Credit Reference

It is very helpful to have good credit as an investor. One of the best resources for credit info is a book called "From Credit Repair To Credit Millionaire". With this book you can stay on top your credit score or repair bad credit.

Real Estate Club Finder

To find a real estate club in your area go to creonline.com and click on the real estate club button on the left. There you will find out if there is a club in your area. It also tells you when and where they meet and who the contact person is.

Real Estate Investing Clubs

There are many reasons to join a real estate club. The networking potential is huge. As a beginner investor you can rub shoulders with more advanced investors that are usually happy to help you steer clear of the mistates they have made. If you find a good deal they might buy the property or the contract from you. This is very valuable to beginner investors that don't have a lot of cash to work with. Some real estate clubs have online chat rooms that offer plenty of up to date info on your local market. There might also be an online advertisement venue to find and sell properties. You might get a list of preferred professionals like mortgage brokers, property managers, home inspectors, etc. Most clubs have speakers address the meetings on important topics like rehabbing, joint ventures, investing in a self directed IRA, etc. For a reasonable price your dues paid to the club can be a wise investment.

Investing With Partners

Investing with partners is a great way to own more properties. As an experianced investor I use partners to reduce the amount of loans in my name and be able to buy more properties. That helps keep my credit score high while owning several properties. After 10-12 loans in your name the banks don't want to lend to you as eagerly as they once did. Sometimes my partners have a higher credit score than I do and that gets me a better interest rate on the loan. I pay my credit partners differently than I would a money partner. The credit partner gets about $500 up front and around $2,500 when I sell the property. If a partner wants to put up both money and their credit then they would get a percentage of the deal at closing. Typically that would be the same percentage as the amount of money they put into the deal when we buy it. On a $200,000 dollar property that we put 10% down, $10,000 each, the partner would be a 50% partner. I would do a 60/40 or a maybe 55/45 split with them. Since I'm the one with the knowedge and the one making the deal happen I'll usually take 60% and give my partner 40% at closing. There are many arrangements for partnering and it's best to have it drawn up by an attorney to keep it clean from start to finish.

Real Estate Investing Isn't For Everyone

I love real estate investing. I'm sure I'll be participating in it the rest of my life. This is not true for many that are out there actively investing. Some get caught up in the recent craze of investing at a seminar and think they are now a real estate investor. One of the biggest attributes a real estate investor needs is the ability to keep emotions out of investing. Very few are truly able to do this. The problem is that when emotions go up intelligence goes down. This can result in bad buying or selling decisions. Real estate investing is a business that requires choosing agents, mortgage brokers and others carefully. I see some investors that use relitives for these specialties without interviewing for the job. I almost always interview two or more professionls for each new market I go into. Quite often when I see an investor that uses a relative for the job they end up paying too much or have problems with the deal using an inexperianced relative. One other attribute an experianced investor must have is being able to tame the fear that comes with buying property and pull the trigger on the deal. It's important to have the time to acquire the skills an investor needs throughout a carreer in investing. This does not mean 40 hours a week but you need the flexability to give a deal the time it needs to properly analyze it and to spend time and money on your education. Not every new investor is willing to do this when needed. If you don't really have these things needed to be a successful investor I suggest partnering with someone who does.

Living in Your Investment Property

One of the ways to get a jump start in real estate investing is to live in your property. There are several ways to do this to accellerate your wealth building. One way is to buy a single family home or condo and rent out the extra bedrooms in it. In most cases this will cover your mortgage payment so that you are living rent free. If you can stand roommates for a year or so this is a great way to own your first property. You will qualify for owner occupied mortgage interest rates that are around one interest point or more less than non-owner occupied rates. You could also buy a duplex, triplex or a fourplex. Live in one unit and rent out the others. In this situation you can also qualify for owner rates on the mortgage. You can then live in it for a year or so and buy another duplex, triplex or fourplex and repeat the process. If you pick well you could have a several hundred thousand dollar net worth in about five years. You can do this starting out with just a few thousand dollars for the down payment as owner occupied martgage programs need very little in the way of down payment.

Picking an agent to work with

When I interview a real estate agent to work with I look for many things. I like to work with agents that have invested in real estate. Most agents do not invest in real estate. If they do not invest in real estate themselves then it is important that they have worked with several investors. I look for agents with good computer/internet skills. I ask them if they love their job and how available are they to my phone calls and emails. I ask them if they are honest and ethical. I like newer agents that have been in the business for 1-2 years as they tend to be gogetters and work hard for me. I'm not interested in how big the company that they work for is, but want a company big enough that they have a receptionist answering phones. I like to know that they are open to my creative real estate strategies, and that they will present any offer I submit even though they think it won't work. Most of all I want them to know that our relationship might not work out and the only way to know for sure is to submit offers and work together awhile to see if we are compatible.

