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Real Estate Investing : $14K Wholesale Profit

Property taxes are due at the beginning of each year and if not paid, progressively add up late fees until either the taxes get paid or the property goes to tax sale. We used to mail letters to out of state owners and were contacted by one right before this seller's property was going to tax sale.

The seller didn't have the money to pay the taxes and wanted to sell quickly. We swooped in, bought this beauty, and solved the seller's problems.

Even though this house was only about 1,400 square feet, it needed about $40K in renovations. It had been vacant for a long time and had significant termite and water damage. We did not want to embark on this hefty rehab, so we called one of our investor friends to see if they were interested in taking it off our hands.

Two weeks later, we had a check our hands with a net profit of over $14,000.00! All we did was find a great deal, buy it, clean it out, and sell it for a good profit.

You don't have to get involved with heavy renovations to profit big in real estate.

Real Estate Investing : Recruiting Private Money

Finding private investors for your deals is easier than you think. Just make sure to start getting the word out now.

Real Estate Investing : The Transfer Letter

We target properties that have been transferred as one of our marketing strategies. You might be thinking...so, what does that actually mean?

It means that a property's ownership has changed but not through a traditional sale. On the deed, it will usually show a sale price of "$1, $5, $10, $100" or something like that. Maybe someone inherited the property through an estate. Maybe there was a divorce and one of the spouses deeded the property over.

We have had some good success with the list so far. A surprisingly large number of the calls that we get are from people that own the property free & clear. And you don't see that much these days.

There are many different types of mailings that you can do as an investor such as foreclosure, burnt out landlord, probate, out of state, etc. We used to mail foreclosure letters and bought plenty of properties from them, but there was so much competition. Each homeowner usually had a stack of investor mailings on their table when we met with them.

The transfer letter has gotten the phone ringing with free & clear property owners without a whole lot of competition. Give it a try. Just remember that repetition is the key. Mailing once is usually not enough for lasting results.

Real Estate Investing : Truth Behind the Due-On-Sale Clause

Buying property subject-to the existing mortgage is a key concept and practice as far as creative real estate investing goes. Most agents, brokers, and other people associated with traditional real estate practices are not privy to this method of buying property. They would probably even tell you that taking over payments on someone's loan is illegal and will refer you to the due-on-sale clause.

The due-on-sale clause "allows" a lender to call a loan immediately due and payable in full if the title to a property changes hands. They are not required to, they just have the option. Lenders are in the business of making money through interest payments from borrowers. As long as a lender is getting paid their monthly payments, they typically would have no reason to ever call a loan due. I'm not saying that it wouldn't happen, but I am saying that it is unlikely.

There are some precautions that can be taken to lessen the chance of a loan being called due. One such strategy is to buy the property into a land trust. If a property is passed into trust for estate planning purposes, the due-on-sale clause is bypassed. After purchasing each property in trust, we send the lender a letter from the homeowner notifying them that there is new management. We give them the property's new mailing address to insure that we get everything related to the property. Even if the lender did a title search at any point in time, it would show that the property was passed into trust.

Even if you buy a property subject-to in your own name or company's name, just make each monthly payment on time and you are probably good to go. I suggest buying your properties in trust though.

Real Estate Investing : Using Google Earth

For those of you who have never heard of this tool before, Google Earth is a program that uses satellite imagery software to create an aerial map of the entire world. It is truly amazing!

It can be used to scout out and research properties anywhere in the world from the comfort of your own home.

We recently had a lead come in that looked interesting. I knew that the asking price was significantly higher that other homes in the area and it made me curious. I typed the property address into Google Earth and zoomed right in on the property. As I zoomed in closer, I realized that there was a dock in the backyard and that this house was on the water! I called the owner and asked, “What are you doing right now”? I was sitting on the back porch of this home negotiating with the owner within 30 minutes of the lead coming in.

As it turns out, the guy inherited the house and just wanted to get rid of it. He didn’t even owe a thing on this beautiful home that fell into his lap. I ended up buying this home for significantly less than what he was asking and got some owner-financing thrown in for good measure. We were able to turn this lead into an amazing deal that yielded us a couple hundred thousand dollars the day we closed on it!

Download Google Earth for free.

You can practice by Google Earthing your personal residence to see how the program works. You can even use this software now to look out into the universe and zoom in on stars and constellations or to take your own virtual tour of the Grand Canyon! Have fun with it, and I hope it helps your business like it did ours.

Real Estate Investing : Plant Some Seeds

If you were a farmer, each spring would be a time of planting. Throughout summer you would tend to your crop. And if all went well, you would reap your harvest in the fall.

In order to reap a harvest of good deals and profit in real estate, you have to do the same thing. Plant seeds, tend to your crop, and harvest when the time is right.

