Once you’ve followed your leads and found that one great deal you’ve been searching for, you’ll need to make sure that the property you’re buying is what you think it is, and not just what it is presented to be.  In other words, you’ll need to have a thorough home inspection done by a professional.  If done right, this one pre-purchase home inspection will tell you everything you need to know about the home, what works and what needs to be repaired, and any other baggage that might eventually manifest once you own the place.  Here’s how to ensure you are approaching this process from the right angle, so that you don’t end up owning a hassle and a money sink.

The first step is choosing the right home inspector.  Years ago, there was just “a guy” to call when you needed an inspection.  Now there are over 30,000 licensed inspectors in the country, and you’ll need to know how to find one that’s qualified—not just certified (it takes little more than a payment to acquire the piece of paper, but experience and reputable work to be considered an expert).  Start with the inspectors that are officially associated with the major national organizations, such as the National Institute of Building Inspectors (NIBI) and the American Society of Home Inspectors (ASHI).  Next, be sure to do a thorough background check, in which you follow up with any references and reports you can find related to the inspector.  If you find a good one, they will do the work for you; if you get stuck with a bad one, you will end up paying for an additional burden.

You’ll find more than one candidate that looks good on paper, so after you call the licensing board to ensure that he is active and with no outstanding complaints, schedule a face-to-face interview.  See for yourself whether or not the inspector’s demeanor jives with his resume, and make sure he can answer all of your questions with an appropriate balance of knowledge, confidence, and experience.  At the interview, it might also be wise to request a sample of an inspection report.  When reading it, make sure that it includes all of the areas you expect from your own inspection, and that it is clear and professional.

Finally, be present at the inspection.  Having the boss around always ensures hard work from employees, and inspection is no different.  There is cause for concern if your inspector does not want you to participate.  Make sure the inspector does a thorough examination, not just a one-hour blow-through of the house.  Expect this process to take half of a work day (four or five hours for an average-sized home), and don’t settle for anything less meticulous.

If you approach your home inspection prudently, and you are careful to select the right inspector, then home inspection can be a breeze that could end up saving you from making a huge mistake, or it could be the final straw that allows you to close the best deal of your life.  On the other hand, the wrong inspector can lead you into financial devastation and a truckload of extra work and financial stress.  Do your homework and select the right inspector; and you’ll be on your way to profits.

Tells us what you think. J

SuperiorPrivateMoneyReturns.com

Fix and Flip: This is the most common strategy employed, and generally what comes to mind when people think about flipping a property.  You buy a property that needs repair, you take care of all the repairs, and you sell it as retail for a profit.  It is a reliable method that can generate thousands of dollars on a single deal.  Flippers run into trouble when they pay too much for the property or underestimate the cost of repairs.  Be sure to account for all of these factors before making a deal, and be smart (conservative) during repairs, or you will spend all of your profit.

Refinance and Lease-Option: This one starts out the same as the first strategy, except instead of reselling the property for cash, consider reappraising the home at its new value, and restructuring the financing associated with it.  That way, you can sell the home with a lease-option, whereby the tenant’s rent will cover your mortgage (or should, at least), and if the tenant decides to buy, then you won’t have to hire a realtor or go through the process of marketing and selling the home again.

Wholesale: Rather than selling the home as retail, consider passing it along to another flipper trying to employ the first strategy (fix and flip).  That is, wait to buy until you’ve found a good enough deal in a good enough market, where you can turn around and flip the property to another investor without actually making any of the repairs.  You will sell the home “as is”, below market value (just what the other flipper is looking for).  You may only make a small profit as compared to the rehabber, but you won’t do any work and could walk away with a few thousand dollars.

The final strategy is a bit riskier, only because it involves predicting the local economy.  If you find a real hot, booming real estate market, and are able to get the timing just right, you can enter a contract for a house or condo that’s under construction (or better yet, under planning).  If the situation is right, you can wait until the development is complete, and then resell the home or condo at its retail market value for an enormous profit.  Be advised, if the local economy turns sour, you will be stuck owning pre-construction property that is sure to deflate in value.

