Over the course of the past few years, one of the benefits of our otherwise-ravaged economy has been new initiatives from the federal government to provide incentives for consumers of various types.  It’s like a psychological stimulus plan.  The government is doing everything it can to hold consumers by the hand and say, “It’s OK, everything’s going to be fine and back to normal in no time.  Here’s some money to spend, and we’ll go ahead and get rid of these taxes.  Just go out and spend some cash!”.  Obviously, it’s not been quite that simple, but some of the government’s new initiatives do in fact seem to be overt attempts to stimulate consumption.

Many investors (both seasoned and amateur) as well as start-up homeowners seek to make the most of their money by purchasing property under the market value.  Unless you strike gold and happen to find the one seller on earth who doesn’t care about money, getting a home for less-than-market-value is most likely going to require making sacrifices in terms of quality, and this inevitably means sinking additional funds into repairs, replacements, and improvements.  Due to this additional, post-contractual expense associated with rehab properties, many buyers fail to properly plan for this process, and end up with a defaulted mortgage and a failed investment attempt.  For that reason, it is essential to research thoroughly what will be required to bring a property to market value, and factor that into both your profit margin and your mortgage considerations.

The federal government’s new way to keep us pumping what little money we have into the economy (especially banks and other lenders) is called the 203k Rehab Loan.  This is a loan program through which home buyers can apply for funding from the federal government to purchase and repair the property.  The catch?  The property must be your primary residence.  It’s not all bad though, you merely have to reside there for any 2 years (not necessarily consecutive) during a period of 5 years.  This means you can’t simply use the government’s money to buy up and repair investment properties and become the next American billionaire.  However, there is room to navigate within the rules, and many investors use the 203k Rehab Loan as a means of doing just that—meeting minimum residence requirements in order to maximize profit opportunities.

The 203k is largely ignorant of credit history.  It is designed to give low-income families opportunities during difficult economic times to raise a family in a home and neighborhood whose quality exceeds that which they could have otherwise afforded.  It is a reliable and safe source of funding, and with the number of available rehab properties below market value reaching record levels, there has never been a better time to take advantage of federal incentive programs to buy a rehab home!  Who knows, in ten years, it could make you $1 million!

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Getting through the closing process without any mishaps or delays is a function of solid and conscientious preparation.  This does not mean hastily reviewing your materials on the car ride to close, but rather a systematic approach over the course of days and weeks to ensure that everything goes smoothly on closing day.  Any minor error, miscalculation, or miscommunication can easily result in a closing delay (and we all know that in real estate, time is money!).

The first document to carefully scrutinize in the final closing statement (or HUD-1 Statement, depending on where your transaction occurs).  This is where the vast majority of calculations occur, and therefore where the vast majority of easily-rectifiable errors occur.  It is essential to take a fine-tooth comb to your final closing statement, to ensure that all calculations are performed correctly, that you have been awarded credit for all deposits and any other agreed-upon credits owed you by the opposing party.  As a matter of precaution, review lender, title, and escrow fees to make sure everything is in line (and coincides with what you were told).  This is an incredibly important process, as math and reporting errors occur all the time, and the onus is on the parties involved to uncover and rectify those errors before closing.

Before closing, you need to also review the guarantee of title insurance (the preliminary report), to ensure that what you are getting into is what you’ve agreed to get into.  This means verifying the legal description of the property, as well as liens or other baggage associated with the property.  Anything to which you did not explicitly agree should be removed.  If you make sure that the title or escrow agent includes your vesting (how you want to take title of the property), you can also save yourself an enormous amount of time from having to do this later with the deed.

In addition to reviewing the contracts and paperwork, you need to physically view the property one last time before closing.  This serves to verify that everything is in the order you want it, all agreed-upon repairs or modifications have been made, and that nothing fishy has changed between touring and closing.  Remember, there’s a lot of your money at stake, so it’s worth the time to be absolutely certain you are doing the right thing and avoiding any surprises (which you never want to accompany a big transaction).

Finally, the purchase contract must be meticulously scrutinized to ensure that everything stipulated has in fact already been done (or is on the right track to being done).  Never sign your name to any closing contracts without being absolutely certain that things are lined up the way you prescribed in the contract.  Once it’s signed, that’s it.  So if you’re unsure about anything—no matter how trivial it seems—don’t pull that trigger just yet.

