April 2012

The following post was written by a colleague and super-intelligent real estate investor John Fedro. This is blog post number one in a three part series from John. He has a highly interesting niche in Real Estate Investing, especially for those just starting out.  Make sure you bookmark his blog as well.

Add this Investment Bullet to Your Real Estate Ammo-Belt

“What do you want to be when you grow up?” This is the question that gets pounded into our brains over and over again by nosey adults encouraging youth to look ahead and consider their options for the future or by adults looking for a cute and whimsical answer.  So, what did you want to be when you grew up?  Did you become it? [please comment below]  This was my list starting at the age of 5:  a cowboy, Elvis, a grocery-store bagger, an executive chef, and lastly a physical therapist.  The last choice landed me at Notre Dame studying Medicine in the hopes for a well paying job with security in the next 7 years.
I had everything to look forward to in life– graduating, starting my career, getting a mortgage, settling down, working for the next 50 years at a job I wasn’t thrilled about, and growing old with just a moderate income.  I hated the very thought!!!  Not all of it mind you, only the unhappy-part slaving away at a career for the next 50 years making someone else wealthy. 

Do you ever feel this way?

So it is safe to say that many of us are here to make money with real estate, whether in passive monthly payments such as rent and owner-financing to BIG paydays from short-sales, wholesales, rehab projects, and the list goes on…
In fact for many starting investors simply choosing the right specialty or niche of real estate investing can make or break that investor’s drive and/or spirit from moving forward and ever closing a deal.  I was recently talking with a local Real Estate Investors Club President and asked him how many of his members have yet to do their first deal, my jaw-dropped when “Mr. President” replied over 90% of his regular audience has yet to acquire their first R/E investment!  Come to find out that this statistic is common in many real estate investing clubs and meet-ups.

Why go after the Big Fish first?

When I first started investing in 2002 I read a popular investing course at the time and implemented the exact techniques I was being taught.  I mailed letters, hung signs, cold-called sellers, made over 200 offers via Realtors alone without a single deal accepted.  In addition every private seller I spoke with seemed to be wanting retail prices for their home or only wanted all-cash (as opposed to creative financing).  I was spinning my wheels spending my savings on marketing and was losing deals to local big-named investors with the available-cash to purchase homes quickly and at a low cost.

I needed a way to make serious cash-flow fast without risking much money (because I didn’t have much left) and did not require credit (as I was 20 at the time and had a lack of established credit).

Failing Forward

Three months after making my first investment offer I was out of money and running low on morale.  Around this time I was feeling uneasy and unsure about my next move.  I received a call from a seller selling a unique home that seemed to be unsellable.  In fact every other investor told her to “get lost” (I’m paraphrasing).  This was soon to be my first investment property! The home is a beautiful 3 bedroom 2 bathroom plus den house overlooking the water near Tampa, Fl.  Best part is she was only asking $8,000 for the entire 1,200 sq ft home!
Have you guessed it yet?

Hint #1: The land the home is on is rented monthly by the home owner from the land owner.
Hint #2: You think many of these homes have wheels, but many do not.

If you have ever thought about investing an inexpensive mobile home and reselling it to a park approved buyer for cash-flow payments of $300-$600 per month, it’s time to think again.  Here’s a little about what you’ll discover in my next blog posts here at RealEstateInYourTwenties.com.

  • How you can get started immediately investing in mobile homes with little capital and almost zero risk
  • Which mobile homes make you the most money
  • Case study:  How to structure a deal using the 3/2 mobile home example above

Thank you again to Brandon Turner for allowing me to publish these thoughts for all of you awesome readers and fans to enjoy.  I am always available at the email below.  Everyone here has helped make this blog and network a wonderful place to grow and learn as active real estate investors.  Rising waters lift all boats!

