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In many markets, properties are receiving multiple offers within days of being listed. This includes retail listings, foreclosures, short sales, etc. As long as the list price is remotely reasonable the properties are going into highest and best. This is not an ideal situation for investors because it means they may need to pay a higher price to be competitive. This can also be true for unlisted properties because all buyers, including retail buyers, are looking everywhere for their next purchase.
A solution to this problem can be solved by using wholetailing. What is wholetailing? It is selling a home for a price above the wholesale price but below the market retail price, maybe even at the market retail price in some cases. Typically these properties need mostly cosmetic or smaller, less serious repairs and/or updating. For this reason the seller is not willing to sell it at a wholesale price. As an investor you can close on the property at a discount, but not as low as a wholesale, and rehab it relatively fast. Once the property is ready you can advertise it at a profitable price below market retail value and get it sold fast if priced right. Some properties may need nothing more than just a deep cleaning. The targeted buyers are investors that may be looking for a rental property with minimal to no repairs and/or owner occupant buyers that are looking for a deal and not afraid of doing some sweat equity. This allows the investors to rent the property immediately to begin cash flowing ASAP. Owner occupant buyers already save thousands buying a wholetail property but they can also increase their equity if they decide to update or remodel the home to the property’s full potential. All these situations create a win-win all around. Read More >>
That sounds too good to be true! Guess who made this possible… The Supreme Court of the United States (SCOTUS)! There is a shockwave moving through the mortgage industry caused by a unanimous SCOTUS ruling in January. The court settled once and for all exactly what a borrower’s Right of Rescission is, and what latitude the courts have when dealing with it. The content of that ruling is a major win for homeowners and real estate investors alike, but what exactly does it mean for you and your business?
First let’s begin with what the Right of Rescission is. It was established by the federal government in the Truth in Lending Act (TILA). It gives a borrower the right to rescind any residential mortgage transaction within three days of the lender providing all of the disclosures required by TILA. The traditional Right of Rescission happens within 3 days of the closing and allows the buyer to cancel the transaction and get all funds returned by the lender. The Right of Rescission we are interested in is much more expansive. If the lender does not make the disclosures, or the borrower claims that the lender didn’t provide them, or the lender did not fully disclose the nature of the transaction, or the lender was fraudulent in their representation, the period can be extended up to three years after the borrower discovers the fraud. The bank must give up its claim to the property by providing the borrower with a cancelled note and mortgage and by returning every dollar the borrower has paid since inception of the loan. The lender has to respond within 20 days of the notice of rescission being dropped in the mail by the borrower. Read More >>
I will never forget my first business/real estate mentor. I was set to taxi the plane out to the runway on a flight to Carrabelle Florida. My passenger for the day was a wealthy real estate investor and developer. I was flying him to FL for the afternoon because he was in the middle of developing a new condominium community on a prime piece of water front real estate that I had watched him negotiate and purchase a few weeks prior on a separate trip that I flew him to Florida for.
At this point my real estate career didn’t exist at all. I was a pilot flying for a medical supply company in Macon, GA. My passenger (Lee) was a friend of the owner of the company I worked for. The owner had invested in Lee’s next development and had given him access to the plane (and me) to take him down to the development site when he needed. At this point in time I was working on my flying career but I was slowly getting the real estate bug. Little did I know that in less than a year from that fateful flight, I would be completely out of aviation and full time in real estate, never to look back.
As we taxied out to the runway on a beautiful spring day Lee said something that would change the course of my life forever “what’s that button for?” Read More >>
As investors we have to watch numerous indicators to insure we make a profit when we buy. Knowing the value of a property is extremely important. Today the adjustment in property tax values is for once a viable market indicator.
Knowing the true value of real estate is critical, try to do a deal without it and see. The guidance and data within REIAComps has consistently shown investors how to determine both solid acquisition value and after repair value to earn lasting profits.
Property values nationwide continue to rebound, according to numerous local and national reports. The taxable value of real and personal property nationally has increased 2.38 percent from 2014 to 2015.
Of the 10-20 reports I regularly review, they show the assessed value of real estate, which is 50 percent of market value, increased 2.75-3.0 percent. Translation, the real estate market is still up, although it is a gradual, slow increase. Read More >>
In the real estate world, it’s all about income. Real estate IRA veterans know that if prices get too far ahead of rents, driving gross yields down, bad things happen. You don’t want to get caught up in the next bubble, trying to sell over appreciated real estate to some greater fool. Any time your entire investment thesis for residential real estate relies on future price appreciation without regard to income generated, you are on hazardous footing.
Smart real estate investors, then, try to maximize their yields on investment – that is, the amount of cash that comes in as a percentage of the amount invested.
