Investors’ Best Kept Secret – multi-part Report

There are hundreds of thousands of real estate investors in this country. And the numbers continue to swell, largely because it’s a proven fact that investing in real estate has created more millionaires than any other form of investing! Geez, knowing that little fact… who wouldn’t want to be a real estate investor?

Of course, there’s always “the other side of the coin.” Truth is, 85% of those who call themselves a real estate investor never buy their first house!

These facts quickly lead us to the obvious question. Why? We think it’s simple… most investors never get past the first hurdle… finding a predictable, consistent and reliable source of leads to motivated sellers who are desperate to sell their homes!

As investors, we can’t afford to pay “owner-occupant” prices. We have to find motivated sellers who are willing to sell their homes for significantly less than the retail value.

There must be enough of a “cushion” so we have room for cash flow on a rental or lease option property, retail profit on a fixer-upper, or wholesale profit on a quick-turn deal.

These challenges were exactly what we were facing every day of our investing business. We were pursuing every avenue we could think of to find good deals on a consistent basis. Many ways worked, but they were never consistent. Therefore, they weren’t creating the kind of income that we could rely on. And that was problematic because we really like consistent income. You?

Then we literally stumbled into a wholesale deal that gave us a “net” profit of $55,000… yes, I said wholesale deal! And yes, I said $55,000 profit! I was in the house twice and my business partner was only in the house one time. How cool is that?

Potentially more exciting than the $55,000 of cold, hard cash in our bank accounts was that we believed there were many more homeowners just like the one we had freed from foreclosure! I bet you would have examined the heck out of that deal to figure how to find more like it, too. Right?

Well, that’s exactly what we did and we found an untapped market niche of highly motivated sellers that all the other investors were intentionally avoiding!!

Needless to say, we were “dancing in the streets” excited!

The niche we found was the “troubled bankruptcy” market.

The homeowner (Jessica) that we “saved” from her foreclosure nightmare had been in bankruptcy just prior to us “stumbling” into her living room. Jessica couldn’t meet all the responsibilities that the bankruptcy court imposed, so she was unceremoniously “kicked out” of bankruptcy. And when that happened, the bank came running after her house again… foreclosure was looming large and in her state of Georgia, the process only took 35 days. Needless to say, she was more than a little thankful that we came to the rescue!

As we learned more about Jessica’s situation and the details surrounding a typical bankruptcy, we started to define this “troubled bankruptcy” market.

Let us be perfectly clear… we do not advocate marketing to people who have just filed bankruptcy, whether it’s a Chapter 7 or a Chapter 13 (the two types of personal bankruptcies). Why? First of all, because not everyone in bankruptcy is a homeowner so you would just be throwing away thousands of dollars with your marketing campaign. Secondly, if someone in bankruptcy is meeting all the requirements imposed on them by the bankruptcy court, they are totally NOT motivated to sell because they are enjoying the protection of the court. In short, as long as they meet the bankruptcy court requirements, all other legal actions against them stop! Most importantly from our perspective, their bank can’t foreclose on their home so there is zero motivation for them to sell… at least not at an “investor” price.

HOWEVER, what we do advocate is marketing to: (1) homeowners, (2) in bankruptcy, (3) who are unable to fulfill their responsibilities to the bankruptcy court.

This is our target market… for the simple reason that at least 95% of the time, these homeowners will soon get kicked out of bankruptcy. And when that happens, their mortgage company will move quickly toward foreclosure. Again, this is the ideal time for us, as investors, to insert ourselves into the lives of these homeowners and offer our assistance as buyers.
Are you starting to see why these homeowners are highly motivated to sell? They’ve been through it all… they were unable to make their payments, then perhaps they were facing foreclosure, then they filed bankruptcy to stop the foreclosure, and now they’re losing their bankruptcy protection. So they realize that foreclosure is coming again.

Clearly, YES, they are extremely motivated to sell so they can get this emotional and stressful time in their lives behind them!

A Primer on Reverse Mortgages

Today the concept has gained widespread acceptance as seniors have found it to be a great solution to rising expenses and fixed incomes.

 

Unless you have been living on Mars or some other distant planet, by now you must have heard about Reverse Mortgages. Wherever you go in this country or even abroad, you can see Reverse Mortgages discussed on television, hear about it on radio, or read about it in a newspaper. Just turn on your television now and see what I mean.
The topic is frequently written about in local and national news media. As often as not, the authors of these stories project themselves to be authorities on the topic but don’t have a clear understanding themselves. They haven’t done their homework, or they simply took uninformed comments made by someone else and treated those comments as fact.

Their lack of knowledge does not stop them from spreading misinformation with no remorse.

Last summer, a major news network personal finance commentator announced that a reverse mortgage was a way for senior citizen to receive money by selling their home to the bank, who then took the house from them when they died. We immediately emailed the commentator to make the correction but to no avail.

Today, let’s try to help you have a better understanding of this wonderful retirement funding tool that all this hoopla is about.

