Posts Tagged ‘real estate investor’

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Short sales – what can go wrong and how to avoid loss

Sunday, June 26th, 2011

While short sales inevitably form a part of most real estate investors’ business models, they are laden with pitfalls that can be avoided or managed to make sure your real estate investing business does not suffer.

This article goes though what can go wrong with a short sale and how you can avoid loss to your business.

Short sales can create a lot of equity and profits and make good deals even better or create good deals  from deals that were otherwise marginal or non-existent.

The following is a few things that can go wrong in a short sale

1)      Short sales take time

Typically it takes two to three months for a short sale to be completed. Sometimes it can take much longer than you expect, sometimes as long as 6 months.

 Do not be surprised if your file is lost, or the documents you send do not find your file for weeks. It is therefore important to be prepared for these delays and not have short sales as your primary source of income.

 2)      Rejected offers

As much as you may think your offer should make all the sense to the lender and that they should accept your offer, sometimes they just reject them.

 This means you might have to go with their counter offer or increase your offer price. If the offer does not make business sense, you need to be ready to drop the deal.

 3)      Shaky sellers

It is not unusual to have your sellers develop cold feet to the short sale process. Lenders need a lot of information, including a statement of hardship where the seller explains the financial difficulty that forces them to be unable to continue making payments. Usually they may need to see proof income, bank statements, etc.

 On top of this they may request for more information before they can make their decision.

 Some sellers may get discouraged by this process and give up in the middle of the process. As the real estate investor, it is therefore important to explain to the sellers what is involved in the short sale, and the expected time lines and possible pitfalls that can be expected.

 As long as they understand the process,  they are unlikely to have a change of heart in the middle of the process.

4)      Unable to close

You have an approval from the lender but your financing is not ready. Typically, banks will give you a time period within which you must close the deal.

 If you are using private money or hard money to close the deal, it is important to make sure you have the process well ahead and ready to close if you get an approval.

 If you are a realtor who has submitted a short sale offer to the lender on behalf of a buyer, it is important that you get the buyer scrutinize the property so they know exactly what they are getting for the money.

 It is not unusual to a buyer back out or notice problems or repairs and requests to lower the price to cover them.

 The bank may accept or reject such counter-offers,  but being prepared can save you from this experience.

Successful real estate investing requires that you automate most of your tasks and increase efficiency to do more deals spending less time and money. Learn how you can run your business from a feature packed real estate investor website with numerous designs and features that make your work easier.

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How To Use Private Money To Finance Reos And Short Sales

Thursday, June 2nd, 2011

 Today, the real estate market is such that it is hard to get hard money.  Some hard money lenders have gone belly up, while the ones in business have tightened their underwriting procedures.

 Before you get funded, you have to make payments in points plus other fees in addition to high interest rates.  Of course this results to less profits. Of course a lot of them now even need credit rating to lend hard money.

This has stopped a lot of real estate investors from doing deals they once used to finance with hard money.   In this article we cover how you can finance your REOs and short sales.

 Banks always need to see proof of funds before they can allow the deal to go through.   A lot of real estate investors used to depend on hard money lenders for this.  Once you have lined up a reliable source of private money, this can be your proof of funds for your REOs.

If you wholesale properties the process will work the same as with other types of funding except you are using private money.  Contract assignment cannot work in this case.   You have to buy and sell the property on the same closing table in simultaneous closing.

The process goes something like this:

1) Identify the right property
In order to do a simultaneous closing, you must choose properties that will give you a sizable amount of profit.   This is because you must pay some closing costs both when buying and selling the property.  These costs should be absorbed by a big profit margin.

 A profit of $10,000 and above is good enough.

2) Identify your wholesale buyer
This is the person who will buy the property from you, usually a real estate investor.   These properties are usually sold at wholesale prices.

Make sure the buyer shows you proof of funds or the deal might not close!

 You will then sign a regular purchase sale agreement with them.

Of course, you sell the house more than you buy it.

3) Get your private money to the title company
 Have your private money investor wire the money to the title company.   This is the money you will use to close the first transaction.