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When getting started in real estate investing, it is essential to approach with the right angle and attitude.  The days of walking onto the scene and making millions in your first year are long gone (if they ever existed at all), and these days it is all about baby steps.  There has not been a better time to be a start-up investor in decades, since interest rates and prices in general are so low right now.  The key to starting out with reliable success in real estate, at a time when the market is not blowing up, is to invest in income-generating properties.  They may not be glamorous, but small condos, duplexes, triplexes, and even four-unit buildings, will produce steady and reliable monthly cash flow.  Garnering and maintaining a few of these is a great way to start development of an ownership portfolio, and—more importantly—they should allow the start-up investor enough income to quit a day job and focus on making some real income moving forward.

Again, the key is to start out slow and steady.  Do not expect huge immediate returns.  Imagine your first investment is a duplex, for which you charge $800 rent for each side.  If the property only costs you $1,200/month to maintain, then you are earning an easy $400/month.  It doesn’t sound like much, but it is a great launching platform, and not a huge risk for a first-time investment.  If that works, you’ll buy more, and once you have five of these, you will be earning almost $25,000/year.  Once again, it’s not an overwhelming amount of money, but you could do much worse working much harder.

Once you’ve developed a bit of a portfolio, some capital, a whisper of a reputation, and—most valuable of all—the experience of owning and maintaining an investment property, you will be much better equipped to focus on bigger, and more fruitful investments.  Plus, in that first year or two of development, you may even collect enough funds to quit your day job, allowing you to focus your attention on your investment projects.

After a while, you will see that you are not paid in labor hours as an investor.  At first, acquiring properties, tenants, lawyers, etc., will be a lot of work, and you will feel underpaid.  But if you take it slow, adding one property at a time, you can learn all of these skills at a very manageable rate, until eventually the money is coming in with very little labor input on your part.  This is the beauty of investing: if you prepare correctly, and start from a good portfolio launching point, you can plant the seed of an investment, and then simply sit back and watch your money grow.

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If you’re reading this article, then you undoubtedly know enough about real estate to have at least heard the terms “buyer’s market” and “seller’s market”.  There are many factors governing the swinging trends of the real estate market, but it basically boils down to a cycle that every few years sees a major shift between who holds the leverage in real estate transactions: buyer or seller.  In a buyer’s market, the seller may have a good hand, but the buyer holds all the chips, because the demand for housing is so low.  We are currently in a buyer’s market.  So how does a seller motivate a potential buyer enough to avoid getting low-balled by a single buyer who understands he has the power?

The answer is not a simple one.  It is called a buyer’s market for a reason—it is not nearly as kind to the seller.  It may be a bit counterintuitive, but the more money and disposable income a buyer has (in other words, the greater the demand for houses), the worse it is for that buyer.  That’s because he runs the risk of competition with other equally qualified buyers, and in that kind of market the buyer is often forced to make very quick, often rash decisions simply to secure the home.  This is called a seller’s market, where the seller stands to gain the most.

Currently, however, buyers are not trampling one another to sign off on their dream homes, and the result is a slow and studious process in which the buyer can (and should) take pause to carefully consider the offers and counteroffers before proceeding with a transaction.  Sometimes the trick in a buyer’s market is to “trick” the buyers into thinking it’s more of a seller’s market than it really is.  I say “trick” because it doesn’t really involve any lying, just careful presentation.

Try this: when you show the home, make sure you are scheduling three or four parties to view the home at the same time.  Even if you are having trouble getting appointments, it is worth your while to spread them out far enough that you can double-and-triple-book, creating the illusion of a more competitive market.  Secondly, be sure to establish your need for selling.  Personally, I think it can be excellent motivation for a buyer when there is a strict time deadline (a date by which you absolutely have to have the house sold, no matter what)—as opposed to providing a reason for leaving, which could go any of a number of ways.  Sometimes having a deadline backfires; if there is only one interested buyer, he may make a very low offer, knowing you have to sell.  However, you can always reject the offer and hold out for new leads.