Impact a life daily,

John Fedro

John Fedro is a leading expert in creating passive-income utilizing mobile homes for beginner and novice cash-flow seeking audiences with an award winning blog, an online podcast series, do-it-yourself video tutorials, and an E-magazine that benefits national charities. He has helped close over 120 real estate transactions in over 27 states.  He also co-established the first interactive performance-based online education classroom for mobile home investors. John has helped redefine investing in mobile homes as a popular and lucrative addition to traditional real estate investments for cash-flow.

Buying real estate costs money. However – it doesn’t have to be your money.  With the right mix of resourcefulness, creativity, and knowledge you can buy real estate with no money of your own. Don’t believe me? I speak from experience! Nearly every single property I have ever purchased has been without any money from myself.  The following are seven strategies that can help you buy real estate without spending any of your own money.

  1. Use Hard Money- hard money lenders are private individuals who loan on property based primarily on the value of the property (read my post on Hard Money Lenders here).  Although lenders have been tightening their standards in recent years, they still will generally lend 100% of the purchase price and possibly even repairs if the deal is good enough. They need to feel secure in their investment, so if you only need $50,000 for a property that is going to be worth $100,000 – you may not need to put in any money. Just remember though – lenders are going to be conservative on their values so don’t overestimate the future value.
  2. Use your Home Equity – Do you already own your own home? Did you know you can pull out equity in the form of a Home Equity Line of Credit (usually a variable but low interest rate) or Home Equity Loan (usually a fixed interest rate but higher) to use to buy an investment? Not only is this money relatively cheap to borrow, you may also be able to deduct the interest on your taxes (but see a CPA for details).
  3. Use a Partner – Do you have knowledge, motivation, and skill but lack financial resources? You are in luck! Much of the professional world has financial resources but lack knowledge, motivation, and skill! Use your networking skills to find others who have the missing piece in your strategy and become partners. Make sure that everything is spelled out clearly up front and everything is in writing.
  4. Raise Private Money: Similar to a hard money lender, you may be able to find wealthier individuals who want to earn more on their investments than the stock market or a savings account can pay. Many real estate investors will offer their clients a set 12-20% return on their investment, secured by a lien on the property. This creates security for the private lender and funds for the real estate investor. A true win-win.
  5. Use a Lease-Option -  A lease-option is a strategy used in real estate to buy homes from homeowners without actually taking legal ownership. Instead, the real estate investor signs a long-term lease with the house owners as well as signing a legal “option” to buy the property at a specific price in the future. The owners are not legally allowed to sell the property until the option period is up, and the investor gets to lock in his future purchase price as well. The investor can then easily rent the property out for cashflow or find a buyer to sell his “option” to.
  6. Buy properties “Subject-To” – Buying a home using a “subject to” strategy involves actually transferring legal title from the old owner to the new investor – without paying back the original mortgage that the old owners had.  While the bank may not appreciate not being paid back, as long as payments are continued to be made, usually the bank will either never find out or never care. This strategy is a bit riskier, but as long as you have a backup plan, it is perfectly acceptable.
  7. Use a Combination - Finally, you can mix and match using any of the above scenarios. Perhaps use a hard money lender to purchase the property and use a partner to refinance into a thirty year fixed mortgage after the repairs are done? Or perhaps use a lease-option until you can raise private money to cash out the sellers?

As you can see, there are a huge variety of ways to buy real estate without sacrificing your own money. If you are resourceful and the deal is a good one, you will have no problem buying real estate without any money of your own. Don’t let “I’m too broke” become an easy excuse not to invest.

The following is a post from one of my favorite authors Alan Corey. Alan has been featured in multiple media sources such as  US News & World ReportMoney Magazine, The Boston Globe, The NY Post, CNN, CNBC, ABC, and Fox.  He has also appeared on several nationally and internationally-broadcast television shows including Bravo’s Queer Eye, NBC’s The Restaurant and the ubiquitous The Jerry Springer Show.

I first read his book “A Million Bucks by 30″ several years ago and it quickly became one of my favorite financial books around. Alan was awesome enough to take some time writing a post just for RealEstateInYourTwenties.com.  Besides being an all around awesome guy, he also has great insight and experience into how to use real estate to propel your future.  Thanks Alan!