Simply put, Reverse Mortgages date all the way back to the 19th century France where it is said the first Reverse Mortgages were done. In England, back in 1940, the story goes that a resourceful lady came up with an idea to buy homes, and rather than pay cash for them she allowed the homeowner to remain in the home, for an agreed lifetime rent. However, Instead of collecting rent, she deducted it from the purchase price of the home. Then, at a later date when the sale was completed she would deduct the unpaid rent from the proceeds of the sale. She was able to buy five homes this way, where the people died before they used up their rental arrangement. She was then able to resell the homes, to someone else, and in some cases the same home several times.

“This could have been the first Lease Option!”
In Modern times the Reverse Mortgage concept had a resurgence in Portland, Maine when Nellie Young and Deering Savings and Loan Bank collaborated on a Reverse Mortgage in 1961. In 1977 the RAM (Reverse Annuity Mortgage) was introduced by a savings and loan firm in Ohio.

Today the concept has gained widespread acceptance as seniors have found it to be a great solution to rising expenses and fixed incomes. Some folks are using Reverse Mortgages for increased monthly income. Many seniors are using Reverse Mortgages to pay off a mortgage with undesirable terms. Some folks are taking advantage of the cash option and using the large sums of available cash for a variety of other purposes, while others simply leave the funds in a line of credit with the lending institution that allows them to access the money whenever they need it.

A Reverse Mortgage is a retirement funding solution that helps seniors remain independent thru their golden years with safety and security not offered by any other mortgage product.
The advantage of a reverse mortgage can be endless, but different, so have your questions answered by an expert, not the news media.

Case in point, we were working with the Founder of an investment club who is in his 70’s and has a home worth $1,500,000. Due to the fact he could not prove income and there was some credit issues on his credit he was receiving a high interest rate on his loan. By securing a Reverse Mortgage he was able to pay off the existing mortgage and received cash in excess of $300,000.00.

He then was able to lend out money and receive a high interest rate. Which allowed him to earn more money then it cost him. By not making payments on the old mortgage he had money to spend on other items. I have found many seniors working with their family in this way and are able to invest in investment properties. Some have even been able to secure foreclosure properties since they had the funds to pursue them and cash to rehab them.

With the increase of foreclosure properties and having cash available this can open many opportunities for people.
“I know that I know what know, I know what I don’t know, and I know what I need to know”

Updated 13 Shortsale Property Package ~Great Income Producers

I just got some hot deals and I wanted to let you know as soon as possible I’ll get these properties or available find some other investors and go in and take all these properties of my hands. Check out these numbers subtract the renovation figures if you can do better. But you can’t beat these numbers. Drive by take a look at it, and submit your offers.

4090 Old Spanish Trail, Boynton, FL

$49,900

3 Bed, 1.5 Bath Home

Potential Rental Income $1,000 month

Currently Vacant

 

Sales Price	$59,900.00
Taxes	$1,000.00
Insurance	$1,500.00
Management Fee	$1,200.00
Maintenance	$1,200.00
Utilities	$0.00
HOA	$0.00
Vacancy	$600.00
Total Expense	$5,500.00
Rental Income	$12,000.00
NOI	$6,500.00
Net Yield	10.85%
Gross NOI	20.03%

All figures approximate. Great house in good area with central a/c. Price includes $10,000 renovation credit.

1377 7^th Street, West Palm Beach, FL

$39,500

3 Bed, 1 Bath Home

Potential Rental Income $1,000 month

Sales Price	$58,000.00
Taxes	$1,430.00
Insurance	$1,500.00
Management Fee	$1,200.00
Maintenance	$1,200.00
Utilities	$0.00
HOA	$0.00
Vacancy	$600.00
Total Expense	$5,930.00
Rental Income	$12,000.00
NOI	$6,070.00
Net Yield	10.47%
Gross NOI	20.69%

All figures approximate. Price includes $10,000 renovation credit.

1441 8^th Street, West Palm Beach, FL

$39,500

3 Bed, 1 Bath Home

Potential Rental Income $1,000 month

Currently Vacant

Sales Price	$58,000.00
Taxes	$1,501.00
Insurance	$1,500.00
Management Fee	$1,200.00
Maintenance	$1,200.00
Utilities	$0.00
HOA	$0.00
Vacancy	$600.00
Total Expense	$6,001.00
Rental Income	$12,000.00
NOI	$5,999.00
Net Yield	10.34%
Gross NOI	20.69%

All figures approximate. Price includes $15,000 renovation credit

 

619 8^th Street, West Palm Beach, FL

$259,000

2 Bed, 1 Bath Home

10 UNIT APARTMENT BUILDING

2 Bedroom, 1 Bathroom Units

Potential Rental Income $7,500 month

Currently Vacant

 

Sales Price	$349,900.00
Taxes	$3,000.00
Insurance	$3,000.00
Management Fee	$9,000.00
Maintenance	$9,000.00
Utilities	$0.00
HOA	$0.00
Vacancy	$4,500.00
Total Expense	$28,500.00
Rental Income	$90,000.00
NOI	$61,500.00
Net Yield	17.58%
Gross NOI	25.72%

All figures approximate. Price includes renovation credit.

1621 Tropical Drivee, Lake Worth, FL

$35,000

2 Bed, 1 Bath Home

Potential Rental Income $850 month

Currently Vacant

Sales Price	$39,900.00
Taxes	$1,137.00
Insurance	$1,500.00
Management Fee	$1,200.00
Maintenance	$1,020.00
Utilities	$0.00
HOA	$0.00
Vacancy	$510.00
Total Expense	$5,36700
Rental Income	$10,200.00
NOI	$4,833.00
Net Yield	12.11%
Gross NOI	25.55%

All figures approximate.