Here's 3 steps to get its done:

1. Tell everyone you know that you are a real estate investor and start talking to sellers. Now your planting some seeds.

2. Follow-up with your leads. Just think of it as if you are tending to your crop. Often times, we make offers and they do not get initially accepted. But the fortune is in the follow-up. We have bought a bunch of houses from sellers' that we followed up with. Also, by telling everyone you know that you are an investor, you will get some great referrals for contractors, agents, mortgage brokers, attorneys, etc.

3. Now it's time to harvest. If you got the word out and followed up with your leads, you've found a deal and are ready to assemble your team. Use those resources to "harvest the crop."

Real Estate Investing : Find a Deal w/o Spending a Dime

In order to find a good deal, you have to spend some money to do some kind of marketing, don't you? Whether it's bandit signs, "we buy houses" ads, or direct mail, you have to pull out the wallet.

Not entirely true. I have found that in almost any market, there are investors that specialize in wholesaling. You might be asking yourself, "What exactly is wholesaling." Well, it's when a property is contracted and immediately sold to another investor.

There are a lot of investors that don't want anything to do with rentals or rehabs and prefer just to wholesale property. If you are looking for a deal and don't want to spend money up front, find a local wholesaler. The local REIA is probably where I would start looking.

Real Estate Investing : "Myspace" for Investors

I recently wrote a post on my entrepreneurship blog, YoungGunBusiness, about how niche social networking sites are the next big thing. Well, we ran with the idea and just opened access to the public to InsideInvestorSpace.

InsideInvestorSpace is a social networking site dedicated to connecting investors so they can meet, greet, learn, invest, and ultimatly...Make More Money!

The site will serve as a place to build your entire investing team. The classified section will serve as a place to find a local agent, attorney, appraiser, contractor, accountant, or even a great wholesale deal. The forum allows you to ask any question pertaining to real estate investing and community members can respond. You can start a group in order to network with people in your area or a group that focuses on the foreclosure process.

It doesn’t even cost anything to join. It’s Free! Go check out the site and become a member. It will take you about 2 minutes.

Real Estate Investing : Key to the Business

I remember when we were at our first big real estate seminar. We were salivating like pavlonian dogs waiting for Louis Brown to get started. We had heard him speak at a one day seminar before and were ready to learn more from the master himself.

As I suffered from a case of information overload over the 5 day period, one thing stuck in my head. Lou said, "Follow-ups are the key to the business." He mentioned that around 60% of his deals came from following up with sellers days, weeks, and months after initial meetings with them.

In my first year of investing, we made over $20K on a deal in Mount Pleasant, SC because we followed up with a seller for several weeks after we made her an offer. Even if you give a seller your information after you have met with them, your job is not done. People lose things all the time. I always just ask a seller, "Do you mind if I put you in the follow-up log?"

Real Estate Investing : Discounting Notes

About a year ago, we were contacted by a man who had a house he wanted to sell quickly. The seller had inherited the house and owned it free and clear. He had listed the property for a few months at $850,000 the prior year with no luck. He had gotten himself in a position where he wanted out fast and was willing to take a discount.

After Dusty worked his magic negotiating with the owner, we had the property under contract. Our purchase price was $550,000. But that’s not all! You’ve got to remember that price is only one component to any deal. The agreed upon terms were that the seller would get $200,000 at closing and a note for $350,000. He was to receive payments of $25,000 every six months until the loan was paid in full (and YES, that’s a zero percent loan).

Fours months went by; the previous seller found himself in a bind and accepted an early payment of $15,000 as payment in full for the first $25,000 payment we owed him. Not bad. We got a $10,000 discount.

It wasn’t two months later that he was calling again. The total balance that we owed the seller now was $325,000, and he wanted more money. Too bad his next payment wasn’t for about seven months. We were fine with the already agreed upon payment schedule. He, on the contrary, was not.

After about two weeks of going back and forth, we struck a deal. And what a deal it was! We agreed to give him $10,000 that day, an additional $10,000 two weeks later, and a final payment of $130,000 due in ninety days.

So what do all those #’s mean? The seller’s original note was for $350,000. After discounting his note a couple times, the total we paid him was $165,000. That’s an $185,000 Dollar Discount! And that was all after we bought the house.

Anytime you can get a seller to take back financing for a portion of their equity, do it! It’s less money that you have to come to closing with, and you can structure the payment terms.

Comp Property Without MLS Access

The best way to comp property currently is through MLS. If you are not a realtor though, you may not be able to access it. Enter Zillow. This service provides sold data for homes all over the country.