Selling a home in a buyer’s market may take a bit of work and coaxing, but it can be done.  Do not give the buyers the notion that they have the leverage.  Make them aware that you have a valuable asset and will be paid accordingly, if not by this buyer then by the next one lined up at the door.

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One of the most common forms of real estate flipping occurs when the investor finds a good deal on a property that needs repair, fixes the issues, and resells the home at its retail value for a (hopefully) substantial profit.  As with anything, rehabbers come in all shapes and varieties, and the degree to which they are involved in repairing the property varies accordingly.  Some will make minimal repairs, spending practically no money at all, while others may spend $50,000 updating systems, installing hardware, and so forth.  So how does the investor know how much effort to put into repairs?

The answer is not a simple one.  Generally speaking, it will depend on the neighborhood in which the property is located.  The rule of thumb is: don’t try to make it the nicest home in the neighborhood; just be sure it fits in, and give it the best presentation you can.  In other words, if you are in a neighborhood where none of the houses have a garage, don’t spend thousands of dollars building one.  Someone looking at a home in that neighborhood is probably not looking for a garage.  On the other hand, if all the homes in the neighborhood have central air conditioning, and yours has an old plug-in unit hanging out of the window, you need to consider the cost of having the air conditioning updated.

There are cost-effective ways to make any property more presentable, regardless of the neighborhood (in some they are required for success, in others just a bonus).  Landscaping is the big one.  Generally, you can do this yourself or with the help of very cheap labor, and it is nothing more than mowing a yard, planting some flowers, and maybe installing a fence around a yard.  Obviously, you can only do so much with every property, but landscaping is typically inexpensive and makes an enormous impact on the first impression your property delivers.  Other cheap updates, such as repainting, installing ceiling fans and light switches, cleaning, are all ways of increasing the value of your property without really increasing the cost.  A ceiling fan may only cost you $30 to buy and install, but someone will be willing to pay $1,000 more for a home with fans in every room.  That’s good business.

While this is by no means a comprehensive list of what to repair and not repair when fixing and flipping a property, the message to take away is to make enough improvements that your property is at-or-above average for the neighborhood.  It doesn’t have to be the nicest outlier, and it should never be the worst.  Meet the standards of the neighborhood, and provide a neat and clean presentation, and your property will be competitive in the retail market.

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The most commonly-employed strategy for flipping homes (short-term ownership of real estate) is to fix and flip a rehab property.  The investor finds a property for sale that needs repairs, buys it at a price well below the retail market value, assumes responsibility for making those repairs, and then resells the property to a homeowner at its retail value.  It can generate a hefty profit, tens of thousands of dollars on a single property, but only if the investor thoroughly researches the cost of turning the home from a substandard shack to a picket-fence American dream-home.

Obviously, that’s an exaggeration of what you’ll be doing as a rehabber, which in all likelihood is going to be nothing more intensive than updating some systems, repairing the roof, painting, and so forth.  But it gives you the sense that the transformation to make the home suitable for retail is going to cost time and money, and you need to approach the initial deal cognizant of that.  You make the profit on the day you buy the property, not on the day you sell it.  Which means you need to accurately account for the cost of repair, ownership, and resale.

Let’s just address the cost of repairs.  Always overestimate, or you will eat away your profit.  First, before you buy anything, make a thorough assessment of the house in which you literally check every inch of every room.  Write down everything that needs to be replaced, modified, repaired, or added.  Write down everything! Every little detail you omit will be an unforeseen cost you incur later, and they will pile up.  Take your list to a hardware store and find out exactly how much the materials will cost.  Next, you must account for the labor cost to install all of the hardware, which unless you plan to do everything yourself will be about $1 for every $1 spent on materials.  Finally, increase your total by about 20% to get a final estimation.  This increase is for contingencies—if anything should happen that you didn’t predict, this will reduce the likelihood that your profits are eaten away.  Whatever the final estimation is, round up to the nearest clean number.