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1. Cash Flow – Investing in multi-unit properties is, hands-down, the best way to generate sustained monthly cash flow as an investor.  Nearly any other type of ownership requires losing money during the period of ownership and until the date of sale, but property management will generate as much monthly income as you determine (based on the size of your investment and the extent of your efforts to keep units occupied).
2. Economies of Scale – The logistical difference between investing in 5 single-family homes for rent, and a single 5-unit building for rent, is the difference between constantly repairing and maintaining 5 properties, and constantly maintaining and repairing 1 property.  It stands to reason that if 5 different families pool together to only use one roof, one lawn, etc., then it will be much easier to manage those 5 families (for practically the same income as managing 5 separate properties).
3. Less Competition – For whatever reason, competition for investing in single-family homes is and has always been very high.  Despite its opportunities for major active and passive income, multi-unit investing does not attract the same kind of mass appeal that single homes do.  This may be due to the shear number of amateur investors out there, who think a multi-unit investment is too major for start-up.  It may simply be because property management is not always a glamorous gig.  Whatever the cause, multi-unit investors enjoy more leverage in selecting and negotiating deals, due to a relative absence of competition.
4. Hiring Management – With bigger multi-unit investments come bigger monthly cash flows, and a potential for wider profit margins.  In many cases, this means owners hire management companies to deal with all repairs, maintenance, tenant-related issues, etc.  Now you’re really cooking!  No direct involvement, sustained monthly income, and freedom for leisure or expansion of your business!
5. Pay-Day – The final major advantage of multi-unit investments is that they can appreciate more than single homes (not in terms of percentages, but dollar amounts, since they are generally more expensive than single-family homes).  Multi-unit investments over 4 units are valued primarily on cash flow than on comps. Therefore, if you can raise rents as rental values increase due to the natural cost of living expenses and reduce operating expenses by improving efficiencies, the overall value of the property can increase incrementally by the number of units you own. This means that when it comes time to sell, you should make a hefty sum (and remember, you’ve hopefully been earning income during your entire period of ownership).  It’s a smart investment if managed carefully and worked diligently.

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This is not specific strategy guidance, nor is it a checklist to make money; rather, these are five very basic observations I’ve made that concern interacting with people as a real estate investment consultant.  It might be handy to keep them in mind.

1. You don’t know what people want.  Further, what people want is not always what it should be, and trying to anticipate and act upon that falls somewhere between extremely difficult and impossible.  The best thing to do is to simply sit down and talk to people, ask them exactly what they want, and don’t shape their answer.  Let them tell you how to help them (and you can provide the nuts and bolts).
2. Business and friendship does not mix.  That doesn’t mean you can’t be friends with the people in your real estate world (tenants, associates, sellers, agents, etc.).  But always avoid introducing money into a pre-existing friendship—it never turns out well.  Never rent to a friend, or put yourself in a position where you are legally responsible to collect funds from them.  There are plenty of fish in the sea to rent to.
3. There is rarely one right answer.  There is rarely one right strategy.  It follows, then, that there is no one way to go about real estate investment (don’t let me or anyone else convince you otherwise).  Applied knowledge becomes experience. Experience is everything, and unfortunately a huge part of experience is failures and setbacks.  The key is minimizing your risks and maximizing your options so that your failures don’t end up putting your entire business down the toilet. You will learn from your mistakes and this will make you a better investor as your go forward.
4. You can always get better.  You can always learn something new, or gain a deeper understanding of something you already knew.  The day you commit to quit learning is the day you need to find yourself a new career.  You can always become a better, smarter, more successful investor.
5. People lie.  This one, well, it’s everywhere.  Not everyone is a bad seed, but there are enough people running around in the world motivated by nothing more than their own interests and willing to do or say anything to preserve those interests that we all have to have our guard up constantly.  A good adage to live by is to “Trust, But Verify”.  If you can’t verify independently what the other person is saying, that should raise a huge red flag. Proceed forward very cautiously.

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It may be a buyer’s market, but that doesn’t mean business has to shut down on property you already own.  Selling in a buyer’s market is not ideal, but it can be done relatively reliably, and without cutting too much into your bank account (a condition that many sellers these past few years have suffered).  Here are five things you need to be conscious of and prepared for when setting out to sell your home.