 

How to Save Money when Buying a Rental Property

By: Alan Corey

Alan Corey is the author of “A Million Bucks by 30”. You can learn more about him and his book at www.alancorey.com.

 

If you are looking into buying real estate to rent out for some passive income, it all comes down to buying a property at the best price possible. The following are some tips I’ve employed to get the purchase price down as little as possible, sometimes saving me as much as 25% on the purchase price.

The number one way to instantly save on a purchase price is to make your offer before a property is listed with a real estate agent or broker. The seller of a property is responsible for the fees paid to real estate agents and brokers, which can run around 5-7% of the purchase price. Knowing this, many properties are listed higher than necessary by homeowners just to cover these selling fees. So getting ahead of the agents can instantly save you 5-7% on your home purchase.

For me, finding properties that are not listed yet takes some leg work (literally). I begin by walking around neighborhoods I’m interested in buying in. If I see a vacant or abandoned home, I’ll talk to neighbors who may know who I could contact about purchasing it. Sometimes there are unclaimed mail and magazines on the front step for you to get a name, leading your internet research in locating the owner. You may stumble upon a house in pre-foreclosure, which could allow you to purchase it at a deeply discounted price.

Furthermore, while on my neighborhood walk, if I see a house getting renovated or under construction, it’s an also sign I have a chance to beat the real estate agents. Many times these houses are owned by house flippers looking to unload of the property as fast as possible. So the key here is to get in before the work is done. Often house flippers choose to put in expensive upgrades to have the house sell quickly by distinguishing it from other homes on the market. I’ve negotiated a lesser workload and lesser upgrades on a construction site in exchange for a reduced home price, to the benefit of both parties. A house flipper is always worried about carrying costs of a house while it sits on the market and secondly, a quick sale will allow him to start looking for his next project. In the end, the house sells for less money, which in turn saves you a lot of coin.

Lastly, walking and talking to people you meet in a neighborhood is another word of mouth way to network for properties. Someone you meet may know about a house about to get listed or one that was just taken off the market because it didn’t sell (a sign the agent contract has expired.) You can even talk to renters who are about to move out, which may be a concern to the homeowner and help pave the way for you to get a purchase offer on the table. Either way, you can start talking at a lower price point and it may lead you to bargain deal.

To recap, get in on a property before the agents do. Most times the cost savings all come down to timing. Cutting out the middle-man is a great way to save money, so the best time to buy a rental property is when you can buy it directly from the owner. It may take some patience and some persistence, but that’s the foundation of a great real estate buy. And great real estate buys make successful real estate investors.

Hey everyone,

Head on over to TheBuyAndHoldGuys.com and check out the interview I did with them. Make sure you “like” their Facebook page as well! These guys really know the real estate game and how to be successful at it.

Stay tuned also, later today I have a special blog post this afternoon.

It my last blog post I discussed Five Reasons NOT to Flip a House.   House flipping is a risky venture, but by following these five tips you can decrease your risk and increase your chance of making a sizable amount of money in a short time.

  1. Make Your Profit When You Buy:  Never overpay for a piece of property. I’ll say it again: NEVER overpay for a piece of property. A good friend and great Real Estate Agent Sean once told me, “When I submit an offer and I don’t blush, I offered too much”.  Another way to look at it: If you are getting more than 10% of your offers accepted, you are offering too much.
  2. Get Favorable Loan Terms: If you can’t afford to use 100% of your own cash, make sure any loans you get are favorable to you. Hard money lenders can be excellent tools if used correctly, but make sure your term is at least six months longer than you expect to hold the property for.
  3. Double Your Budget, Double Your Timeline: Don’t underestimate the costs involved or the time it takes to complete a project. If you are not a seasoned flipper or you are going to do the work yourself – double your budget and double your timeline. If the project still makes sense, move forward. Remember, each month that the home doesn’t sell YOU must make all the payments. If you cannot afford to make them yourself, partner with someone who can.
  4. Make a Plan:  Never just buy a property and hope it will sell. Know it will sell. Do your research ahead of time by knowing what other similar properties have sold for, as well as the average length of time it took to sell.  Plan for the worst, hope for the best.
  5. Have Multiple Exit Strategies: Never allow “just sell the home” to be your only plan to unload the property. You need to always be thinking outside the box. Can you refinance the home into a 30 year mortgage if needed? Can you sell to another investor if needed? How about a lease-option? Be flexible and creative and you will find success a much easier task to accomplish.

