Real estate investing strategies vary from investor to investor. Some prefer the fast cash of Flipping, while others prefer the long view of Buy and Hold. Active investors make it a full time occupation, while passive investors may remain employed beyond real estate. There is no one way to invest in real estate. The important thing is to do your homework, and get started.
Why do real estate?
Many people feel they need to get into real estate because it is in the news, low interest rates, big rent increases, and everyone is doing it. Because everyone is doing it is not a reason to get in.
How to get started?
No matter who you are, or when you start, the first deal is always the most difficult. It’s new to you, and there is a lot to learn. Regardless of how much you think you know, you will quickly learn lessons you did not think about before investing in real estate.
Know the numbers!
If you think you are making money because the rent you are collecting is more than what you need to cover the mortgage, you may be upside down. Don’t forget to account for things like, taxes, repairs and vacancies.
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What strategy is right for you?
Flip for cash?
If you decide to flip, you can make some amazing returns fast. To be successful at flipping, you have to understand the marketplace! Know the most you can pay for the property and the most you can invest in the upgrades. If you mess this up, you can lose.
As a precaution, it is best to also know what your plan B is. If the market changes, how much can you rent the property for? Many investors start out as flippers, but end up as landlords because the market changed.
Buy and hold?
The marketplace is dynamic. It goes up and down. If your plan is long term, you may struggle in the beginning, but if you can weather the downs, you will come out ahead in the end. Some basic principles of wealth building through real estate investing:
In the beginning, it can be a struggle when you borrow every dollar you can, and cross your fingers that nothing breaks, and that everyone pays on time.
Overtime, the equity due to principal reduction and appreciation can be significant. But nothing grows if nothing starts.
In order to be successful, you have to do your homework. Talk to investors, learn the lingo, understand the market, and don’t do something because you fear that you will miss out.
Owning one property is manageable for most investors. One problem, one unique solution. However, for true wealth, multiple units are the goal. To accomplish this without going crazy, or broke, you need systems for success.
Systems provide direction, a playbook, for what to do when you or your staff face a situation. Knowing what to do, how to do it and who to call when a crisis shows up, gives you the confidence to have a predictable outcome and freedom to focus on other matters like growth.
We spoke with Matt Faircloth from The Derosa Group about systems for success. Matt is an investor, flipper and multifamily syndicator. In order to grow, he developed systems that are written in pencil because he recognizes that if a better solution is recognized, he wants to use it.
1) The first step is to do a Market Analysis. If it is your local market, it is easy to know the different areas of town and their reputation.
If you are not familiar with the area, you need to find the answers to the things you cannot change:
Additionally, answers to these questions will tell you if the area is on the upswing:
2) Evaluate the Property:
If the area checks out, it’s time to evaluate the property:
Do the numbers work? This is where you go line by line with the information available in the offer. (Click here to get a FREE DEAL WORKBOOK)
3) Physical inspection: The key to the inspection, don’t start inside the units. Start with the systems. What is lurking that is going to cost you money:
If you have a major expense and the seller is not willing to work on the price, move on.
Bonus: If you can, ask tenants you see what do they think of the property.
Then look in the units. What can you do to add value?
4) Make the offer
5) Due Diligence: You have thirty days to confirm everything you believe to be true now.
Usually there will be something that comes up. This is your chance to address the seller to renegotiate if needed. If everything comes together, you will be the owner of a property.
6) Operation: Now you need systems that cover the day to day operation including:
7) Refinance: If you are in a syndicate, this is the time to pay your investors.
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Due Diligence is a timed process for the buyer to inspect and confirm the information about the property and the deal before any money is lost. Most buyers focus on the physical characteristics and the financials of the property. They look at the condition and age of systems, roof, maintenance, etc. On the financials the focus on the Net Operating Income. If everything checks acceptable, they move forward.
These simple and obvious features are easy to identify and verify. However, they are only part of the story.
In order to know the “rest of the story”, you need to meet with the seller and determine why they are selling the property. The seller’s motivation can open the door to opportunities in creative financing.
One of Doc Haller’s students, presented an opportunity to purchase a $3M property operating in excess of 10% NOI. There was only one problem, the student lacked the $1.2 M required to close.
