As cash flow is the most essential ingredient in any business, so it is as a landlord.  Obviously, in order to maintain cash flow as a landlord, your properties must be occupied.  There are several cost-effective ways to make you and your property very appealing to new tenants; and, infinitely more importantly, there are ways to retain the good tenants already living in your property, to avoid both the cost and uncertainty of vacancy or tenant turnover.

Imagine yourself in a tenant’s shoes, and provide the little perks you know they want, but no one else is offering.  For example, practically every landlord I have ever spoken to has assured me that the walls would be repainted before move-in, but not one has asked what color scheme I would prefer.  Allow your tenants to select the color scheme they want in their new home—it’s no additional work for the landlord or the painters, just a different bucket of paint.  If the tenant can move in to the home they want, with the scheme they want, without having to do the work or pay the expenses themselves, that may be enough to distinguish you from the other landlords.

That is just one example; there is an infinite number of little ways to excite a new tenant.  Free cable, installed appliances, fans, fenced-in yards, etc.  Clearly each of these things costs the landlord money, but it cannot be overstated how much money you will save by keeping your property occupied at all times.

Once you acquire a good tenant, the real trick is to keep them forever.  Spoil your tenants—make it so that if they go anywhere else, they will come running back to you.  This doesn’t mean lavish them with expensive gifts, but be responsible.  Make repairs, follow-up, and provide little bonuses like a gift card when they resign the lease.  Some landlords are going as far as offering long-term tenants free high speed internet and even a free computer!  What’s $500 spent on a person who will bring you thousands?  While not everyone has to take such an expensive approach to tenant maintenance, I think the concept is clear: don’t just sign your tenants up and then disappear.  The cost of getting new tenants—between repairs, repainting, installing new carpet, and the loss of rental income during the period of vacancy—far outweighs the cost of keeping your current tenants happy.  The most successful landlords are, quite simply, the ones chosen by their tenants.  Keep your tenants happy, and you will be much better off.

Tell us what you think. J

The United States Department of Housing and Urban Development (HUD) is a government department devoted to subsidizing housing for low-income and otherwise-vulnerable Americans, such as homeless military veterans (HUD-VASH).  This is often referred to as Section 8 housing, and is most commonly seen in the form of vouchers being provided to eligible tenants, which translate to a discounted rental or purchase rate.  HUD is the umbrella organization that insures the loans handed out by various federal and state government agencies (most prominently FHA loans).

As with all loans, there are consequences to defaulting on payments of HUD-insured mortgage or other loans.  The home is foreclosed, but not by the standard process.  Instead, HUD takes possession of any property paid for by a loan from a government agency, and then holds a separate HUD auction for those properties.  These tend to be less frequent than bank foreclosure auctions, but they offer investors incredible opportunities to buy at a discount.  The government tends to be more willing to sell at a discounted rate than the banks are.

The beauty of HUD auctions is that anyone can find and attend them, for free.  By policy, all of the foreclosed HUD homes are listed by the lending agency on a HUD-approved listing service that requires no purchase or sign-up or any other strings attached.  They are relatively easy to find by searching online; the only real drawback is that each state has its own listing agency, and therefore you cannot search for HUD homes in a national network, for example, only a statewide one.

Make no mistake, HUD is struggling as much as (or more than) anyone else during this difficult period in the economy and more specifically in the real estate market. They hold too much inventory in a declining market, and they appear to be desperate to unload some of it.  This means a couple of things: huge discounts for buyers, but also negligent care of the properties (they would rather just get rid of it than improve it and increase its value).  The point is this: HUD auctions are a great place to find deals, and there are plenty of them, but be careful you are not buying some dilapidated building which the government considers a burden they can unload on you.

Let us know what you think. J

SuperiorPrivateMoneyReturns.com

Many people think we have survived the worst of the economic recession, and we are operating in an increasingly stable real estate market that’s on the mend.  It seems more likely, however, that 2010 will actually be the peak of the foreclosure cycle, with up to four million newly-foreclosed homes.  But what about tax credits, and the increasing number of sales recently?  Well, they’re not all they’re cracked up to be.

Tax credits appear at the surface to be helping drive the real estate market right now, but in fact the total number of sales is still decreasing from a few years ago.  What these credits are actually doing is expediting the sales that were already taking place (and probably would have taken place one way or another anyway), rather than increasing the number or breadth of transactions occurring.  Eventually, the tax credits will run out, and we will be right back where we were a year ago—except with more unqualified home-owners.