Do you have other tips for successfully flipping a home without losing your shirt? Post them here!

We love the flipping reality tv shows. Shows like Flip That House, Flip This House, Property Ladder, and a dozen other television shows have been popular over the past several years (remember Armando Montelongo?)  The abundance of these shows has made “flipping” properties appear to be the only real estate method worth talking about these days.  However, is flipping really better than a long term “buy and hold” strategy?

For those new to the business, “flipping” a home is the process of quickly selling a property for quick profit.  These homes are sold within days, weeks, or several months.  Many times the home is quickly remodeled with new paint, flooring, appliances, and more. On these television show, the “flippers” often make tens of thousands of dollars over the course of several weeks.

In contrast, the “Buy and Hold” method of real estate investing involves purchasing a home (hopefully at a low price) and holding that property for a long number of years, collecting both monthly cashflow and future profit.

While both methods can produce income for investors (and I have done both over the past five years,) I am a firm believer in having as many “buy and hold” properties as possible.

Here are five reasons why buying homes for the long-term is more beneficial than flipping:

  1. Residual Income: When you “buy and hold”, you create monthly income versus a one-time payment.  When you stop “flipping”, the income stops. When you stop acquiring homes to “buy and hold”, the income on the properties you already own continue to come in.  True wealth is only found when your money is earning you money, rather than your labor earning you money.
  2. Tax Benefits: House “flippers” pay a much higher tax rate than long-term investors. Additionally, “flippers” can become classified by the IRS as “dealers” of real estate, thus subjecting their income to regular tax rates and self-employment tax (Social Security, Medicare, etc). Long-term investors pay only long-term capital gains tax (or often not using a 1031 Tax Exchange) and income tax on the monthly cashflow (which is generally largely or completely written-off with deductions.)
  3. Agendas: A house flipper is subject to numerous outside agendas that affect if and how success is found. Hard-money-lenders, private investors, future buyers, partners, and others all have an agenda and their best interest at heart. When you buy-and-hold, the main agenda is your own.
  4. Whims of the Market: When flipping a home, you are hoping that you can sell the home quickly, which is largely based on how the market is functioning in your town. Are there far too many homes being sold, causing yours to sit for months or years? When you hold a property long term you are not dependent on the whims of the market. You are able to sell only when it is advantageous to sell.
  5. Risk: When you flip a home, you have monthly carrying costs such as the loan payment, taxes, insurance that will add up each and every month until the home is sold. Additionally, there is the chance that there will be unforeseen costs that arise when repairs are being performed.  Both these items can blow the budget and eliminate any chance of making a profit. When you buy a home for the long term (and manage effectively), you can balance out your risks over a long period of time, lowering the chance of losing money and maximizing your probability of building serious wealth.

With that said, I do want to emphasize that flipping a home is not always bad.  Often times flipping a home, when done properly, can add a sizable amount of cash to your wallet – which can be added back into future buy-and-hold investments.  As the phrase goes, “it takes money to make money”. While I am a firm believer in the concept of using “other people’s money”, it is always easier to use your own.  I believe in flipping a home only when you lower your risks considerable. Blindly purchasing a home in hopes of selling it quickly for mass profit is not only stupid, but dangerous to your financial future.  Next time I am going to talk about how to lower your risk when flipping a home.

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