619 59^th Street, West Palm Beach, FL

$39,900

2 Bed, 2 Bath Home

Potential Rental Income $900 month

Currently Vacant

Sales Price	$42,000.00
Taxes	$1,305.00
Insurance	$1,500.00
Management Fee	$1,200.00
Maintenance	$1,080.00
Utilities	$0.00
HOA	$0.00
Vacancy	$540.00
Total Expense	$5,625.00
Rental Income	$10,800.00
NOI	$5,175.00
Net Yield	12.32%
Gross NOI	25.71%

All figures approximate. Solid home in good rental area with central a/c. Price includes $10,000 renovation credit.

 254 Lytton Court, West Palm Beach, FL

$79,900

3 Bed, 2 Bath Home

Potential Rental Income $2,000 month

Currently Vacant

Sales Price	$115,000.00
Taxes	$3,000.00
Insurance	$1,700.00
Management Fee	$2,400.00
Maintenance	$2,400.00
Utilities	$0.00
HOA	$0.00
Vacancy	$1,200.00
Total Expense	$10,700.00
Rental Income	$24,000.00
NOI	$13,300.00
Net Yield	11.57%
Gross NOI	20.87%

All figures approximate. Home with cottage in Historic area of WPB. Price includes $XXX renovation credit.

5344 Bosque Lane, #104, WPB

$39,900

2 Bed, 1 Bath Home

Potential Rental Income $900 month

Currently Vacant

Sales Price	$42,000.00
Taxes	$200.00
Insurance	$0.00
Management Fee	$1,200.00
Maintenance	$1,080.00
Utilities	$0.00
HOA	$3,120.00
Vacancy	$540.00
Total Expense	$6,140.00
Rental Income	$10,800.00
NOI	$4,660.00
Net Yield	11.10%
Gross NOI	25.71%

All figures approximate. Beautifully renovated townhome in desirable rental/owner area. Price includes $2,000 renovation credit.

 3850 Orange Street, Lantana, FL.

$45,000

3 Bed, 1 Bath Home

Current Rental Income $900 month

Currently Occupied

Sales Price	$59,000.00
Taxes	$863.00
Insurance	$1,500.00
Management Fee	$1,200.00
Maintenance	$1,080.00
Utilities	$0.00
HOA	$0.00
Vacancy	$0.00
Total Expense	$4,643.00
Rental Income	$10,800.00
NOI	$6,157.00
Net Yield	10.44%
Gross NOI	18.31%

All figures approximate. Price includes $6,150 renovation credit.

 

4001 San Castle Blvd. Lantana, FL

$39,900

3 Bed, 2 Bath Home

Potential Rental Income $1,000 month

Currently Vacant

Taxes	$808.00
Insurance	$1,500.00
Management Fee	$1,200.00
Maintenance	$1,200.00
Utilities	$0.00
HOA	$0.00
Vacancy	$600.00
Total Expense	$5,308.00
Rental Income	$12,000.00
NOI	$6,692.00
Net Yield	11.17%
Gross NOI	20.03%

All figures approximate. Great house in good area on huge corner lot. Price includes $15,000 renovation credit.

 

125 South F Street, Lake Worth, FL

$97,700

DUPLEX – 2 Apartments

Current Rental Income $1,650 month

Currently Occupied

Sales Price	$97,700.00
Taxes	$2,033.00
Insurance	$1,650.00
Management Fee	$1,980.00
Maintenance	$2,040.00
Utilities	$0.00
HOA	$0.00
Vacancy	$0.00
Total Expense	$7,703.00
Rental Income	$20,400.00
NOI	$12,697.00
Net Yield	13.00%
Gross NOI	20.88%

All figures approximate. CBS Duplex: 2/1 & 1/1. Needs less than $2K in light repairs/paint

Tenants pay own utilities; owner pays lawn.

 

510 South F Street, Lake Worth, FL

$77,000

TRIPLEX – 3 Apartments

Potential Rental Income $2,000 month

Currently Vacant

Sales Price	$129,900.00
Taxes	$2,940.00
Insurance	$1,900.00
Management Fee	$1,200.00
Maintenance	$2,400.00
Utilities	$0.00
HOA	$0.00
Vacancy	$1,200.00
Total Expense	$9,640.00
Rental Income	$24,000.00
NOI	$14,360.00
Net Yield	11.05%
Gross NOI	18.48%

All figures approximate. CBS Triplex 2/1, 1/1 & 1/1. Price includes $32,000 renovation credit

 

For more information about this property and others like this one visit www.southfloridareinvestments.com

Cash or Hard Money

561.670.3297

edays@rocketmail.com

How to Explode your Wealth in Emerging Markets in the US

Emerging real estate markets are truly virginal opportunities for profit, provided you get in there early and make your mark.
Everyone who is involved in real estate knows that an emerging market is like a goldmine. It creates a pressure-cooker environment of development where all the normal conditions of the real estate market are compressed in a tight space of time.