Depending on what you have agreed with your private money investor, you will pay a small percentage between 1-2% for this transactional funding.

4) Your title company closes the two deals
 Once the deal is closed, you will walk home with the difference between your buying and selling price less closing costs and transactional funding.

 Since your fees are much less, you end up making more money.   This type of transaction works like this:

$100,000 – after repaired value
$50,000 – bank accepts your short sale offer
$75,000 – price you sell to your buyer
$25,000 your profit at closing
Costs:- $1000 private money fees plus any closing fees

As a cash buyer, it also means you can get your properties much cheaper than conventional buyers.

 You can use this method for both short sales and REOs. As long as the numbers make sense, your private money can buy you lots of deals this way.

In other words you use the private money as the source of funds to buy the property from the bank, then flip it on the same table to a cash buyer such as a real estate investor.

Simon Macharia invests in real estate and has done most real estate investing transactions. Learn how a good real estate website can attract private money investors for your business.

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How to reduce risk in real estate investing

Sunday, April 17th, 2011

Real estate investing can be a very profitable business if handled properly. However unless you can take control of several common risks, your business empire can all come crashing down and fail.

This article takes you through how to reduce your risk in real estate investing.

When most people start investing in real estate, they have their goals high in making some big money. This happens quite often, but others also fail because they have not taken certain precautions that are crucial to your success in real estate investing.

The following factors will help you reduce risk and make money in real estate investing.

1)      Always buy low

Not many words are needed to stress this. Whenever you buy a house, make sure it has equity. The more equity it has the better.

It does not matter if you are buying on terms or cash – you must buy low. This will cushion you even if the real estate market goes down.

If you have to take a loan, little or no down payment has tempted most people to buy over-priced homes. At the end of the day, you must make sure that you buy the house for less than the market value.

As a real estate investor, you must have equity the day you buy – or make it a no deal.

2)      Never expect appreciation

Never rely on future appreciation to make money. The current real estate slump has tough a lot of people that this is a bad bet.

If possible, work on numbers lower than the current market values.

3)      Avoid negative cash flow

If you keep cash flow properties, you must make sure that the money it produces pays the mortgage, caters for repairs and leaves you with a healthy cash flow.

4)      Buy properties you can profitably improve

When you buy houses that need repairs, you must make sure that you walk away with at least 30% to 40% equity.

In other words, the sweat you put into fixing the property is worth equity. You must calculate the current market value conservatively.

Remember that the market can go down when you need to sell. Remember too that when the time to sell comes, you will not sell at market price in a poor real estate market.

You must give a good discount to sell your properties, and you need to take this into consideration before you buy any rehab properties.

5)      Use low interest financing

Whenever possible, you should look for the cheapest financing available to buy your properties. Owner financing is probably the best. The current mortgage market has some of the lowest interest rates in a long time.

6)      Do not over-extend yourself

If you take a high loan to value financing, it means you will be making large payments compared to the income it brings. This can expose you to negative cash flow,  and less reserves for maintenance and vacancies.

Successful real estate investing dictates that you buy houses at the lowest possible price, spending less time, money and effort. Learn how a good real estate investing website can automate your business and make you a more efficient and successful real estate investor.

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How To Evaluate Real Estate Investment Deals

Thursday, March 24th, 2011

 Evaluating your deals before you buy them is crucial to the success of any real estate investing business.

 It is therefore important to learn how to evaluate your deals no matter what your business model is.

 The article teaches you tips of evaluating your deals so you make offers that make you money.

 Obviously your business model dictates how you evaluate your deals.

So in this article we will look at some general scenarios which should be a rough guide as to how you make your offers.

 Let us take each business model at a time:

1) Wholesale real estate investing
The general rules for buying a property you are going to flip to other real estate investors is 65 cents on the dollar minus repair costs minus your profit.

In other words when you flip a property to another real estate investor, you must make sure there is enough profit in it for them, or they will not be interested in buying it.

Secondly, you must take your profit into consideration.   The money you make after you sell it must be taken into consideration before you buy it.  Otherwise there will be nothing for you or cannot even flip it if nobody is interested in buying it.