Further, interest rates on mortgage loans from the bank are increasing in 2010, to a standard of about 6%.  Loans are very difficult to acquire these days, and very expensive if utilized.  What’s more, it’s apparent that banks—unable to sell their real property at reasonably profitable rates (or at least minimally costly rates)—are withholding a great deal of inventory.  This becomes a serious problem down the road, when they release that inventory, flooding the market and dramatically reducing overall sale prices in the process.  Combine all these factors—expensive loans, tax credits ending, inventory increasing—and it would seem we are going to see even more foreclosures in the next year or two.

The good news is, if you have the capital funding to do so, more and more foreclosures mean greater desperation on the part of sellers and lenders, and better opportunities for buyers.  It’s going to continue to be a buyer’s market, to be sure.  With the number of foreclosures, discounts, and short sales, there is no shortage of ways to find a good deal. But be forewarned: it’s a good time to buy, but a terrible time to sell.  If you can afford it, it’s a perfect opportunity to buy-and-hold an investment property until the market climate warms up to sellers.

Tell us what you think.  J

SuperiorPrivateMoneyReturns.com

Part 5 of 5

Tip #8:  Know your maximum allowable offer before placing an offer.

 This takes into account knowing what the after repair value of the property will be, holding costs, rehabbing costs, financing costs, closing costs, realtor fees and your expected profit margins while providing some room to negotiate. This will take a little time to develop initially until you gain some experience.  With each successive deal, you will learn to calculate each of these costs faster and faster.  Leverage the professionals in your power team and they can help you get started initially as well as provide you some general rules to follow. When you get estimates from contractors, make sure you provide each contractor with the same items to be completed.  Only pay contractors on a draw basis and set a time line that you both agree upon for the job to be completed. Establish penalties in the contract for not having the job completed on time.  An example would be a $100 per day reduction in payment for missing the time line. Leave 1/3 of the overall cost of the job to be paid as the final draw after completion and personal inspection to ensure that the contractor finishes the job.  This is usually his profit margin.

Tip #9:  Place an offer with at least two escape clauses built into the offer.

This approach affords you multiple avenues to back out of a deal if you do not feel comfortable.   A simple escape clause could be to make the “offer subject to partner approval within 3 days of the accepted offer”. Another escape clause could be to make the “offer subject to satisfactory rehabbing bids at buyer’s sole discretion within ten days of accepted offer”. These don’t always work but they provide you multiple negotiation points as well as time to think things through.   Remember that price and terms are the two main negotiating factors.  Do your best not to negotiate both at the same time.  Give on one and hold on the other. 

Tip #10:  Purchase the investment property through an entity or revocable grantor trust for asset protection.

 Too many investors purchase properties in their own name and essentially put everything they own at risk.  If you are financing through a bank, you will be personally responsible for the loan, however there are ways to take title to the property without risking everything else that you own. It is worth the time and money to talk with an asset protection attorney to set up an entity to protect your other assets in case anything would go wrong. A revocable grantor trust (i.e. land trust) will provide anonymity and an entity like a limited liability company will provide charging order protection. A couple thousand dollars of prevention is worth hundreds of thousands of dollars or possibly millions of dollars of losses. 

These “10 Tips” are provided as general concepts to help the beginning investor get started in a safe and confident manner. There is much more to learn, but this is a great starting point. Wishing you all the success you desire and give us some feedback on what you think. J

If you would like the entire manuscript, just submit your name and email address in the “opt in” box above.  

SuperiorPrivateMoneyReturns.com

Part 4 of 5

The next five tips will focus on some basic decisions you will need to make before purchasing that first property 

Tip #6:  Have your financing or end buyer approved before placing a property under contract.

     Young investors often put themselves in an “at risk” position by placing offers on an investment property before securing financing or an end buyer.  The safer approach is to have financing approval in place via, private money lenders, hard money lenders, cash or bank financing approval first.  In my opinion, you should be using fixed rate loans rather than adjustable rate mortgages so you always know what your fixed costs are. If you build your house on shifting sand with the adjustable rate mortgage, your costs can vary significantly potentially putting you in a vicarious position as many have learned the hard way. Structure you private money and hard money terms so you know what your fixed costs are. If you are wholesaling properties, have multiple end users in place before putting a property under contract.  This approach puts you as the investor in a much more stable position and at much lower risk.

Tip #7:  Develop multiple exit strategies before placing a property under contract.  