Demand for real estate properties goes through the roof, prices are adjusted upwards to reflect an insufficient supply and profitable deals can be made fast.

If you are in real estate you want to make money as well as help the local and national economy and in an emerging market there is plenty of scope to do all of this. Money can be made fast because properties appreciate quickly and buyers are eager for the properties that are on the market. The local economy begins to boom as properties sold become cash cows as their owners update them, renovate them and furnish them, helping to revitalise, in this manner, the local economy.

Any local economy doing well has a positive contribution to make in the national economy and the country as a whole.

This is a lot of good you actually do all round not to mention the benefit you can reap for yourself.

It does beg the question however how exactly do you recognize an emerging market and how do you strike it rich when you do?

 

Well, if we take things in reverse order the secret to making money from an emerging market is to get in there at the beginning, capitalize on the upward pressures and sudden growth spurt and get out before it begins to run out of steam, get crowded with other investors and suffer from slimming profit margins. Over the past 3 years, I have closely been analyzing emerging markets around the US. During this period I have acquired over 5,000 units!
To locate an emerging market successfully, you need to be in the market before the masses are. Signing up for the local government newsletters, becoming aware of large industries moving into new areas and local regeneration schemes backed by hefty government subsidies and investments are always good signs of the beginning of an emerging market.

Where your skill will have to come in is exactly in the way you develop all these alerts and then work to analyse them so you can make an assessment ahead of everyone else. The good news is that these skills are easy to learn and easy to apply.

As a real estate investor discovering an emerging real estate market a few times in your career can give you enough of a cash boost to really push you well on your way to total financial independence.

Ok, stop me if you have read this one before: the US is one of the world’s biggest developing countries. That’s right! I know we are considered to be a fully developed rather than a developing nation with a market that has, in many places, reached its peak and is now in a state of differentiation but that’s only the larger picture.

Within that there are a lot of micro-economically controlled areas where the picture is no different to an emerging market like we see in Eastern Europe.

As a real estate investor who has managed to get in first in an emerging real estate market in the US and make big money, fast, I know that the reason we are so blessed in terms of local economics is the size of our great nation.
By the same token, this very size creates specific pockets of real estate development which, to the savvy investor represent an opportunity that simply must not be allowed to pass by.

The reasons an emerging market is so important to a real estate investor are simple: money, money and more money.

 

Emerging real estate markets, as the name suggests, are free from the constraints of the more developed, rarefied, matured markets where the only way to make your mark is through the far more difficult method of service differentiation and market segmentation.
In an emerging real estate market it is possible to experience the heady feeling of being, again, a pioneer, moving forward into new territories and developing new markets ahead of the pack. I know, from direct experience, that there are certain signs that you can learn to be on the look out for which are a dead giveaway of an emerging market.

The best news, of course, is that almost anyone can learn how to do it, provided they are prepared to put in the time and effort.

Emerging real estate markets, for example, are almost always marked by a total employment boom and an expanding zone of out-of-towners looking to move in.

These demographics are readily available if you know where to look and, when analysed correctly, will give you the indicators you are looking for.
Emerging real estate markets are truly virginal opportunities for profit, provided you get in there early and make your mark. To the savvy real estate investor they represent areas of development which simply cannot be overlooked.

Foreign Investing Fun

Put your plan in writing. Plans equal profit when well thought out and properly implemented.

To stay on top of your game, you must stay on top of the market. It’s current major news that investors from foreign lands are coming in droves to take advantage of the low home prices in America. For them, the exchange on money is nearly equal and our home prices are far lower than theirs, earning them a nice return on their investment.

What do you think when you hear this news? Do you think good for them, or do you think about how you can help them and earn a living yourself? If you are a smart investor, then I hope it’s the latter.

Why not become the go-to person in your area to provide the deals foreign investors are seeking? Simply find out what they are looking for, how much they are spending and for what return, and put together that package for a fee.

Obviously they want properties with tenants that cash flow, they need property management in place and they seek a certain rate of return on their investment. There are attorneys, real estate agents, accountants and others who specialize in catering to foreign investors. Why not make them a part of your team and learn this market.
Build your network with the team players these investors need. You’re already in the real estate business so making these contacts is easy. Marketing is the next step. You’ll need to study online sites that cater to foreign investors to get an understanding of the lingo they use and learn how to advertise to them.

You’ll need to be sure to offer online information and online communication portals since they are sleeping while you are working and vice versa.

Be sure to put the plan together as you think through the entire process. You must be ready for opportunity when it arrives. Imagine marketing to foreign investors and the first contact wants 5 properties within the next 30 days. Would you be ready to handle that?

This should be your minimum goal when putting together the plan. Our plan entails buying the property, fixing it up, renting it out and then offering it as a performing property along with property management. When it meets their criteria, then you make it simple for the buyer to make a quick decision.
Catering to a new client that makes a decision quickly and then wires cash has been fun to say the least. We love what we do and have changed our business model to add catering to foreign investors as a huge niche in our current market.

We’ve even started a property management division and have put the team players in place to offer effective and efficient management. When these buyers are happy and the return keeps on coming in, they will buy more properties, tell their friends and family to buy properties from you and well…you get the picture.

Remember to be the best at what you do and as I always harp in every article, regardless of the subject, put your plan in writing. Plans equal profit when well thought out and properly implemented. Have fun with your foreign investor clients!