 I prefer to go below 65% of after repaired value in a poor market.  The lower you can get it the better.

2) Buy fix and sell
 This works like wholesale real estate investing, without thinking about flipping profit.

 Since you sell properties at a discount when the market is poor, I still recommend you use the formula for wholesale real estate investing.

3) Subject to’s and lease to own real estate investing
 You can afford to buy properties at a higher price when taking over payments.

 Some people will argue you can still make money with not equity; however, my best advice is to stay out of it.

 When you take over payments, the perfect scenario is when you make money when you acquire the property, get a positive cash flow each month and cash out with a big pay day.

 Cashing out means your lease to own buyer refinances and owns the property.

  The price when your lease to own buyer refinances must therefore be acceptable by lenders.

 In a downward real estate market, you must therefore buy houses with equity.   If the market goes down, this equity will shield you.

 More so, these properties should not require repairs and should have at least 25% equity.

4) Rentals
The general rule of thumb for rentals is that your buying price divided by your yearly rent is less than 10. The less the better.  Of course this is assuming there are no repairs needed.

Successful real estate investing dictates that you buy houses at the lowest possible price, spending less time, money and effort. Learn how a good real estate investing website can automate your business and make you a more efficient and successful real estate investor.

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Real Estate Investing Marketing Messages That Get Results

Tuesday, March 22nd, 2011

Assuming your real estate investing letters get opened, what drives the motivated seller to call you instead of all the other people?

 It is the message in the mail piece that makes all the difference.   It is the driving force behind billions of dollars in revenue generated by effective copy.

 The marketing message must be strong enough to get them call you or visit your website.

 This article concentrates on how to write effective copy for your marketing.
 Motivated sellers get bombarded with tens of letters and post cards, especially when they face foreclosure.   They cannot read all the letters!

They are also in distress, and these letters add to the agony of their experience.

 Suddenly everyone promises to change the world for them.   How can you make them believe you instead of your competition?

 This means that your message must grab their attention, appeal to their emotional needs and have a strong call to action they must act upon. And of course, one that sticks out better than all the others.

Let us look at each in turn.

1) Grab attention
 Your mail piece will be trashed if it does not grab their attention within 20 seconds.   Instant attention is therefore a must.

 They can only read the rest once you have their attention. It should be bold, direct and address a need the motivated seller holds dear emotionally promise to resolve a need the motivated seller holds emotionally.

 In other words, you must convince them that you will deliver relief, which is what a motivated seller needs.

 At the same time you must not be aggressive. Motivated sellers are going through tough times and it is important that you are sympathetic to their situation.

This applies whether you use letters or postcards in your real estate investing business.

2) Appeal to their emotional needs
 It is necessary to be sensitive to their emotional needs even though you must catch their attention.

 Your message must not only promise to buy their house, but also to relieve emotional stress caused by their financial situation.

By providing a solution and appealing to their emotional needs, you will come out stronger and more real than your competitors.

Most of the letters and post cards they receive are aggressive from real estate investors who look like they are swooping on an opportunity to grab their house off their feet.  If your mail piece appeals to them emotionally and sympathetically, you will be the one they call.

3) Have a strong call to action
 A strong call to action is a must whether you market on a website, letters or postcards.   A call to action forces them to take action – call you or visit your website.

 Successful marketing should entice them to visit your real estate investing website.   The website should pre-sell you, tell your story and convince them you are the best buyer for their house.

 Of course the website needs to have a strong call to action which forces them to submit their information online – sending you pre-screened and pre-negotiated deals.

A good real estate investing website is recommended at the end of this article.

Successful real estate investing must be driven by closing more deals spending less time, money and effort. Automating tasks and running real estate investing business is streamlined by having a real estate investor website that cuts down your work load while making you a more efficient deal maker.

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Effective Direct Marketing For Real Estate Investing

Saturday, March 19th, 2011

 Your marketing materials can only be read if they are opened.  They must be noticed before they are opened.
 If your mail piece looks just like all the others, it will be trashed with the rest.

So how do you make your marketing pieces stick out?