International Investing

There are several reasons to invest internationally. You can shelter the falling US dollar, you might have more favorable tax breaks, the cashflow might be better, the appreciation might be better, or it might be a place you love to go and want a second home there that you rent out when your not there. Many Americans have purchased property all over the world. Some of the most popular places are Europe, Mexico, Costa Rica, New Zealand etc. In this crazy new age of real estate investing there is plenty of information on the internet to help invest abroad. If you are thinking of investing abroad try to find someone who has done it succesfully and ask them how they did it. In some countries it is easier to go through the purchase process there than in the US. I like New Zealand for it's ease in the purchase process. As a foriegn national I am required to put down 20% of the purchase price. I'm not able to buy an island or very large sheep station. Other than that the market is wide open to us Americans. When I was down ther in 2003 I read an article in the newspaper about how over 50,000 Californians had bought beachfront property due to its affordability. There is only so much beachfront property in the world and in New Zealand its some of the nicest I've ever seen. If you were lucky enough to have bought in 2002 or 2003 most of the beachfront property appreciated at around 30% per year. Now days places like Costa Rica and Panama are seeing lots of Americans buy beachfront property for investment and second homes. There are even magazines about international living. So if you want a foreign investment property it's easier than ever to research and buy it. The book that got me started was Hide Your Assetts and Disappear. In that book it talked about where Americans like to move to abroad and why. When I asked tha author which location was his favorite he said New Zealand. Within one year I was down there and bought my first international investment property. So pick a location and give it a try. It's a very cool thing to be able to hop a plane to one of these places and stay in your own property or write off the trip to go check on your property.

Investing in Emerging Markets

First of all some of you might be asking what exactly is an emerging market. The three major phases a real estate market goes through are growth,decline and absorbtion. An emerging market is one that is coming out of absorbtion and is entering the growth phase. The trick is to pick a strong market with good fundementals that is in this stage. There are many things to look at in an emerging market such as job growth, people moving into the area, transportation etc. I like looking in the sunbelt where a combination of climate and economic statistics point to the market being one to buy in. A military base nearby is also a plus as it draws retiries to the area due to the services the base offers. The amount of available houses for sale and the number of days on the market is something I take a close look at. I also look at the sale price versus asking price to determine if prices are going up. the website OFHEO.gov helps in researching appreciating markets. The emerging markets offer one of the best opportunities to profit in real estate that I know of. If you get in at the right time you can profit handsomely. There are even some companies out there that pay big bucks for research and will provide services to point you in the right direction of these new emerging markets. This service is not free of course but can be well worth the expense if you double your money in 12-18 months. Whichever way you go, doing your own research or paying for someone else to do it, if you get into a hot emerging market with a long run up in appreciation you can make huge bucks.

Rent to Own part 2

To find out how much to charge for rent I call two or three property managers in the area and check the classified ads in the local newspaper. From these I get the average rent for a similar rental unit. Lets say I have a three bedroom two bath two car garage home that should rent for $1,200 per month. I would then rent my house as a rent to own for $1,300. I would credit my tenant buyer the extra $100 I'm charging above market rent when they buy the home. Say they have rented it for 12 months and then excercise the option and buy the home. They would receive $1,200 off the purchase price from their monthly rent paid on time payments. I stipulate in the option contract that only monthly rent paid on time will be credited towards the purchase price. This helps get it in their mind that they are going to own the home and motivates them to pay on time more often than a typical renter. They also take better care of the house than a typical renter would as they have pride of ownership.

Rent To Own Part 1

The rent to own exit strategy is one of my favorites. The key benefits are you have cashflow from the property while holding it for 1-2 years of additional appreciation. The tenant buyer takes care of all the minor maintenance thus relieving the owner of those headaches. When the tenant buyer purchases the home the profit on the backend is usually quite good. If the tenant buyer does not buy the home then you find a new tenant buyer and keep the option payment from the first one. The option payment is the down payment you collect when a tenant buyer signs a contract to move into the home. It's best to have them sign two contracts to move in. One is the option to buy contract that sets the price of the home and the length of time the tenant buyer has to exercise the option and buy the home. The other is the lease which sets the rules of occupancy, the monthly rent amount and when the rent is due. It also is where I state the tenant is responsible for all repairs under $200. That amount varies from house to house and the market it is in. It's not a bad idea to have a real estate attorney draw up both contracts. After that is done you have it on a computer disc and re-write it each time you have a new rent to own home. It makes it more affordable that way, as you wouldn't want to have the attorney draw up a new contract each time you get a new rent to own situation when all you need to change is the names, property address, the sales price and the amount of the option consideration.

Why Use an Inspector

A good professional inspector will usually make up the fees they charge you in finding out problems with the property that you end up getting credit for. Their fees are typically around $250 for a single family home. They are usually not experts in plumbing, roofing systems, electrical etc, but they know enough to spot problems in those areas. They might advise you to seek an expert for those specialties if indicated. If you then bring in an electrician, roofer etc they also end up covering their fees in the credits you get from the seller due to repair/maintenance problems you have found. Sometimes the problems found in an inspection are so severe that the property should be dumped and you move on to the next one. More often though the problems that are found by these inspections are no big deal but if you can get $1,500 off the purchase price and the repair needed can be delayed it's a good deal for you the buyer. The third party nature and professional designation of the inspector gives you the buyer leverage to work on the seller to either fix or credit you at closing the repair cost of the discrepancies from the inspection. If you end up not buying the property because of too many problems then the inspector has saved you money by not puchasing a money pit.