If you can negotiate to buy the property at a price that, if added to your estimation of the cost of repairs, you think you can sell the house for, then you’ve found yourself a good deal.  Don’t forget about the cost of selling and owning the house, and remember: you make your money at the point of purchase (not sale), so don’t just jump in with two feet every time you find a home listed below market value.

Be sure to leave us your feedback below.  We would love to know. J

SuperiorPrivateMoneyReturns.com

There is a pervasive misconception about real estate investment: ride the rising market and avoid the sinking one, and you are sure to be a successful investor.  While that is not entirely false, it is certainly misleading.  Yes, you can make money in real estate by timing your investments and sales with the valleys and peaks (respectively) of the market conditions.  With this paradigm, anybody can make money in a rising economy, but the successful investors are the ones who know how to sustain their business during the toughest economic times.

Instead of waiting for the perfect moment in market-time to strike, the successful investor will scour the deflated market for good deals.  That is the trick: invest in good individual deals, not in a rising market.  You might think, “Even a great deal will yield only a relatively small profit in a bad economy, so why not just wait for a huge profit at the right time?”.  Well, in theory, you would be right.  It is harder to make money when people aren’t spending money on what you have to offer.  And yes, selling at a market peak is the smartest and most lucrative way to profit.  However, most investors have no clue what the market is going to do and when.  They may listen to what the experts tell them, but the experts have demonstrated recently that nobody can really manage all of the parameters well enough to reliably predict such a complex market.

The point is, clearly, investing at the right time is better than investing at the wrong time.  But putting all your eggs in the market timing basket is incredibly risky, because we don’t have a reliable sense of what will happen ten minutes in the future, let alone ten years.  Instead, search your prospective real estate investments property by property, deal by deal.  Pay attention to the current market conditions (as they will regulate how you make your money), but don’t become stagnant in difficult times or overly excited in prosperous times.  The key is to slowly but surely accumulate good deals and capitalize when you find them.  People will always need homes, even when the community or country as a whole is suffering.  And everyone wants the best deal they can find.  Why not simply find it first and then provide it for them?

Tell us what you think.  We would love to know. J

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The title of this article is an old real estate adage that pertains to being smart about your investments.  It is about finding good enough deals that when it comes time to sell, you won’t have to work for it, the profits will simply fall into their rightful place—your lap.  The key to finding good deals is to look for properties that are listed well below their actual market value (this takes a pretty solid understanding of what goes into the consideration and appraisal of a property’s value).  In most cases, there is no such thing as a good deal without a motivated seller.  That is to say, where there is a pressing need to move, there is a pressing need to sell, and then there is a golden opportunity to buy.

The most common factors that generate highly motivated sellers are divorce, death in the family, job transfer, and financial distress (the big one!).  These are people for whom relocating is a higher priority than profiting.  They won’t all list their homes below market value, but you would be amazed what some people are willing to accept after only a few minutes of negotiating.  By accepting either very low cash offers, or offers which include unconventional financing terms, the desperate sellers provide the investor with an incredible opportunity to sell at a much higher price down the road.  The difference between the investor and the original owner is not the quality of the property, but the luxury of time.  Once you’ve closed a great deal, you can take as much time as you want or can afford to find the right buyer to make the transaction worth your time, money, and energy.

If your concern is preying on someone in financial distress, be rest assured.  The seller will not sell to you if you offer a price that is lower than what they are willing to take.  In other words, you’ve come to a mutual agreement on a price that works for both the buyer and the seller.  Although the seller loses some money on the transaction, it’s probably negligible compared to the amount they would lose by remaining in the house.  You get a good deal, and they get rid of what must have been an enormous burden for them (otherwise they wouldn’t be motivated sellers).  In most cases, they will be grateful that you’ve saved them from foreclosure, or allowed them to move in time without paying for a vacant home, or helped them in some other way.  Don’t think of it as ripping them off, think of it as getting a tip for the service you’ve provided the seller.  If you do it right, your profit will all be made before you even own the home.  When you own something which is of substantially greater value than what you paid for it, then you are playing with house money.  Enjoy!