1) Letters
When sending letters, you can make sure it sticks out by

a) Colored envelops
An envelop that is not white always sticks out.   My testing shows that the old fashioned “air mail” envelop with blue and white stripes on the edge has the best effect.  However it seems these envelops are for overseas mail, are rare and expensive.

 Yellow envelops are quite noticeable and effective in capturing attention.  In my area I get them quite cheaply, just a few dollars more than traditional white envelops.   Instead of printing directly on the envelop, I always use a sticker.

I use a huge, over-sized  luminiscent green sticker printed in custom hand-writing fonts.   These fonts are freely available on the internet.

I always make sure I use un-usual stamps that stick out.

 Every week, I send out 100 to 200 targeted letters in my real estate investing business.  It takes me less than 1 hour to print the letters and stickers and to insert the letters to envelops and seal them – I have equipment for this.

 I pay for someone to stick stamps and address stickers.

b) Whether you use a colored paper or white one for the mail piece, always  make sure your letters are sympathetic and personal.   You will look more real than the other screamers and they will respond to you.

Remember motivated sellers are distressed and need to be treated with sympathy.   If your letter connects with them emotionally, it is a winner.

2) Post cards
 The post cards you send also need to be brightly colored.  Yellow or brightly colored post cards are always preferred.

 In my real estate investing business, I use glossy post cards.   I always use a sticker with a different screaming color that is hard to ignore.

I like a bright red or green luminescent sticker.  Yes, over-sized stickers are the best.

The message of the post card is always direct, all-inclusive and personal.   The less words you use, the more effective it is.

A cluttered post card with too many words is likely to get ignored.

3) Repetition
 Sending more than one mail piece is one of the most important things in direct marketing.   I send out 2 mail pieces spaced 30 days in my real estate investing business.

 You can get as much as twice the response when you follow up.

In order to be successful in real estate investing, it is necessary to close as many deals as possible while spending as little time, money and effort as possible. Learn how you can achieve this by automating your real estate investing business with an automated real estate investor website .

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How To Get Rich With Roth IRA Real Estate Investing

Saturday, March 19th, 2011

Traditionally, an IRA is a tool meant to save for retirement.    By investing through your IRA, you can multiply your retirement savings tremendously.   As a real estate investor, you can also save a lot of money through the tax breaks realized through investing using your roth IRA.

 In this article, we explore how a roth IRA can give you a huge tax break saving you lots of money in real estate investing.

 Investing decisions are usually made by the custodian of the IRA. In a traditional IRA, custodians can charge high fees for their services.  You are therefore much better off with a self directed IRA.
 You make the investing decisions in a roth IRA.  And because you are not using a custodian’s advice, these accounts are cheaper to manage.

As a real estate investor, you can invest in your properties using your roth IRA.

The main advantages of a roth IRA are
1) The contributions you make are not tax deductible
2) Withdrawals are tax free
3) Your transactions within the roth IRA are not taxable

 You can save a lot of money in your real estate investing deals since you do not get taxed on the profits your IRA makes.  In other words, if you invest in real estate investing deals that require little capital, you can invest in your roth IRA with no taxes on your capital gains.

 In the long run, you end up saving lots of tax free money in your roth IRA account. You can continue to use this cash in your real estate investing business while having a tax break that saves you lots of money.

 You should familiarize yourself with the  transations you sacn do in your roth IRA and the ones you cannot.  You should learn the regulations of IRA investing especially as they relate to real estate investing.

 You will end up making lots of money by saving on the tax benefits of using a roth IRA in real estate investing.

So how does it work?
 Since there are many types of real estate investing, it is impossible to give a complete overview of how this works.  For instance, let’s assume you are buying a house to flip as a wholesale deal.  The buyer listed in the contract will be your roth IRA.  Your roth IRA account pays the earnest money.

 The assignment fee will go to your roth IRA account if you assign the deal to another reale state investor.   In this type of transaction, you can invest $10 to $100 and make $5000 in assignment fee – money that goes to your roth IRA account tax free.