Private Money – Where is it?

There is no time like now to take advantage of all of the real estate opportunity available so take what you learn and go for it.

It seems we have to start all over again with regard to this subject since so many of the hard money lenders went out of business just like the big banks did. Large loan amounts collateralized by investor owned property that many investors just walked away from since these lenders weren’t keen on short sales but I’m sure they changed their tunes quickly.

Hard money a/k/a private money is money loaned by private individuals either licensed as lenders or arranged through mortgage brokers to collateralize investor purchased property.

They are high interest – interest only, short term loans designed to offer investors the opportunity for easy access to money based on a properties equity, regardless of its’ condition and with less consideration on the borrower’s credit, employment or assets.

With the brand new laws regarding mortgage licensing, it will only get tougher before it gets easier.
For investors, relationships is where it’s at when it comes to obtaining private money to use to invest in real estate.
With folks losing so much in the stock market and with their retirement funds, people are eager to invest their money into real estate but they either don’t know how or don’t have the time. These are your private lenders – they just don’t know it yet.

Investors are paying as much as 18% interest and 3 points (minimum) for the use of hard money when they can find it, so why not offer folks who want a place to park their money a better than bank return and at the same time, obtain a huge savings from the normal 18% usually being paid.

Investors aren’t just the ones buying real estate; they are folks with money to invest into an investment vehicle that will give them a return greater than they are currently earning. The level of risk taken will be different based on the investor. Real estate mortgage investments can be designed to offer lower risk, higher return investment vehicles.

The real estate investor can determine a loan amount based on a percentage of a property’s value. The lower the loan amount in comparison to the value of the property makes the investment appear more attractive. Offering first mortgage positions gives the financial investor’s loan a priority position if a foreclosure suit must be used to collect the debt. High interest and/or points can be offered to attract financial investment partners.

To avoid falling into securities legal red-tape, keep all investor money separate and do not combine investor money into the same mortgage.

For example, if two investors make a loan to you and both loans are for $50,000 and you buy a property for $70,000, do not combine the money to purchase the home. Give one investor a first mortgage for their loan amount and the other investor a second mortgage for his/her loan amount. You can make these two equal amounts or divide them whichever way is agreed. You may offer investors a slightly higher interest rate for taking a second position but all of that is negotiable.

In the relationship building stage, you will want to take the investor out for lunch or dinner to discuss the process and give them any sample documentation they can expect to receive once they are working with you as well as an outline of a sample investment along with disclosures galore.

As soon as one of your investors earns a nice return, what will they do? That’s right, they will begin sharing their new found fortune with their friends. It’s that word of mouth that helps you grow your private money tree.

Here are a few tips to create a rewarding relationship that your investors will appreciate:

• Once you have investor money in your stewardship, keep them informed of what is happening with each penny (we email them spreadsheets that show their investment amount, how much is being used and what it is earning, as well as the address of the collateral and photos).

• Give them the proper documentation that confirms that their investment is secured within 24-48 hours of the investment being made.

• Do not conduct any process such as this without the help of your savvy attorney who will bring proper disclosures to the table to protect you, correct documentation to protect your lender-investor, and a sense of security to your prospective investor that you do everything legally and properly.

• Confirm with your investor that the financial relationship between you and he/her will be strictly confidential.

• After conducting business and solidifying your relationship with your investor, ask for a letter of recommendation for your portfolio to share with future potential investors.

One final tip: don’t be so quick to offer the usual hard money rates of return this industry is known for to investors who aren’t familiar with those rates. Why? Something that sounds too good to be true will scare them away. Instead, offer rates better than banks are offering but lower than real estate industry rates commonly offered. Perhaps 7% to 8% for example. These rates are higher than mortgage rates being offered, better than bank rates for CDs, etc. but much lower than what you could get anywhere in the real estate investment industry scene.

You can also offer the investor a piece of the action if you will. If they are willing to allow you to use their money for a long-term hold at a low rate, then you may want to offer them a percentage of the future sale or cash flow. This would change the relationship between you and the investor as far as the documentation is concerned and that’s why it’s vital to use the right attorney to help you put these relationships together legally so everyone wins as they expect.

So there may be a forest of dead private money trees out there, but you can begin planting new seeds and bringing in the harvest of the many investors out there who aren’t hard money lenders but aren’t happy with the returns they are currently earning elsewhere.

There is no time like now to take advantage of all of the real estate opportunity available so take what you learn and go for it.

Deducting Real Estate Education – Yes or No?

“Al, my CPA says I cannot deduct my real estate education courses and events because I only own one rental property and therefore am not in a business. Is this true?” 

Here is a question I recently got from one of my students, “Al, my CPA says I cannot deduct my real estate education courses and events because I only own one rental property and therefore am not in a business. Is this true?” This is a very frequent Q that I get.

Many of you know the power of education, so you astutely attend real estate conferences, boot camps as well as invest in home study courses and coaching programs. The cost of which can add up to substantial amounts. Naturally you want to deduct the education (and any related travel) so the tax savings can offset the costs (at least in part).