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With so much economic stress, and so many distressed properties, the recent recession has generated a huge increase in the number of properties listed as short sales.  Buyers should be able to find good deals on short sales, provided they follow a few basic guidelines.

The first is, as it always is, to know what you are doing.  It is of vital importance to know just as much (preferably more) than the seller’s agent about dealing with distressed properties.  That said, make sure you’re not dealing with an amateur, either.  Short sellers often have incentive to deceive, since it is understood that the property will come with some inherent problems.  Research short sale standards and procedures thoroughly before setting out for your first.

The second guideline is that you have to be patient.  If you are an agent for a short sale buyer, then make sure your buyer understands that, despite the misleading term “short sale”, this process can often take weeks or months to be approved by a bank.  Although buying a short sale can often feel like helping a seller in a pinch, it is still a major transaction governed by banks, and these things take time.  Make sure you know how long your buyer is willing to wait for the deal to close, and be sure you inform them of the process beforehand.

The third guideline will help enormously with all aspects of the short sale, from the amount of time it takes, to the emotions of everyone involved: communicate, communicate, communicate.  Selling property in tough times necessarily means there are more people involved than just the buyer and the seller.  You are sure to have a bank, asset managers, loss mitigation agents, and the seller’s agents, among others.  The best way to move the process forward quickly while encountering as few speed-bumps as possible, is for each and every one of these people involved to be operating from the same page, every day.  Make it your responsibility to know and talk to everyone who plays a role in the sale, and make sure that their perception of that role is the same as your perception of it.  If everyone communicates openly and honestly (which you cannot expect from others, but you can lead by example and hope), then the deal is certain to be much smoother.

In short: know the process in-and-out, make sure the people you are working with (and for) understand that process and act with according patience, and communicate every day with everyone you can.  Short sales are a good way to get a great deal, if you play the game right.

Let us know what your experience has been.  We would love to know. J

SuperiorPrivateMoneyReturns.com

For the investor who knows how to navigate them, short sales can be a great way to get incredible deals on property.  But, as with all good opportunities, there are risks and caveats.  You should know both the Pro’s and the Con’s of short sales before getting involved in one.

Let’s start with what’s good.  There has never been a better short sale market than right now—which is to say, the housing market in general has become so bad that the more desperate and distressed housing market has soared.  That means there are plenty of opportunities for buyers, and many estimates show the number of short sales going on the market this year will be measured in millions, not thousands.  And there is money in short sales, whether it’s a realtor’s commission or a big potential profit for the investor.  And you can make a career of short sales.  It is a NAR-certified profession (SFR—short sale and foreclosure resource).

There is not too much bad baggage to deal with on short sales, but there’s enough that it’s worth mentioning.  First of all, it’s a very slow process.  Even though the seller is desperate and buyers never want to wait, it generally takes months to get bank approval, and even that comes with its own bundle of tedious, time-consuming paperwork.  It is not—as many believe—a zip-in, zip-out purchase.  The second drawback is the people you will deal with and the image you will represent.  Although in many cases the seller will be grateful for your having saved them from foreclosure, sometimes the buyer is perceived as some rich businessman here to profit from the misfortune of others.  Just take it on the chin and proceed, if you can, but understand that it’s a real possibility.

The final thing I want to mention in the Con’s section is the complexity of the short sale—it requires a thorough understanding of the standards and process in order to be successful and profitable.  In moments of desperation, people are capable of some pretty unethical behavior.  Make sure you understand what’s allowed and what’s required, so that you can avoid getting hung out to dry.

Short sales are abundant, and they bear the potential for real profits.  But in order to be successful buying a short sale, you must understand the process in-and-out, you must be patient, and you should be willing and ready to absorb some resentment from the seller.  Do your research, and good luck!

Let us know what you think. J

SuperiorPrivateMoneyReturns.com