Of course, individual properties vary widely when it comes to the cost of repairs and renovations needed to get them to work. But we can get a good idea of the health of a rental real estate market just by looking at gross yields – that is, income divided by the total current property value.
From that perspective, the market for real estate IRA investors looks strong indeed. RealtyTrac recently published its 2015 Residential Rental Market Report, aggregating rental income and price data from hundreds of metro markets, nationwide. The report comes on the heels of another report from Zillow.com reporting that rents have been increasing strongly, even outpacing inflation and household incomes. That’s not great news for renters, unfortunately, who have seen their fraction of incomes absorbed by housing costs increase from 25 percent to 30 percent in the space of just a few years. But it’s good news for landlords, who are reporting solid returns on investment in the vast majority of markets, nationwide. Read More >>
Many Buyers start house shopping without even knowing the price range in which they are qualified. At Sell Fast Realty, our company policy is that the Buyer must be pre-qualified by a Mortgage Lender and has already submitted all their financial documents so their debt to income ratio can direct them to the correct price range of homes. I get a lot of Buyers who have no idea if they can qualify for the price of the home that they want to buy. My Mentor Students and I use my Buyer information sheet to pre-qualify all of our Buyers.
Before I give information about the house that I am selling, I will ask these questions. If they are represented by a Realtor then I want to know if they are a CASH, FHA, VA or Conventional Mortgage Buyer. Read More >>
The real beauty of owning rental property when the seller will allow you to pay them directly every month allows you to collect rent from each rental property you buy to pay for those properties.
The key to make this strategy work is to buy each income property so a tenant who will be renting the property will pay enough rent each month to cover 1/12th of the annual property taxes, 1/12th of the annual property insurance cost and at least 10% to 15% of the monthly rental income to cover the cost of the maintenance for that property when needed. This money for maintenance is set aside to pay for making the property look new when a tenant moves out such as new carpet, paint and any other damage to the property the tenant did during their stay. Also money for when the roof on that property eventually wears out, when the water heater eventually goes bad or the furnace or air conditioner breaks down and also enough money remaining each month to make the monthly payment to the seller and hopefully provide extra money each month for the owner to put into their pocket. Here is an example to show what I am talking about.
For this example each rental property brings in $1,000 in rent each month. This is the formula I use to determine if enough rent collected for each potential rental property to support itself and also provide extra income for the owner each month. Read More >>
“Reality is merely an illusion, albeit a very persistent one.” ~ Albert Einstein
About a year ago, British Airways created an amazing billboard and put it near an airport. When an airplane would take off at the airport, the billboard would detect it. On the billboard, a little kid would follow the plane, pointing at it, until he ran past the end of the screen. When the plane was gone, he would run back into view. The billboard actually interacted with the world outside.
How did they do that? I have no idea.
If you’ve seen that billboard video, you’ve seen an example of “augmented reality.” (If you haven’t seen the video, you can find it by Googling “British Airways interactive billboard.”). Essentially, augmented reality adds digital content to real-life objects. The object could be an ad in a magazine, or it could be a famous painting, or it could be a house you just passed on the road. The essence is this: Point your tablet at it, and stuff happens. That stuff could be a link to a phone number, a video or animation you can watch, or other statistics about the thing you’re looking at. In the case of a house, it could tell you the price, square footage, and comps for the area. It could even give you a tour of the inside of the house. Read More >>
One of the best ways I know of to grow personal wealth is by creating multiple streams of income in your life and in your business. In an uncertain economy, it is important not to place “all your eggs in one basket.” In order to protect your income long term you need to consider diversifying your investments so whether in a bad economy or a good economy you still have income from some of your investments.
As a real estate entrepreneur, there are several ways for you to accomplish this goal. One way to create multiple streams of income has to do with the way you purchase properties and structure your deals. You can wholesale properties for immediate income, or you can lease/option properties so you get some money today, some each month and a big chunk of cash at the end. When you do a lease/option with a tenant buyer, just remember to increase the initial asking price of the property by at least ten percent so you realize the gain in property values over the year. If you extend your lease/option for a second year, you get another chunk of cash; you increase the price again and continue to get a monthly income from it.
You can also hold onto rental properties and have someone else manage them for you. This way, you get to go the mailbox, get checks and not have to do any of the work or deal with the tenants. Apartment complexes and storage units are another great stream of income, especially when they are managed by someone else. Not only do you realize the gain on the property long-term but the monthly checks are even bigger. Read More >>
We always hear how it is important to get a solid Buyers list whether large or small but ultimately of people that can perform. One such Buyer that is relatively untapped for wholesalers are Builders. These are in many ways some of my favorite Buyers because they can oftentimes pay higher prices than investor Buyers who have to hire them. Let’s take a look at why this is:
When you start mixing some of these potentials savings together, you can see how they can pay more for a house than an investor can thus making the difference in having a deal done vs having no Buyer. Let’s look at a specific example. Read More >>
QuickBooks simplifies and speeds up your daily accounting work, but you’re missing out on valuable insight if you don’t tailor your report data.