I have access to MLS for our primary investment areas. When we get a lead outside of those areas, I jump on Zillow to get a rough estimate. I wouldn't suggest using it as your sole method to valuing property, but it's a start.

Zillow has many more resources, but I haven't used any other ones yet.

Not Enough Time in the Day

Hire a birddog! After starting our real estate business, it wasn't even a year later that we started to use birddogs to leverage our time.

Our primary strategy to acquire homes at that time was to go door to door to homes that were facing foreclosure. That information is public, so we were excited about that, and we figured that if anybody was motivated to sell, they should be. Although we got some good deals from door knocking, it was a lot of work. Driving around all day on week nights and weekends was no fun anymore. There had to be another way.

Enter the birddog. There are people out there that are happy to donote their precious time to be your eyes, ears, and legs. We found some hungry aspiring real estate investors and trained them to go out in the field for us. It was a great deal for them not only for the learning involved but the profits we split from deals they brought in.

Anyone who has a real drive to become a successful real estate investor knows the value of a mentor. Find you a birddog and put him to work. Your time can be spent elsewhere.

Give Some Credit

We signed on a new lease option tenant recently before we finished renovating a property. She was very eager to move in and was constantly over at the house. As we were nearing the completion to the repairs, she made a list of the items that she found unacceptable. One of which was the cleanliness of the bathtub. So, we sent someone to the property to clean the tub.

The next day, I get a phone call from the tenant still complaining about the tub. I assured her that it had been cleaned; but that I would send someone back out to the property.

After another cleaning and another angry phone call, I knew this had to end. As I explained that the house was not brand new and that it was not in our scope of work to replace the tub, I sensed that things were going nowhere. She wanted the tub to be reglazed, and I didn’t want to spend anymore money in the property.

All the sudden, it came to me. I told the tenant, “What if we were able to give you a repair credit? If you went ahead and reglazed the tub yourself, we could just take the expense that you incur off of the purchase price of the house when you buy it.” She thought it was a great idea.

The tenant was happy. I was very happy. The tenant’s improving our property before they even buy it, and with no more money out of my pocket. How about that?

Beginning Real Estate Investor's Excuse # 5

But my credit sucks, how am I going to invest in real estate without good credit?

Believe it or not, you can buy property even if you have terrible credit. I am not talking about the traditional way (i.e. go to a mortgage broker or bank, apply for a loan, and see if you can get qualified). I'm talking about using a private or hard money lender to finance a deal for you.

Let me explain the difference between these two money sources.

A hard money lender is someone who is in the business of lending money to investors based on loan to value, not on the individual. Rates will vary depending on your area and contacts, but one of our main sources charges 4 points and 12%. I give him a call with a few details, he typically rides by the property, and drops a check off at closing. Be aware that some hard money lenders may require an appraisal, termite inspection, home inspection, etc. It will just depend on who you use. The one common theme though will be that money is lent based on the property, not your credit score. You can get a loan for the purchase price and for the renovation. We have one lender that gives us the whole renovation budget when we buy the property and one lender that sets up a repair escrow with a draw schedule. Go to your local real estate investors association to network and find these people.

A private lender is simply anyone who you know that would be interested in loaning you money on a good deal. Maybe it's your mom, dad, brother, friend, neighbor, it doesn't matter...anyone who wants to make a good investment. We pay most of our private lenders a 12% return on their investment.

And there you have it. Your excuse has been vanquished. No more whining about your credit stopping you from embarking on your real estate investment career.

Real Estate Linguistics 101

When negotiaing in real estate, one should never say the words "contract" or "sign." Both words have a negative connotation in the minds of others. A simple change in the words you say can have a big difference in your bottom line.

Instead of saying contract, say agreement. Instead of saying sign, ask them to OK the form. This makes the process seem less formal and more comfortable. Just hearing the words "contract" or "sign" can kill a deal. Soooo, watch your mouth.

Power of the Thank You Note

After each appointment that we have with a seller, we mail a thank you note out by the next day. This seems to set the tone from the beginning of our relationship. If we got a contract when we met with them, this lets them know that they are dealing with a professional company and tends to set them at ease. If the seller was not ready to sign a contract, this gesture sets us apart from other investors that they may be meeting with soon. Simple yet effective.

Equity Does Not Equal Profit

Let's say you buy a property for $130K that will be worth $200K after you fix it up. It takes you 3 months to renovate the property and you have spent $20K in repairs and holding costs. This is a similar scenario that you have probably seen in one of the real estate investing TV shows on now. At this point, the investor and their team would celebrate their $50K dollar "profit" ($200K - $130K - $20K = $50K)

I would like to say that this is a gross misrepresentation of what you would actually net if you were to sell the property. It costs a lot of money to sell a property when you include the actual costs like realtor fees, additional holding costs, buyer's average discount, repairs to be done in reference to the buyer's inspection, taxes, and other things that always come up.