But even before the IRS, many CPA’s will say > NO deduction! Even if you own investment property!! Why? One reason is that many CPA’s are just plain overly conservative and only will allow obvious “safe” deductions such as real estate taxes and mortgage interest. Please don’t shock them with education or travel!

Another reason is that many take the position that real estate is an “investment” and not a “business”. (We know it’s really both, but here I am talking tax terminology). Education deductions for “investments” (such as stocks) are very limited, but for a “business” they are not. So from a tax viewpoint, is real estate an “investment” or a “business”?

Most tax law authority says it’s a business, even one rental property. But such tax law authority requires you essentially to do 8 things to document your real estate as a business.

Here are 3 of them: 1. Run it like a business (having a business plan helps). 2. Keep good separate business records 3. Use a separate business checking account, which should not be used for personal expenditures (no commingling).

You should also use an entity such as an LLC, especially if you do not yet own any properties. Reason:

An LLC, as a separate entity from you, with the proper documents (esp. the operating agreement) can give you legal authorization to take real estate education courses as a requirement to maintain the business purpose of the LLC entity. This is excellent support for your real estate education.

Wholesaling Do’s & Don’t's

 The biggest do’s and don’ts of the wholesaling business to keep you not only informed, but working at your highest potential.

Keeping yourself out of trouble, avoiding mistakes and making great profits is the name of the game in the investing niche called wholesaling. If you’ve been following my recent series, you’ll get the impression that I just love to wholesale property…and you’re right!

Wholesaling is a great way to bring in cash while you’re working on other projects that take a while to bring in their expected income.

Having been investing and wholesaling for over 15 years, I’ve learned plenty…either by mistakes (the best lessons overall), by sheer coincidence, or from experience. Based on this, I thought it best to share the biggest do’s and don’ts of the wholesaling business to keep you not only informed, but working at your highest potential. Let’s start with the don’ts.

DON’T

• *Overpay for the property

• *Over-price the property

• *Lie to your seller about your plans

• *Be afraid to wholesale listed property

• *Give out the address prior to obtaining the seller’s signature

Allow me to explain the reasons behind these “don’ts.” When you overpay for a property, it’s tougher to sell because you will price it too high to earn your profit. When you over-price a property, you will end up taking much less than you would have earned if you would have priced it correctly because you will wait until your time is up and become a desperate seller so to speak. If you price the property correctly from the beginning of your marketing process, you will sell it faster and earn more.

When you lie to your seller about wholesaling the property, you start off on the wrong foot immediately. You have to continue to lie about who’s looking at the home and so on. Sooner or later, the seller begins to distrust you and the deal begins to go downhill from there. Most investors, especially newer investors, don’t believe sellers will allow certain things because the investor wouldn’t allow it himself (so he thinks because he’s not in his seller’s shoes). When you doubt another person would agree with you, you have a tendency to tell them something they would agree to and that’s when the lies begin.

An honest, smart investor will tell the sellers the truth even if the truth is ugly. When the seller agrees, you are already starting out great. If the seller doesn’t agree, simply say NEXT!

If a property you are purchasing to wholesale is listed, then you would be “that” buyer. The listing agent will be paid their commission on the deal with you. Your assignment to another buyer does not involve that agent. When you go to closing with your assignee, the commission to the listing agent is on the closing statement and so is your assignment fee. If another agent brings you an assignee-buyer and you agree to compensate that agent from your assignment fee proceeds, then you can do that too. Be sure that the listing agent marks the property “contingent” or “pending” in the MLS so that other potential assignees don’t try to cut you out by calling the agent directly.
Lastly, do not begin to market the property before you get the fully signed contract between you and the seller in your hands. This is a sure way to lose the deal. Why? Often, folks are too eager or too greedy to get the deal themselves before they lose out on it. They can purposely or innocently ruin your deal by speaking with your seller about the price you gave them for the property and if the seller hasn’t signed your deal yet, he or she could sign a new deal with your assignee, cutting you out completely.

As you can probably imagine, there are plenty of do’s in this business, but these are a few good ones to start with.

DO

• *Use the best Assignment of Contract form

• *Place your deposit in escrow immediately

• *Use small initial deposits

• *Pre-qualify your potential buyers

• *Clean out the yard & house

Now, let’s review your do’s. Using the best of any form is vital to your success in this business. There are special clauses that will save you money, protect your money and give you the control you need to get your deals closed smoothly and without hassle. The Assignment of Contract form is no exception. If you do not have a form that you’ve purchased specifically for assigning deals, then ask your real estate investor-friendly attorney to prepare one for you that you can use repeatedly.

When a contract is fully executed, the buyer must place his/her deposit in escrow immediately. It only takes $1.00 to make a deal legal and I teach my students to use $10.00. Please don’t lose a deal because you failed to put up your escrow money, especially when it’s so little. We often just keep $100 or so in escrow with our closing agent so when we write any new deal, we already have the deposit part taken care of.

We use small deposits to protect ourselves. Here’s why…if we decide not to continue with the deal based on our inspection period or any other contingency during our appropriate contingency timeline, we don’t want to have a headache getting our deposit back. Regardless of who is “right” in a contract and regardless of how clear that contract is, no escrow agent can release any deposit money without the signature of both buyer and seller. Often, the seller may be upset if you cancel the deal, even though they know you have that legal right. If they don’t sign the release of deposit, the money will sit in escrow until you take legal action or offer the seller some of the money to sign the release. Because of this, I teach my students to use small deposits.