 In a similar example, if you do rent to own transactions, you can use a little investment from your IRA to acquire the deal.  Assuming you form a land trust for this type of deal, your IRA would be the beneficiary. 

This means all the monthly positive cash flow goes into your IRA.   Once you eventually cash out the deal, your roth IRA receives all the money.

You can then continue using this money for similar real estate investments and grow you retirement savings.

 Once again, there are many types of real estate investing transactions. You should get more advise on which transactions you can do and which ones you cannot.

Using this type of real estate investing model, you can build a huge tax free  retirement savings.  This will build your real estate investing business to new heights.

No matter what type of real estate investing business model you do, it is important to close as many deals as you can spending as little money, time and effort as possible to be profitable. Learn how an automated real estate investor website can simplify your business putting more money in your pockets.

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10 most common real estate investing mistakes

Wednesday, March 9th, 2011

Most real estate investors stumble in their real estate investing business because of common mistakes that can be easily avoided.

This article goes through the 10 most common real estate investing mistakes.

1)    Adopting too many business models

This is especially common after attending seminars or boot camps. It is important to learn all the real estate investing strategies, but you cannot adopt all of them at the same time.

The end result is loss of focus, and few to no deals done. Take one or two business models such as wholesaling, lease options, etc and stick with it. You can handle more when you increase your capacity.

2)    Not having an exit strategy

Before you buy any property, you must know how it will make you money. If you have not done this, you are likely to make a loss no matter how cheap it is.

3)    Paralysis of analysis

We must be careful, but you can never be 100% careful. Lots of new real estate investors spend too much time analyzing deals in great detail, leaving time for little else.

You cannot make all deals work no matter how many strategies you know.

4)    Not telling it like it is

This can land in hot soup pretty fast. You must let the seller or buyer know exactly what to expect.

If you wholesale properties or take the subject to the existing mortgage, you must explain in detail what they should expect from you.

5)    Doing it all yourself

You do have to save some money, but let professionals do their work. As a real estate investor, you are a business person. You cannot be the closing agent, attorney, contractor, etc.

Concentrate on building your business and let professionals do what they do best.

6)    Doing cheap or bad work

This happens when you do it yourself, or when you are trying too hard to save some money. A house with sloppy repair work is unlikely to attract buyers and will end up making you a loss instead.

7)    Being personally attached

It’s your first deal, and the house is too beautiful, you love it – so what? As soon as you get personally attached you end up spending too much money on it and make a loss.

Treat each deal like a number – a dollar figure; and you will be fine.

8)    Not networking with other investors

I have met too many real estate investors in trouble as motivated sellers, but who think they know it all. Their attitude is, if they are teaching it, shouldn’t they be out making money instead of teaching?

When you network with other real estate investors, you learn what works on the ground, what they do, how they do it, etc. These are the guys on the ground doing what you do. You can learn a lot from them.

9)    Not having a dream team

Get together a team who does everything you need – title company, attorney, contractors, roofers, plumbers, real estate agents, mortgage brokers, etc. when you need them they are just a phone call away.

10)  Not assessing yourself

I like to look through each deal when it’s complete to see if I could have done better. This makes ensures you improve every time when you handle your next deal. Your real estate investing business will continue growing when you do not repeat mistakes you made in the past.

In order to run a success real estate investing business, it is necessary to automate most aspects of your business, increase efficiency so you spend less time, money and effort while closing more deals. A lot of real estate investors have achieved this with database driven real estate investing web sites that also automate most tasks of real estate investing.

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Should you target cheap or expensive properties for real estate investing?

Sunday, March 6th, 2011

One thing that most real estate investors agonize about is the price range of the properties you target. The general school of thought is that the more expensive the properties you invest in, the more money you make.

This article looks at both scenarios and how you can target the right properties for your business model.

First of all property prices depend on geographical region. For example houses are more expensive in California than say, Texas. So depending on your local market, you have to decide what is cheap and what is expensive.

A medium class 3 bedroom house would be considered a safe investment in the medium price range in most places.

So what determined which price range to invest in?

1)      Business model

When I wholesale my houses, I target properties that are less than $150,000 in Texas. These are the houses that most investors would comfortably fix up and rent out or re-sell. By most investors, I mean they are easier to sell because there are more potential buyers.