First and foremost is the presentation.  Why?  Because this is the easiest thing to knock out, and one of the most important aspects of effective tours and closing deals.  You can sell a worthless home if you give it the right presentation, and you can fail to sell a very valuable home by failing to present it properly.  Curb appeal is the notion that someone driving by your home will see it from the street and be instantly attracted to it.  This is crucial for selling a home, because curb appeal is one of the most successful pathways of generating interested leads.  It is not difficult to do—make sure the landscaping is very well maintained (it doesn’t need to be extravagant, but it needs to be inviting and manicured), the exterior of the house is in good and attractive condition (paint, doors, windows, shutters, gutters, roof).  It’s amazing what a careful assessment of how your home looks from the street will do in terms of attracting buyers.

Beyond the front door, the interior of the home needs to be depersonalized and presentable.  If you are really trying to sell, you need to maintain a constant state of readiness to tour.  That means start living in a home suitable for presentation.  It goes without saying that it should be clean and well maintained, but bear in mind that buyers don’t want to see pictures of you and your family, your dog running around in the kitchen, or anything else that reminds them someone else is actually living in this space (it should just be a house at this point, not a home).

Next, unless you have years of successful real estate sales behind you, you will need to find and hire the right realtor or agent for you.  Many buyers and sellers alike prefer to circumvent the services of professionals in a digital age where everything is available directly to the consumer through the internet.  Although this saves money, you could (and probably will) get yourself into a real mess without the guidance and assistance of an experienced and licensed professional.  Do yourself the favor of hiring a guide.

Determining the asking price is probably the most pivotal single act done on the path towards selling—and therefore also probably the most difficult for most sellers.  If you’ve not hired a realtor, you are basically taking a shot in the dark at your asking price, and you will either have your house on the market for ever (overshooting), or get fleeced by some lucky buyer (undershooting).  Pricing properly involves conscientiously researching selling and asking prices of similar properties in similar surrounding areas, taking careful stock of what your home offers and what it lacks, and—most importantly—detaching yourself emotionally from the home (remember that the buyer will not compensate you for parting with cherished memories).

It is probably a good idea to have the home professionally inspected.  Although this will add to the cost of selling your home, it will instill confidence in both you and your buyers that the home is, in fact, what it appears to be.  A healthy inspection can provide an enormous boost in leverage when setting the listing price or later when negotiating.  It is worth the cost.

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This strategy is a relatively untapped resource by real estate investors to rent, repair, purchase, and sell a property—all essentially in one fell swoop.  The lease option by itself is a pretty good strategy whereby a buyer finds the property they want, but instead of purchasing it flat-out or acquiring a mortgage, they negotiate to temporarily rent the property with the option to purchase it down the road.  It seems people are deterred from lease option deals because they perceive it as paying twice for the same thing (first rent, and then the purchase price).  In fact, this arrangement provides the buyer with considerable flexibility and the option to walk away, while binding the seller to the terms (both the agreement to sell and the price).  If you add in the prospect of doing a lease option on a rehab property, now you have a real investment prospect.

Here’s an ideal way to work a lease option on a rehab property.  Find a distressed property being sold well below the market value, and arrange with the seller (who is likely to be a motivated seller in an economy like this) who is willing to let you start making payments on—and residing or working on—the property.  Make sure those payments can be applied toward an eventual, agreed-upon price below market value.

Now that you’ve secured both the property and the price, without stretching your credit or bank account too thin by making a down payment or taking a new loan, you can use that saved money to begin repairs.  Your entire term of lease should be devoted to doing everything you can to bring the home up to and beyond standards (even though you’ve still not technically bought it).

Before the purchase date, line up a backend buyer.  This means, before the home really even belongs to you, you should have repairs done and someone toured and ready to purchase.  Ideally, you can write up the contract to sell, walk in to sign your purchase contract from the lease option, and then turn around and sign the sale contract.  Effectively, you’ve rehabbed (and perhaps lived in) a home on someone else’s dime, and when it came time to pay that fee, someone else paid it for you (and gave you a little extra for your efforts!).

The lease option seller cannot raise the price of the option following repairs to the property, so any value you add to your property while leasing it translates into money in your pocket.  This can be a very effective strategy for profiting, especially in an economy ripe with motivated sellers and distressed homes.

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Although we hope the worst is behind us, the last five years have been financially devastating to this country.  In the world of real estate, that means there is very little cash to go around, which in turn means an enormous demand to sell (so that those short on funds can avoid foreclosure or other crippling forms of debt).  Combine that with a low demand to buy (for much the same reasons), and that means the scales of capitalism are tipped dramatically in favor of the buyers.  If you can afford it—or if you can at least acquire the loan—it is an incredible time to buy a home.  Prices are low, and the buyers hold all the chips.