In other words, place something in escrow that you are willing to walk away from if the seller refuses to sign the release for any reason.

If the seller just won’t do your deal because they want a stronger deposit, then make that stronger deposit following the expiration of your contingency period. For example, put up an initial $10 upon signing and then $990 when the contingency period is over and you are sure you are moving forward with the deal. You get the idea.
Just because you are dealing with investors, don’t think that they all have cash or even know about hard money. If you are taking calls from potential buyers, be sure to qualify them as to how much work the property needs and if they are capable of getting that work done, and that they have the cash or equity lender who can close the deal in your timeframe. If they lack either, then don’t waste your time. This is especially important if the sellers still live in the home. You don’t want to send any more folks through that home than necessary.

Lastly, if the property is vacant and you know you have a great deal on your hands, get permission from the sellers to clean up or clean out the property and yard. Obviously, this would only apply if there is debris everywhere. Emptying the property also helps to take bad odors away. One time, a partner of mine, Herb, and myself, had a contract on a property for $50,000. The home smelled real bad and had miscellaneous items inside and out, as well as an extremely overgrown lawn. We were getting offers of $70,000 on the property and it was Herb’s insistence on cleaning up the whole place and mowing the lawn that persuaded me. We spent $800 and our next offer was $80,000! An extra $10,000 thanks to Herb – I’d love to take credit for that but I just couldn’t believe that “investors” paid that much attention to looks and smell versus the condition of the physical structure and the visualization of what it would look like after they completed their work.

That’s the beauty of this business. When we work together, whether novice or seasoned, we can all benefit from each other’s experiences and ideas.

I hope that this article helps you immensely.

Social Media – Tell Me More

 While social networks are definitely hot right now, it is important to pick the network that is right for your business.

With a surge of social media awareness, people are getting use to statements like, Friend me, be my connection and tweet me.

So what does this mean for business? Additional communication channels! By using Facebook, LinkedIn and Twitter, you can spread your message far and wide.

If you are new to Facebook, there are 3 different types of pages; The Friend page, Fan page and Group page.

The first page you will open is a Friend page. This page is where you will share your time with family, friends, old college friends, friends from your hometown and those in between. The purpose of the Friend page is to provide a channel of communication where you can share pictures, videos and conversations.

If you have a business, you can open a Facebook Fan page. This page is a reflection of your company and the services/products you provide. The Fan page will allow you to post events, invite people to your events, share pictures, share videos, share conversations, accept testimonials, provide specials, start a discussion and provide a link back to your website. Your Fan page is visible to the public to registered or unregistered people and also indexed by search engines.

The third type of page is a Group page. The benefit of having a group page is the bulk invite. The administrator can send out invites as well as other members. This Group page is ideal for quick active discussions. I have seen Group pages used successfully for church organizations, non-profits, alumni groups, women’s groups, men’s groups and many fundraisers.

Another popular network is LinkedIn. If Facebook was a cocktail party, then LinkedIn is your business meeting.
LinkedIn is a goldmine…a goldmine of relationships and referrals. I have seen so many people grow their business after making a great profile and remembering to update their status.

One gentleman that I spoke with last week gave me the excuse that he “Didn’t have anything to say on LinkedIn.” I paused and then asked him, “Tell me something good that you worked on last week.” His face lit up while he told me about custom beautiful arched wood doors he carved and installed. I stood there with a big smile of my face as he realized that he answered his own objection.

He then invited me to show him how to write this comment. We sat together for less than 2 minutes and wrote, “Just installed custom exterior Mahogany arched wood doors in Admirals Cove.” His status update was posted on his connections’ home page and several people read it.

Can you guess what happened? He received 3 referrals that all turned into paying customers. One status update on LinkedIn equaled over $30,000 in business for this gentleman who thought there was nothing to say. 
Another popular social network is Twitter. A secret gem about Twitter is that most of the media personalities are on Twitter. This includes television, newspaper, magazines and radio. These offline media sources post current events, contests, programs and links to other sites.

A popular television station in my area frequently posts requests for people to interview. For example, “We are looking for someone to interview for school lunches.” All you have to do next is reply to the request and you could be interviewed.

While these social networks are definitely hot right now, it is important to pick the network that is right for your business. Take a few minutes and write down your goals and what the ideal client looks like. After you have this in writing, chose the social network that fits your needs.

Is it sinking in yet? Do you feel it? Well, jump on the bandwagon while there is still room.

Buying Class C Properties

Has the ongoing recession and the subsequent lack of development capital left you waiting on the sidelines to begin your next project? With over 124 bank failures this year alone (as of the date of this article) and more expected to come throughout the balance of 2010, many developers have been scratching their heads and contemplating their next move. The self storage builders in my area are literally begging for projects and practically doing them at cost just to keep afloat and to avoid anymore layoffs.

Well one strategy that some developers and investors are beginning to consider is investing in Class C Properties.

Class C Self Storage Facilities are generally defined as older properties in need of repair or updating, often first generation, single-level sites that may be unfenced, and they typically lack in security features and amenities commonly found in Class B or Class A Properties.
They may also possess a less desirable unit max and orientation with regard to door operation, upper levels, and lack of temperature control. They may also suffer from having poor access and limited visibility and subsequently, rental rates are lower than Class A or Class B Properties.