Don't be fooled by what you see on TV. Make sure you understand the differenece between equity and profit when analyzing your deals.

Lease Options vs. Rentals

Here are three of the reasons why lease options are our primary exit strategy:

1. Down Payment – We require a nonrefundable down payment from each one of our tenant buyers. If we have to end up evicting the tenant, the down payment usually covers the vacancy and the repairs needed to get the property back in marketable condition.

2. Ownership Mindset – A tenant who has plans to buy a property rather than just rent will inevitably treat the property better. Tenants will even improve the property during their leasing period before they buy it.

3. Sell For Top Dollar – “Purchase price to be determined by appraisal at the time of purchase.” That is the clause that we put in each of our lease option agreements. We are able to sell property for a future appraised value and without a realtor.

If your tenant buyer buys the property, it’s time to celebrate. You just sold a property for full market value. If your tenant buyer moves out, lease option the property all over again and reap the benefits. We have found that lease options are the most profitable way to hold and sell property.

How to Get Seller Financing

When negotiating a deal, it is usually beneficial for us to get a seller to take back financing on a portion of the purchase price. If you are working with a motivated seller, all you have to do is hold your mouth right.

There are two parts to every negotiation: price and terms. By getting a seller to take back financing, we are working on the terms side of the deal.

Whenever you get to a price that is mutually agreeable, ask “How much of that will you need at closing?” Make sure to emphasize the word “need.” It is not how much they want but how much they need that we are interested in. Next, you set up the payment plan.

We bought a house last summer in Sumter, South Carolina. We made an offer where the seller would be receiving $22K for her equity. We asked her how much of that she would need at closing, and she said $5K. She said this would pay for her move and new apartment. So we told her that she would get $5K at closing and $3K a year towards her balance of $17K until the loan was paid in full.

This saved us from bringing an additional $17K to the table when we bought it and lowered our holding costs. Every payment of the loan goes straight towards principal. That's my favorite kind of loan.

Must Know Tip: Never use the words “seller financing” or “owner financing” in your negotiations. Most sellers will not understand these terms. Once you put someone in the state of confusion, the answer is usually “No!” Get to a price that works and say, “How much of that will you need at closing?” If they want to much at closing, the price is coming down.

Beginning Real Estate Investor’s Excuse #14

But I Don’t Have Enough Money to Invest.

If you contract a great deal, there is someone just waiting to finance it. That money is not going to just show up on your doorstep but is easily within your grasp. A little networking within the investment club near you can provide all the contacts you need to get started.

You can no longer use the excuse of not having enough money. Go make some offers!

Qualifying a Seller on the Phone

The following explanation assumes that you talking to a seller on the phone that has contacted you. You may talk to 15 to 30 sellers before you get a great deal so use the following questions as disqualifiers for each lead.

1. After the initial greeting, ask the seller, "What is your situation?" This question is a direct approach to finding out their motivation. If you need to clarify your question further, you could say, "Well, are you just moving to a different house or out of the area or..." (Now is where you shut up and listen) They will tell you why they are selling at this point.

2. You want to find out about the condition of the property. You might say "What would have to be done to the property for it to be in perfect condition?" If you just get a rough estimate, that will suffice. Beware that most homeowners grossly under estimate how much their house needs in work.

3. Ask the homeowner, "Is there a mortgage on the property?" If yes, you say "Approximately how much is owed?" I seldom talk to anyone that is reluctant to give up this information but if it does happen you could say, "I'm sorry but we cannot submit your property's information for research without it" (This is another time when you shut up). They will eventually chime in with their mortgage balance.

There are other good questions you could ask, but these will allow you to make the decision. "Trash pile" or "under further review pile." Do not spend time researching every lead thoroughly. Disqualify as many as possible as quickly as possible. If they aren't motivated, you shouldn't be talking to them. If they don't have sufficient equity, NEXT!

Profiting in Today's Market

A lot of people hear about an investment opportunity, decide to wait until the time is perfect, hear more people talking about how much money they are making on that investment, and then finally buy the thing when it's at an all time high. I do not advocate this approach.

All I hear from anyone that knows what business I am in is "How is this market treating you right now?" With apprehension in their face and distress in their voice, I give them my now "canned" response.

"It is actually a great time for us to buy and hold properties. When it is more difficult to sell a property, there are more motivated sellers. More motivated sellers means more potential deals for us. We know that if we want to sell a property, all we have to do is put in more upgrades than other houses in the area and list it for cheaper."

The most important thing to remember: Buy Right! As an investor, we make our money when we buy, not when we sell.