     The more exit strategies you can develop for a property, the lower the overall risk to you as the investor.  If you are just counting on appreciation to make your profit, you are speculating and not investing.  As many have learned, you can get caught holding the goods and potentially create financial disaster for yourself. There is absolutely no reason to put yourself in this type of “at risk” position. You need to develop a minimum of three exit strategies that will work for the property.  If you are unable to develop three, either approach a mentor for assistance or re-evaluate how good of a deal this really is.  In general, invest with the end in mind. The end being the multiple exit strategies you can use to exit the property.

     Let us know what you think. J

     SuperiorPrivateMoneyReturns.com

Part 3 of 5

Tip#4:  Assemble a power team of professionals to assist you.

It is critical to leverage the expertise of other professionals that know more about certain areas of real estate and business than you do. You want to surround yourself with the best people you can find.  Remember you are only as strong as your weakest link.  Once you have your power team in place, you will learn to manage your power team rather than you being in the middle of every situation.   It takes a team to be successful and there is no “I” in TEAM. Members of your power team will include some or all of these individuals depending on your specialty selection: two realtors, general contractor, real estate attorney and/or a title company, insurance agent, home inspector, accountant, mortgage broker, private funding sources and/or investor partners, property manager, strategic partners and a mentor. If you are investing out of your local area, some of these individuals will be in the area you are investing while others will be in your local area.  A successful mentor in your specialty is an added plus as he can provide guidance in avoiding common pitfalls.

Tip #5:  Determine the best area to invest for your specialty in the city you have selected.

By gaining feedback from knowledgeable successful realtors and your own market research, you should be able to determine two or three areas of a particular city that fit your specific specialty. Focus your time and effort in these areas and become the expert in these areas. Your network of influence will continue to grow as you talk with other investors and begin to market your business.

The next five tips will focus on some basic decisions you will need to make before purchasing that first property.

Let us know what you think. J

SuperiorPrivateMoneyReturns.com

Part 2 of 5

TIP #2:  Determine the area of Real Estate Investing you want to specialize in.

Real estate investing is a very broad area ranging from wholesaling, tax liens, fix and flip, discounted notes, multi-units to raw land, commercial development, multi-use buildings etc.  Choose a simple specialty initially that you want to focus on and learn as much about this area as you can; then execute that specialty with confidence so you become good at it before moving on to another specialty. Too many young investors try to do too much too soon and become overwhelmed and discouraged before reaching any level of success. Pick your specialty, learn it, ignore all the other gurus outside of your specialty and become good at what you have chosen.  Only then move on to another area of expertise.

TIP #3:  Conduct market research on a global basis to determine the best area to invest that fits your specialty.

Although most beginning investors often begin investing in their local community, this may not necessarily be the best place to invest based upon the specialty you have chosen. You will need to determine if you only plan to invest locally or go where the best markets are. For example, if you are planning to specialize in wholesaling, you need to know who the big “active” investors are in your area and where they are investing as well as what they are investing in.  They may or may not be investing in your local community. You go where the players are looking to invest and provide them what they are looking for. If you are fixing and selling to the retail market, you need to know where the best population growth trends are in the country, the economic growth, the desirable neighborhoods, crime rates etc to maximize your profit margins and cut down on holding costs.  If you are a “passive” investor, you will need to determine who the successful “active” investors are that you trust for private lending opportunities.  If you are interested in tax liens, you will need to determine what states provide the best returns and the shortest redemptive periods as well as the laws of that specific state to maximize your profit.

Let us know what you think. J

SuperiorPrivateMoneyReturns.com

Part 1 of 5

Real estate investing through owning profitable investment properties is both exciting and lucrative when done correctly. The investor provides a valuable service to the community in which he is investing plus provides a positive source of income for his loved ones. Real estate investing can also create personal financial disaster if done without a solid strategic plan in place.  The new investor innately knows this and often gets stuck in the paralysis by analysis stage and never makes that first investment due to fear and uncertainty. These 10 tips are designed to provide the new investor guidance and confidence so that they can move forward in a more strategic and profitable manner reducing their fear and overall risk of failure. These tips will be spread out over the next few days.

TIP #1:  Determine if you are going to be an “Active” or “Passive” Real Estate Investor.

