type of mortgage the owner has, how long the owner has lived in the house and many other demographics you could possibly think of. And then you just bump these up against those neighborhoods and mail only to those houses.

Most of you already know that I am a big believer in sequential mailings. The more times that you hit a prospect with your message the more likely they are to respond to you when they are ready to respond. I heard that it was called front of the mind awareness. This is what brand advertisers are going for. I have even had sellers tell me that they had seen my signs all over and then responded when they got my letter because they hadn't gotten the number off the signs. What I didn't tell them is that I had not put a sign in their neighborhood for over a year. I was getting credit for other peoples advertising money. You gotta love that.

Yes I know this sounds a little complicated. Yes I know that it is easier to send a postcard to those people in pre-foreclosure that to do what I am talking about. The problem is you are going head to head with most other investors when you are mailing postcards to the pre-foreclosure market. I know that most of the National speakers won't tell you that, they will tell you to mail a postcard because it is cheap and easy and that is what most people want to hear.

I guarantee that I get a better response from my mailing campaigns in a tough west coast market than another investor who is just sending a single postcard. So invest the time to define your target market and you will become the expert in your area and be able to buy more houses that you ever though possible.

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Choosing the Right Target Market - Part 1

When investors approach me about where they should look for houses they are looking for me to tell them a general rule of thumb in distance from their house. I remember when I first decided to become a real estate investor I was looking for the same answer. I read Robert Kiyosaki’s book Rich Dad Poor Dad and was looking for the magic bullet. He said to look for properties that were within an easy drive from your house when starting. You know 30 – 60 minutes or less than 30 miles.

That made my decision even tougher because there were so many different types of areas in that range. I could go to one of the highest valued neighborhoods in the country or go somewhere where I could buy drugs easier that finding a house. That really didn’t help narrow down my choices at all.

I have since gone to many different boot camps by many educators and each one said something similar. Others at least specified demographics as well as geographic areas. That helped somewhat, but really not enough. It was still a large area with nothing that was really helping me choose the best area to farm.

I dug in my heals and decided to do my home work. First based upon the type of investing I was doing I knew that I needed motivated sellers, someone who would sell me their house creatively. That narrowed it down somewhat. I knew that I wanted to be able to sell my house quickly once I was ready so I new that it would have to be in that sweet spot of price. I new that I would have to buy it for less that median price and so that helped me choose an area had a preponderance of houses in that price range.

I know that I didn’t want to do a major renovation so I knew that I wanted pretty neighborhoods with newer houses rather than a house that was 50 years old and badly outdated. I wanted people who were more inclined to me motivated to sell creatively so I decided to target people who were behind in payments or about to be behind. I knew that with the sub-prime meltdown the people who had mortgages that had adjustable rates were more likely to be in need of selling my house quickly.