Do you remember why you started using QuickBooks? You may have simply wanted to produce sales forms and record payments electronically. Gradually, you expanded your use of the software, perhaps paying and tracking bills through it and keeping an eagle eye on your inventory levels. Certainly, you’ve run at least some of the pre-built report templates offered by all versions of QuickBooks since their inception.
QuickBooks’ automation of your daily bookkeeping tasks has undoubtedly served you well. But that’s merely limited use; now it’s time to take advantage of QuickBooks’ greatest strength: customizable reports.
One of the rewards for diligently entering all of your accounting information is a better grasp of your company’s financial performance to date. That insight ultimately leads to better business decisions that can contribute to your future growth and success. Read More >>
People often ask me, “Russ, how do you stay so motivated, confident, and upbeat?”
My answer? I know my assets, and I make sure that I have more assets than liabilities.
Do you know your assets?
Knowing your assets will allow you to assess whether or not you are heading in the right direction. It will show you if you are winning or losing. I like to know what my assets are because it builds my self-esteem and feeds my ego. There is nothing like a good ego boost!
Here are the 4 types of assets:
Physical/ Money Assets
When we think of assets, we typically think of money! But there is much more than that. There are physical assets. Read More >>
There are certain expenses a real estate entrepreneur will have in the business, and the more it ramps up, the more these expenses will increase along with revenue.
Fortunately for us, our overhead is extremely small. And when I say extremely, let me do a few comparisons for you:
When my restaurant was open, my break-even was approximately $100,000 per month. That’s just what it took to keep the doors open, including all the costs inherent in a restaurant and most other businesses like labor, insurance, utilities, product, etc. The food alone was $.40 of every dollar that came through the door. That’s a tough nut to crack for any business, especially when you’re dealing with small numbers like those found on your dinner check. There were many times I wish I could sell a filet mignon for $10,000 like we get out of houses with little overheard and very little work.
In the restaurant business, we’re open for lunch and dinner most of the time. There were always at least 12-15 people on duty with over 50 employees total, open seven days a week, and a manager or assistant manager had to be there 100% of the time. If that manager happens to be the boss, that pretty much sucks up that life. Read More >>
Welcome back...again! Quick refresher: We’ve been discussing two classic & powerful, tried & true real estate investing strategies:
Wholesaling and Lease Options, aka “Ugly” vs. “Pretty”.
Part One of this series was devoted to Wholesaling, and Part Two was focused on Lease Options. Examples were given. Terms discussed. Money put on the table. Moving on...
Whenever a ‘newby’ investor asks me where they should start, I usually tell them that wholesaling is a great way to earn some great money while learning the business, so they should consider starting there. After a while, and when their marketing starts generating leads from pretty house sellers, I tell them that it’s a great idea to learn that part of the business so that they can start to make money from those leads as well.
It’s a beautiful thing when a deal fits easily into a ‘type’ of transaction we know how to do, and it’s even more beautiful when all the stars are in alignment & a deal closes smoothly. But we live in the real world here, right? Besides, we’re problem solvers, and that’s why we get paid the big bucks! :) Read More >>
Last Saturday, I took thirteen real estate investors from the Chattanooga Real Estate Investors Association door-knocking. Before heading out, we discussed how to make a written offer to a seller.
The group had a number of questions: 1) How do I find a property’s fair market value? 2) How do I discover market rents in the area? 3) How do I make a written offer right there on the spot?
The first thing to remember is that an offer is different from a purchase contract. A purchase contract is often a formal document written in legalese that no one – especially the buyer and seller – understands. On the other hand, an offer can be written in plain English on a Post-it note that makes sense to everyone! (NOTE: On North Georgia REIA’s Facebook page, you’ll see three of the written offers I made in Chattanooga.)
Randy Shelley is an investor who lives in that area. We spent the day knocking doors in his subdivision. Though he already knew the fair market values and approximate rents for his neighborhood, I asked him not to share this information with the group. Read More >>
My wife Stephanie and I have been doing Creative Real Estate Deals for over 30 years. In fact we have done close to 2,000 of them with none of our own money or credit.
We have mentored hundreds of students across the country and Canada. We love to teach what we do to others and our reward is watching them succeed.
Well, back in 2007 the market started turning down and we all know about the Greatest Recession of all times that followed. We quickly found that a lot of the techniques we were using suddenly were not working anymore. So we created a technique that we actually had used since we started investing and named it ACT, or Agreeable Contract Terms.