An “Active Real Estate Investor” in my opinion, is someone who is actively involved in his business evaluating, purchasing, rehabbing and selling or buying investment property, discounted notes, or tax liens on a regular basis. This person is running a business on a day to day basis.  A “Passive Real Estate Investor” is someone who does not want to be in the middle of the day to day management of investment property.  This type of individual may be much more comfortable being a private lender to the “Active Investor” or purchasing a turnkey investment property at a discount and having a property manager manage the property for them. There are strong merits to both the “Active” and “Passive” Real Estate Investor, just know which you plan to be. It is also ok to change down the road once you have more experience and knowledge.

Let us know what you think. J

SuperiorPrivateMoneyReturns.com

As real estate investors, we all know that the success and failure of careers can hinge on an investor’s ability to find deals.  Sometimes, it’s about who you know—especially for those who have been in the business for long enough to have cultivated those valuable relationships.  Sometimes, it’s about what you can afford—investment firms which buy huge billboards and commercial time on TV have an obvious edge.  For other investors, who may not have a huge pile of money or years of experience to rely on, there are still ways to market your business and attract more deals to grow that business.  Here are some (very) low-cost ways to let the community know you are an interested investor.

Spend a day simply driving around neighborhoods where you are interested in investing.  In today’s market, there will be no shortage of “For Sale” and “For Rent” signs, and all you have to do is write down the phone numbers on those signs to have contact information for a potential deal.  At the end of the day, you might have 50 numbers to call for homes that you know are in a location which you’ve already selected. Similarly, consider using craigslist (I know it seems a bit amateur).  Don’t put an ad up advertising your investment company; rather, peruse the listings for home sales and rentals, and essentially do the same thing you did when driving around neighborhoods: gather phone numbers and make initial calls expressing your interest as an investor.

Business cards are very cheap (around $30/1,000), so you can afford to hand them out shamelessly.  Really, give one to everyone you run into throughout your day.  Finding deals is all about networking—if enough people know who you are, eventually one of them will know someone who knows someone who has a great deal.  You can’t pass out too many business cards.  Sticking to the same lines of shameless advertising, consider buying a cheap set of magnetic car advertisements, which you can slap on the side of your car and serve as a rolling billboard every time you go out.

Get on email lists.  This is as simple as signing the forms at the Real Estate Investors Association meetings to get on people’s mailing lists.  You should be notified whenever a deal comes through.  The value of social networking, getting your name out there, and making sure you are getting deals from as may sources as you can, cannot be understated.

Finally, don’t select one method of marketing and then rely on it to find your great, diamond-in-the-rough deals.  The successful investor is a perpetual multi-tasker; since you never know where the next great deal will come from, you can never shut the door on any viable sources of leads.

Let us know what you think.

SuperiorPrivateMoneyReturns.com

Traditional subject-to purchases are a great way to make money in today’s real estate market.  As an investor, you get a call from a motivated seller who simply wants you to take over his mortgage payments—no money down to own the house.  The financial structure and credit arrangement remain in the original owner’s name, and you get a house for the price of a mortgage payment.  This scenario works great when the property cash flows (i.e. the monthly rental check coming in exceeds the monthly mortgage payment going out), but most investors disregard deals which will negative cash flow—according to conventional wisdom.

There is another way, however.  Consider the above scenario, when the monthly mortgage payment is $2,200, and market rent is $1,800.  For the sake of example, let’s say you want a $300 monthly cash flow for every property you own.  So that’s impossible, right?  Wrong.  If you do your research in advance of the deal, you can negotiate with the seller to include a monthly payment of $700 directly to you, the buyer.  This is good for the seller, who now only has to pay $700/month instead of $2,200.  It’s great for you, because you use the rent and part of the “they pay you” money to pay the mortgage, and the remaining $300/month goes directly into your pocket.

This structure comes with obvious risks.  There is no guarantee that the seller will continue to make his monthly payments to you, which can result in negative cash flow for your property.  However, if you are a savvy investor, you will include in the subject-to agreement a clause which states you will allow the property to go to foreclosure if the seller’s payments are not made to you in a consistent and timely manner.  Since the financial work is still in the original owner’s name and credit, foreclosure would be a devastating blow to the seller.  He would either be highly motivated to pay you, or financially ruined.  Even in the worst case, you lose nothing by ceasing payments of the mortgage.

Subject-To’s are always a good way to curb the risk of investing in a piece of property, but “they pay you” subject-to’s are a special way to profit even from homes which at first glance appear as financial red flags.  If the contract is negotiated skillfully and responsibly, then you can receive a monthly check, while ensuring that even in the worst case scenario, you will not lose money on your initial investment.

Tell us what you think.

SuperiorPrivateMoneyReturns.com