Investing in Land

I've enjoyed looking at land for over 30 years. I look mostly at raw land in the Rocky Mountain area. The five parcels I have bought for investment purposes have usually doubled my money. When buying land as an investment one needs to understand an exit strategy that fits that particular property. It may be the best way to profit is to buy low and sell high. You may need to hold it a year or more to accomplish that. Or maybe the best profit is in building on the land by speculating that a new home on it would make for the biggest profit. You might be able to develope the land into a subdivision and make big money selling off the building lots. With any of these methods you must be aware that land has holding costs. You usually don't receive any income on raw land. You also don't have any renter headaches with raw land. Just be sure when buying land you can handle the holding costs like, taxes, mortgage payments and other fees that might be tied to that particular property. If you pick the right piece of land and do everything right you can make a huge profit with few headaches.

Condos versus Houses

New real estate investors often wonder whether it's best to buy single family houses or condos. There are many advantages to one or the other, sometimes depending on your local market. One thing is pretty much a given and that is with houses you have more maintenance. With condos much of the maintenance is handled by onsite management using their handyman. This expense is paid for by you the owner but the headaches of dealing with are quite often the responsibility of the onsite manager. Usually all outside repairs are handled without you having to be involved. This includes roof repairs, outside painting, landscaping and parking lot maintenance to name a few. With condos you pay a hoa fee[ home owners association] and that takes care of some of these outside repair expenses. With single family houses you pay for most maintenance and repairs depending on how you lease is written. You also have to contact the repair people and gather bids. This makes a condo a more hands off type of investment. Therefore it depends partly on your availability as to which type of property is more desirable.

Using Property Managers

Property managers are helpful in managing your rentals but they also help a great deal in local research. Before I buy in a new area I contact two or more property managers and ask what they know about growth in their region. I ask if houses or apartments rent best. I ask what features in a rental are most desirable. Like how many bedrooms, bathrooms and garage/parking spaces. Property managers help me narrow down the field to the rentals that are the easiest to rent and keep rented. They also give me an idea of the amount of rent to expect from any given rental I'm looking at which helps me know how much I can pay for that property based on income. The best part of this research is that it's free. And at the same time you are asking all these questions you are interviewing them for the job of managing your property. So be sure and ask questions like how long have you been in business and what do you charge. Also ask about who does the repair/maintenance on the properties they manage and the fees. These are just a few of the questions to ask but will get you started.

Commercial vs Residential Real Estate

When deciding which type of real estate to invest in, commercial or residential, one needs to have a clear picture of the particulars of each. Most beginners pick residential real estate as it's easy to buy and borrow money on. Here's a brief list of commercial vs residential.

Commercial
harder to borrow money
larger down payment
longer leases
harder to fill vacancies
tenants are responsible for minor repairs
lease is in years not months
tenants usually pay all utilities

Residential
shorter leases
easier to fill vacancies
easier to sell
small down payments
easier to borrow money
tenants can be a pain
landlord responsible for most repairs


These are just a few examples of the pros and cons of each. There are books that cover the subject well. I recommend Real Estate Riches by Dolf DeRoos to get a better understanding of commercial vs residential. Like any purchase do your due dilligence well and you have a good chance to profit.

Pre-foreclosures

There are lots of opportunities out there to buy homes before they go into foreclosure. Foreclosure is what happens when a homeowner can no longer pay the mortgage and after missing 2 or more payments depending on the state they are in, the foreclosure process starts. The secured creditor, most likely a bank, then will attempt to get their money. The bank will issue a demand for payment in full based on the note terms. Most homeowners can't come up with the money and at this point we investors can help them out of their situation in some cases. If the homeowner is willing to sell before the foreclosure process gets to the bank sale/auction point we can save their credit from having a foreclosure on it. If we are dealing with a $200,000 home that has a $190,000 mortgage on it there isn't much room to make a profit even if the sellers sells us the house at $190,000. To make it work we must get the bank to short the mortgage. We can write a letter on the sellers behalf about the conditions in the sellers life that caused them to be unable to make payments and then have the seller sign it. Usually it's a job loss or health issue that got them to this point. If the house is not in great condition we point out to the bank any damage that makes the house worth less than the bank thinks it's worth. Typically we would try and get the bank to take $140-150k on their note. This gives us room to make a profit and save the sellers credit report from having a foreclosure on it. Sellers in this situation are going through a broad range of emotions and are challenging to deal with. It takes a special investor who is not looking to take advantage of them do deal with this situation. If you are going to work pre-foreclosures please handle these deals honestly and ethically.











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