With ACT, we were able to get sellers to give us terms or pricing that was agreeable to us right up front. This worked for about 2 ½ years. Then in 2012, the market started changing again. It became more of a retail market. Have you talked to a seller lately? I bet they want ‘CASH, Full Retail, or More than Retail’ for their home, right? Well, we are seeing this across the country. Read More >>
At Fortris we have several levels of Mentoring and in the past one of these levels was the Generals Club. That club has now been retired. But several years ago we opened it up to 8 investors. The concept was total immersion into the tax sale business and working through an entire deal utilizing the General’s capital while teaching them the entire process of construction management, sales, the associated legalities, and the basics on how to become a very successful real estate investor. At the end of the project we gave the General back all their investment, as well as their mentoring fee plus half the profit on the project they had been tasked with. Currently we still maintain partnership investments with five of the original eight members.
Ann S., one of our Generals, invests in the city of Baltimore which is a very tough market. Baltimore doesn’t allow any scraping of tax sale data from their site, so we needed to pull all the enhanced lists manually. The bidding process is different than any other I've ever seen. First the interest rate is bid down which means that you can offer to take a lower rate of interest payment to win the lien. It is also a sealed bid including a premium offer you are willing to pay, over and above the interest, added in. The county processes all the submissions and the best combination of bid and premium gets the lien. If the property does not redeem, the bid will be packaged according to the best offer combination. For example, if the lien is $5000 and the interest rate is 24%, the bidder may structure their offer to take 7% interest on the $5,000 certificate and then pay a premium of an additional $6,000 above the lien cost if the lien does not redeem. A fairly complicated structure. All the premium bids are sealed and no re-bids are possible. You only get one crack at getting it so you have to use your opportunity to make your best offer possible. Read More >>
Like most investors, I too send out yellow letters to distressed homeowners. Obviously, the intention is to find a property that can be acquired below market in order to make a profit. In most cases the properties that are contracted are either sold as a wholesale deal or are purchased to be renovated and sold. In a few instances the opportunity to contract a property subject-to presents itself but this situation is not usually what you expect it to be. Let me describe my most recent experience with a potential subject-to situation.
Most investors already know what a subject-to is but for those that do not let me give you a simple explanation. A subject-to is when a homeowner deeds the property to the buyer but the mortgage that the homeowner has remains in place. When the buyer is deeded the property he/she now owns the home “subject-to” the existing mortgage. In other words, the buyer will begin to make the mortgage payment or find a renter or new homeowner to do so in order for the buyer to one day own the home free and clear. Read More >>
Picture this: a man purchases a house in 2007 with a loan from a major mortgage lender who then securitizes the loan. After 7 years of making payments, the homeowner loses his job and defaults on the loan. The lender sends a foreclosure notice to the homeowner, claiming the ability to foreclose on the loan. But does the lender actually have the right to foreclose? The answer is a bit complicated, and does not look good for the major banks. To understand why, let’s take a closer look at exactly what the banks did and what it means for homeowners and real estate investors.
When a loan was securitized it was lumped together with a massive pool of loans and then sold in parts to investors around the world. The investors were then paid from the principal and interest payments on the loans based on their percentage of ownership. It sounds simple enough. If it was that simple, why did mortgage lenders begin the process by selling each loan in the massive pool of loans through a sequence of sales? And why was the last sale almost invariably to a single-purpose entity, usually a trust with a major bank as the trustee? The point of this sequence of sales was to separate the pool of loans from the assets and liabilities of the originating lender. They did this in case the lender was to file for bankruptcy or go into receivership. If the loan had not been completely separated from the lender, the lender could then claim the loan by right of redemption, effectively leaving the investors with nothing.
If the homeowner continues to make their payments, this is the end of the process for them until they have paid off the loan. If the homeowner misses payments and the foreclosure process begins on their loan, that's when things get hairy. Read More >>
One of my favorite business books is Good To Great by Jim Collins. In this book Mr. Collins gives a great example that I realized applied to me when I was building my real estate business and will apply to you too. The author gives us an example of a great big fly wheel. He describes this as a giant metal disk on a thin pole. Imagine this disk weighs thousands of pounds and is currently stationary. Your job is to get this disk spinning.
It is easy to imagine that it will take time and effort to get the giant, heavy wheel to spin. You will begin with a single shove on the wheel. Very little will occur with this initial input from you. The wheel may move very slightly. You will push and push and the wheel will slowly start to move. Your effort will be great and the results will be minimal. Shove and shove and shove…the giant wheel begins to spin slightly faster and faster.
At a certain magical point the wheel will become much easier to spin. The weight of the wheel is now working for you. Its own momentum will keep it spinning with very little effort on your part. You can now give small gentle pushes and the wheel will keep spinning on its own. Read More >>