Making A Plan

Post by Alan Corey: How to Save Money when Buying a Rental Property

by Brandon · 0 comments

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 Report,  Money 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.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Check Out My Interview on TheBuyAndHoldGuys.com

by Brandon · 2 comments

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.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

How to Flip A House Without Losing Your Shirt

by Brandon · 2 comments

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!

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

To Flip or Not to Flip: 5 Reasons NOT to Flip a House

by Brandon · 2 comments

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.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

You Killed My Father, Prepare To Die… And Other Lessons in Finding Great Deals.

by Brandon · 0 comments

One of my favorite movies of all time is The Princess Bride, and one of my favorite scenes is the epic fencing duel between “The Man In Black”  and Inigo Montoya (of the “You killed my father, prepare to die” type).  Immediately after the duel begins, Montoya asks The Man In Black, “who are you?” Getting refused an answer, Montoya says, “I must know.” The Man in Black’s response?  “Get Used To Disappointments.”

This is the mood I am in today: Getting used to disappointment.  I found a house on the market several blocks from my own a few days ago, and instantly fell in love (mistake number one). Not only was it in a better neighborhood but it had a huge yard, had natural gas heat, and was priced almost half of what other homes in the area sell for. With a few weeks of labor and a few thousand dollars this home would have been both the perfect investment and also the perfect home for me to move into.

This was on Monday. Today (Friday) I decided to begin my pursuit on this marvelous home and much to my surprise: the house already has sold (well, “pending” anyways).  Just yesterday the house was listed as “active” and today it’s gone. Had I jumped on this deal on Monday, I probably would have had it.

Real estate is often looked at as a “slow” investment – and it often times is.  However, there are many times in real estate that you truly have to be on the top of your game to get the great deals.  This lesson hit home with  me this week (no pun intended), and clearly I was not on top of my game this week.  But rather than moping around, feeling sorry for myself, I am using this experience as a learning tool.

So what did I do wrong this week? When I looked at my mistakes in pursuing this house,  I came up with three principles that I dropped the ball on this week. The following are those three principles that must be adhered to in order to find success in finding great deals.

  1. Be Decisive –  If you want to find a property, you need to decide that is what you are going to do. Successful investing requires focus. Great deals are not going to magically find their way into your hands from your indecision.  I don’t believe you need to be decisive all the time, focusing on scoring great deals every day for the rest of your life. However, when you are ready to buy – commit fully.
  2. Be Aggressive – Once you find the property you want, make it happen. Don’t wait on the phone for a day for a call-back. Make it happen. Be the one making the waves, not the one riding them.
  3. Be Resourceful – One of my favorite quotes of all time is “You don’t lack resources, you lack resourcefulness” by Tony Robbins.  When you are trying to make a Real Estate deal happen quickly, you will run into bumps. Lenders will buckle, investors will get worried, and people flake out. You must have several strategies and back-up strategies in place so you can overcome these hurdles.

I’ve written these principles not just for your benefit but also for my own. Even seasoned real estate investors need a good reminder that good deals will pass by if we sit by and let them.

 

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

6 Myths Exposed – Why Young People Shouldn’t Wait To Invest

by Brandon · 3 comments

Most investors wait until their forties, fifties, or sixties to begin investing in real estate. While there is nothing wrong with investing at those ages, there is an underlying belief among many young people that it is not possible to invest until a person is well grounded and experienced later in life. In the words of Dwight Schrute: False.

Investing in your twenties (and thirties) is not only possible, but beneficial. This post will look at six myths that hold young people back from investing and why waiting to invest is both unnecessary and detrimental to your investment plan.

I Don’t Have The Time –

Let me tell you a secret that the older generation all know – as you age you don’t get any more free time. In fact, the older you get, the more obligations seem to compile. Kids, career, home maintenance, civic activities, etc all seem to multiply as you mature in life. Unless you plan on waiting until you are retired to start investing, you are never going to have “more time”. Don’t use “I’m too busy” as an excuse not to invest. You can’t afford to wait.

I Don’t Have Enough Money

Money is important in investing in Real Estate. While “gurus” have made millions of dollars selling the idea that anyone can invest in real estate with no cash, credit, or problems – the fact is it does take money to invest. However, that money doesn’t have to come from you. You can purchase your first property with nothing more than 3.5% down, which depending on the program and current lending standards, can be a gift from a relative.
You can also use your own sweat and muscle in the place of money. For example, purchasing a property through a hard money lender (non-bank individuals and companies who can finance the acquisition and materials for repair based on the value of the property, not the value of your wallet), improving the property, and subsequently refinance the property with no money out of pocket.

I Don’t Have The Credit

If you have made mistakes in your early years regarding credit, or you simply have never used credit and therefore don’t have any, investing is not impossible. It simply takes another set of tools to make it happen.

First, you need to immediately begin fixing your credit. There are dozens of books online and at your local public library that deal with the issue of credit repair. Study these, follow these, and soon your credit problems will be a thing of the past.
In the meantime, you can try flipping properties or wholesaling properties. Additionally, hard money lenders do not generally care that much about your credit. If you find an amazing deal, the funding will be there. Also, it doesn’t take good credit to write up offers, to find motivated sellers, or contact other investors to sell deals to. Wholesaling property is an excellent way to learn the business, meet other investors, and earn good money – all without any credit involved.

I Don’t Know Enough

Knowledge is foundational to any real estate investor, but your age makes no difference in your ability to learn. The first step I tell any would-be investor is to invest first in their education. The internet is full of great posts (such as the Bigger Pockets blogs, forums, and articles) and your public library is an unending source of knowledge. (see more about gaining a free real estate education on my website).
One major advantage young investors have over the older generations is your ability to learn. As you age, your desire to pick up a book and learn or take a class on a subject decreases exponentially. You are not that far out of high school or college, so use those skills to learn how to invest. (Now, I do know many older investors who continually sharpen their mind through books, classes and other learning tools. However, I am speaking of adults in general).

I Don’t Want To Lose It All

Investing, by nature, involves risk. However, a smart investor knows how to invest with careful criteria and sound judgment, minimizing risk and maximizing financial gain. This, again, is true at any age.
No one wants to lose when it comes to investing. Who, though, is at the greater disadvantage when it comes to risk? Someone who is looking to retire in five years or forty years? Clearly, the younger you start, the more time you have to make mistakes and still recover.
I am not suggesting that you make risky choices- jut the opposite, in fact. However, don’t let fear of losing stop you from winning big. When you have forty years ahead of you before retirement, you are allowed to build that nest egg into a war chest. Investing $10,000 and adding no additional funds for forty years at a 15% interest rate (the minimum you should shoot for with any real estate investment) will result in almost three million dollars at the end. Now imaging what adding an additional $10,000 per year would do ($23 million, in case you were wondering). No wonder Einstein called compound interest the most powerful force in the universe.

I’m Not Stable Enough –

This is one of the largest complaints I hear from people when I encourage them to invest in real estate at a young age. Young people, by nature, are much more unstable in our lives. We change occupations, get married, have kids, move across town or across the country. However, this is used more often as an excuse not to invest than a reason.
If you were planning on moving to another state in six months, perhaps it doesn’t make a lot of sense to purchase a home. However, you can still learn the ropes by wholesaling a deal or two during this time to another investor, picking up on skills that will follow you anywhere you move in the world. The houses may change style, laws differ, and your income fluctuate – but the fundamentals of real estate are the same where ever you live.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

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