Medium income neighborhoods are more common in the markets I target and therefore seem to have more properties for my business model.

If you are buying properties subject to the existing mortgage such as lease to own, you may be able to target a higher price range for your real estate investing deals. In the same price range, wholesale business model may not work as well.

Similarly when you target luxury homes the price range of the houses you buy  goes up.

2)      Neighborhoods

Once you move to the lower end properties, chances are that you target lower end neighborhoods. These come with their own set of problems such as vandalism, defaulted rent payments, trashy tenants, etc. The list goes on and on.

Depending on your market, you are most likely to target neighborhoods that have the most properties for you.

3)      Target profit

There is a general conception that the higher the price range that you target, the more profit you make. This may be true. But it could also mean more capital investment such as advertising to target higher end buyers.

Repairs (even touch-ups) can cost a lot in luxury homes. This means that you  stand to lose more when you target higher end properties if the deals don’t work.

In general, you will handle less higher end properties but they will give you more profit per deal. You can do more lower end properties and probably make as much or more profits.

4)      Availability of buyers

The higher you go in your price range, the less people you get who can buy those properties. You have a lower pool of buyers for luxury homes. Likewise when you target the lowest end, you will get less buyers because most people tend to turn away from them.

So which is the best business model for real estate investing? It depends on your choice one you consider all these factors.

Successful real estate investors know that to succeed in this business, you must increase efficiency and close more deals while spending less time, money and effort. Learn how you can accomplish this with an automated real estate investing website.

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How to market properties for sale on real estate investing

Sunday, February 27th, 2011

Whether you are buying or selling houses, your real estate investing business must be driven by marketing and generating leads that either sell you houses or buy your houses.

This article focuses on marketing properties that you have for sale and how to reach out to potential buyers and sell your houses fast.

Of course, the main assumption when you are marketing is that you have prepared the house for sale. This may involve staging, general cleanup and presenting it in a way potential buyers will get interested.

You need to get a few things in place:

1)      Get a real estate investing website

You must have a stage for presenting your properties. A good real estate investing website serves this purpose.

From a good website, you can create description for the house, upload pictures, any documents such as disclosures, comparable sales, etc. You can also present video virtual tours if you have any.

Your real estate investor website acts as your staging platform for your properties. Check the end of this article for a good recommended website.

2)      Build a buyers list

A buyers list is a list of buyers who may be looking to buy houses where you buy and sell. Again, a good real estate investor website is necessary – it acts as the place to manage your buyers list and send out email messages to potential buyers.

3)      Target your market

You must have a geographical target market where to direct your marketing campaigns. Most likely you will want to target the immediate neighborhood more aggressively than places farther away.

4)      Humanize your marketing message

Do not describe your property like a thing. Describe its unique features and how they appeal to the needs of the buyer.

Highlight how these advantages help a potential buyer. Instead of saying located near a school or park, say something like “your kids can walk to the nearby elementary school or play in the nearby park”.

You must appeal to the emotional psychology of potential buyers by highlighting benefits rather than features.

5)      Target all marketing media

Some people read newspapers, others search on the internet.

Of course the first thing to do is to email the property to your buyers list! Your buyers list contains people who are looking to buy in your local area. Do not be surprised if you get your buyers here.

Make sure you post your property in all marketing websites you know, including places like Craigslist, Kijiji, etc.

Make sure not to forget social networking media like Facebook, Twitter, etc.

Target your local newspapers signs in front of your property, leaflets in your community bulletin boards, bandit signs if your city allows it.

And always make sure you send them to your website to view full property details. It is from your website that they get a chance to join your buyers list

6)      Review your marketing

Always have a way to determine the success or failure of your marketing and to change at a moment’s notice.

Remember marketing is a numbers game. Good luck selling your properties!

No matter what your real estate investing business model is, your real estate investing business can be more efficient so you spend less time, money and effort closing more deals. Learn how you can manage all aspects of real estate investing and automate your business from a real estate investor website that runs real estate investing.

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