This may not sound so appealing to the masses, but don’t discount the potential for the savvy investor who is willing to put forth the effort in turning these Cinderella facilities into the belle of the ball. Some investors and small companies have made a small fortune focusing only on investing in Class C Facilities and improving them to a solid Class B contender. And it’s not as tough as you may think.

Though the leap from a Class B property to a Class A property is difficult, you’ll find that the jump from a Class C property to a Class B property is quite simple, and with a very small amount of work and capital investment.
Which leads us to the question of how to go about finding these diamonds in the rough? Uncovering these gems is no more difficult than finding a good piece of development property, and in most cases, it’s even easier. First, there are a number of these facilities listed with Commercial real estate brokers, business brokers, on commercial and self storage websites. You can also get a comprehensive listing of all facilities in a given market by purchasing directly from the numerous list brokers who have the names and addresses of all the facilities in a geographic area.

You may begin the process by creating a relationship with the brokers to assist in finding properties that meet your buying criteria while simultaneously contacting the owners directly with a mailing campaign, or just by cold calling the facilities in person or by phone after “Googling” all the facilities in your targeted market(s) for acquisition.

“Sounds appealing – but in today’s lending environment, where do I find capital and funding to purchase these Class C properties” you ask. Well contrary to popular belief, banks are still making loans on Self Storage Facilities.

Historically, Self Storage has the lowest loan default rate of all commercial real estate when compared to apartments, office buildings, and retail strip centers. And banks are taking notice.
Especially the Community Banks, Credit Unions, and Savings & Loans banks that are located in the communities where these facilities are located. Banks are in the business of making loans and due to the strong performance in the Self Storage sector, many investors are being welcomed with open arms when presenting a loan request for their Self Storage projects and at favorable rates and terms. Banks have increasingly moved away from making “speculative” loans on development projects in favor of making loans on income producing assets with a historical track record of measurable performance. And with a solid business plan and thorough due diligence to back it up, you may be pleasantly surprised how easy it is to acquire funding for this asset class from the local lenders where these facilities are found.

When thinking of ways to upgrade Class C Facilities to a Class B facility, remember that the changes that you put in don’t necessarily have to be major.

The First place to start is on Curb appeal. What are the colors compared to the newer facilities in the area? Are all of the buildings weathered to the point where the roof, walls, and doors have all faded to 1 shade of “gray” or “tan”? A color change by one of the many painting contractors specializing in Steel buildings and doors can do wonders for the appearance of your new acquisition. Similarly, the addition of a new sign, or replacement of the existing one along with color coded flags, banners, and “bandit” signs will draw attention to your paint job and raise awareness of the changes you have made.

The next point to consider which has the most impact on forcing the appreciation and value of the facility has to do with the land. The smart investor will immediately assess the highest and best use of any vacant land at the site or any adjacent land that may be available for purchase. Hopefully, once you’ve improved the look of the facility and made some management improvements, you will be rewarded with higher occupancy and the possibility of constructing additional buildings/units at the site. Don’t forget to look at the existing boat/RV lot as the return on constructing additional buildings on that land generally outweighs the ROI of leasing out parking spaces. And if you’re out of room, contact the neighbors to assess whether there may be an opportunity to purchase additional land/buildings for expansion.

This is probably the greatest way to increase the value of your facility while simultaneously “scratching your development itch”.
Now it’s time to turn our attention to the multiple profit centers that can be added to your facility. Adding a small retail center to your site is probably the simplest and least costly way to improve the bottom line. Next, you may want to consider if it’s feasible to offer truck rental services through a 3rd party provider or by purchasing or leasing your own truck and offering it to your clients for free or at a reduced rate. Can you add a pack & Ship Center, Bill Boards, Vending Machines, a Business Center, perhaps temperature control units, propane cylinder exchange, Records Storage or any combination of the 40+ Ancillary income streams that can be added to your facility? Class C Facilities will vary by site and by market, so there is some research into the feasibility of adding each, but the increase in income and the return on investment may be surprisingly rewarding.

And last but certainly not least, is to develop a detailed marketing plan and thorough operations manual for leasing up and managing your facility. Attention to these 2 critical areas will determine your success in both improving cash flow while simultaneously increasing the value and forcing the appreciation of the asset. Furthermore, it never ceases to amaze me that when occupancy is low, and traffic is down, some operators decide to actually decrease their marketing efforts; the very thing that brings customers in the door! The most successful operators I have encountered use their marketing plan to guide their daily activities. It has specific daily tasks that all center around the daily, weekly, and monthly goals laid out by the organization. Results are usually measured on a monthly basis and then compared to the prior month’s activity to gauge the success of the most recent campaign. And of course none of this can be attained without the efforts of a well trained and motivated facility manager.

The laws for success in the self storage industry are always changing and buying Class C Facilities has quickly become a very viable addition to a successful investing strategy – especially in this time where development has slowed to a crawl.
The merits of this strategy have proven to be very profitable to many operators who have chosen this path rather than focusing solely on development. And being one of those investors myself, this author couldn’t agree more.