During the due diligence, several things were learned by reviewing the tax returns and the loan documents:
If you know why the seller was selling, you can get creative with your offer. In this case, the buyer was able to apply the knowledge gained during due diligence to offer a creative solution:
The buyer provided a Letter of Intent to purchase the entity.
The bank tried to stop the transaction, but realized they had no leverage to call the note. However, the bank did call the ten percent guarantee, $200,000 from the seller.
In light of this requirement from the bank, the seller requested an additional $250,000 collateral from the buyer, until the seller was reminded of a forgotten fact.
Hidden in the tax returns, beyond the view of the accountants and attorneys, was a note on the tax returns. In exchange for the cost of the tenant improvements & betterments for the restaurant tenant, the seller had received thirty percent ownership of the tenant, a restaurant that annually provided in excess of $80,000 income to the seller!
The buyer now had the leverage. Instead of keeping the stock ownership of the tenant restaurant, the buyer agreed to dividend the stock ownership of the restaurant to the seller, which was clearly valuable to the seller.
By examining all the seller information available to the buyer, the buyer was able to:
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Free White Paper: “How to Escape the Residential Rut”
Commercial real estate active training program with Doc Haller special offer:
For listeners of CREPN Radio, Doc is offer a 50% off discount. The course normally sells for $2,000, avaliable to listeners of CREPN for half off:
1 payment = 50% Discount code: CREPN
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The first thing a real estate investor needs to decide, is what is your strategy? Everyone hopes to buy low and sell high. Few consider the riches available by investing in bare land.
The Land Geek, Mark Podolsky, shared his journey from a workaholic investment banker to a two hour per week passive income professional investor in bare land.
Mark’s investment banker training taught him that a company with fifteen percent EBITDA was a good company. When his new work colleague showed that investing in land he could make 300 percent, he had to see for himself.
Sure enough, when he took the three thousand he had saved for car repairs and turned it into nine thousand, in less than thirty days, he was hooked. In just eighteen months of investing on the side, he was able to surpass his income as an investment banker.
So, he traded in his one hundred hour work weeks, for what is now no more that two hours per week.
How Can You Make Money in Bare Land?
Throughout America, there are parcels of land owned by people who no longer value the property. The clues are are easy to detect.
Mark sends out twenty letters each day to the owners of these unwanted properties. The letters are short and to the point and include the price he is willing to pay. The response rate averages three percent reply, a success by direct mail marketing strategies.
When he finds a willing seller, he can acquire the property in just seven days and resell the property in as little as thirty days for as much as three hundred percent return on his investment. Sometimes, he makes more, upto one thousand percent.
How can you make more in bare land?
The secret to making money in bare land is to make it more than just a transaction by offering seller financing. These small value properties are not what banks are looking for, so the buyer will either need to purchase with cash, or be willing to agree to seller finance terms.
Using a land contract and promissory note, you can get your purchase price back as a down payment, and offer terms for as long as you want. The longer the term, the greater your return.
Mark has figured out the pain points and automated whenever possible. This includes payment collections. His motto is if you only have one form of payment, you have none. So, he makes it a practice to collect a primary and a back up payment, so that he never misses a payment.
In 2016, Mark completed 192 deals using this system.
To learn more about investing in bare land and get your Passive Income Blueprint
Winter is the season for property owners everywhere to experience property damage caused by weather; snow, ice, rain, flooding and landslide.
Unfortunately, almost fifty percent of businesses affected by a major loss, never reopen. Failure to plan is a plan to fail.
In an emergency, you need help and you need it fast.
Emergency Ready Profile, click here.
What can you do to make certain you stay in business after disaster strikes?
To learn more about what can be done to prepare for an emergency, we spoke with Servpro representative Marla Rockhill.
A good first step to reducing the property damage is to create an emergency plan. The information contained in an emergency plan is easy to find on a normal day, but it can seem impossible to find in the face of an emergency.
Essential information in an emergency plan include:
Creating an emergency plan can be the difference between staying in business or not.
The water used to put out the fire becomes a potential mold problem. Standing water will quickly seep into walls, floors & ceilings and create a mold factory which can lead to additional health hazards.
Most property owners facing a large loss, have no idea where to look for help. Getting to know a restoration contractor before you need one is a good idea.
Restoration contractors have the needed equipment and training to clean up the damage quickly and minimize your down time.
For a free Emergency Ready Profile, click here.
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