With leverage comes options, and buyer’s options in today’s market are made even broader by the relative lack of competition due to the economic conditions.  This means buyers should be very picky about their purchases, not overpay, and try to get what they want.  Currently, there seem to be two popular ways buyers are taking advantage of their leverage.

First is a class of buyers looking to capitalize on their opportunity to get instant equity.  Under normal conditions, equity is like a retirement fund—it takes years and years to build, and the more closely you monitor it the more slowly it seems to accumulate.  Any chance to walk into a situation and instantly have equity on a home should at the very least be investigated—it’s like being offered a new job, and they tell you at the interview, “Oh, and by the way, on your first day of work we will deposit $500,000 in your retirement account”.  If nothing else, your ears would (and should) perk up.  In most cases, walking into equity means purchasing a home where the mortgage has been absolved (it could simply be paid, but that is unlikely to begin with, and it becomes even less likely during a recession or buyer’s market), and that means purchasing bank-owned homes such as foreclosures.  Generally, these require significant repairs in order to reach their proper market value, but can be an incredible way to buy a home inexpensively and have instant equity on it (provided you can front the 5-20% down payment).

The other major class of satisfied buyers in today’s market are those who find pristine homes and get great deals on them.  Of course, this is more like buying a home under normal conditions, and it will most likely require a mortgage (and very little equity to start).  If this is the strategy you employ, be very picky in this buyer’s market.  If you’re going to put yourself in debt, you might as well get something that won’t cost you anything after you sign the contract.  Be sure the home is pristine (not cosmetically, but structurally).  That is, have the home’s major systems thoroughly inspected, and get a current appraisal.  It is essential to get a current appraisal, because the same kind of inspection from even a year or two ago could result in dramatically overstated prices (relative to an appraisal done today).

For those who are not being strangled by bills, unemployment, and other adverse effects of the recession, it is a great time to buy real estate.  Prices are low, buyers have the leverage, you can walk into instant equity, and you can get exactly what you want in the condition you want it in.  Although the market will probably remain this way for some time yet, don’t just sit idly as the opportunity passes by.

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1. Grab their attention! We live in a world of sensory overload, constantly being stimulated by advertisements, entertainment, and events.  If you’re not interesting, you don’t stand a chance at being recognized.  In real estate, if you fail to attract new customers you cannot sustain a successful business, so a huge part of success in real estate is simply attracting the attention of consumers.
2. Be Personable. The difference between receiving a mass-email sent to an enormous hit-list of potential customers, and receiving a personalized letter with a friendly by-name greeting can be huge.  While customers don’t always want to hire a friend, very few people will pass on the opportunity to work with someone who’s friendly.
3. Be Clear.  I see a lot of reasonably good marketing campaigns where at the end I say, “Ok, but what am I supposed to do?”  It is amazing how often the consumer may be left interested, but without clear instructions on how to proceed.  Every marketing tool you employ should come with explicit yet simple instructions for the customer to move forward (call this number, click here, send reply to, etc.).   Don’t leave any room for interpretation or ambiguity.
4. Be Accessible. Similar to the last tip, this is the notion that you can’t “leave potential customers hanging” with no way to reach you.  All pieces of marketing should include a phone number, email address, physical address, website, etc. where you or your business can be easily reached.
5. Be Honest. It doesn’t do any good to bring in potential customers on false pretenses, only to have them disappointed that their time has been wasted by someone advertising false services.  You will be much better off being honest and up front in your advertisements, so that when customers do walk in your door, they get what they are looking for.
6. Get Fired Up! In business, it is often best to remain rational and calculating.  You avoid making stupid mistakes and focus on the bottom line.  However, when it comes to attracting and inspiring new customers, there is no approach more effective than appealing to their emotional side (desire, fear, hope, anxiety, etc.).
7. Follow Up. It is absolutely your responsibility to follow up with leads.  You may think that they are the ones buying or selling, so they should be the ones who are motivated to keep calling in pursuit of their deal.  However, people are ubiquitously lazy and irresponsible, and so the onus is on the marketer himself to continuously and conscientiously maintain contact with his entire database of leads—new and old—in an effort to maintain and generate business.

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Marketing is, without doubt, perhaps the most central aspect of all businesses.  In order to succeed, you must attract customers.  However, marketing can be extremely expensive both in terms of the financial cost and the amount of time and energy poured into acquiring leads and customers.  Therefore, it is important to be able to retain the clients you do attract, rather than simply relying on marketing for a continuous supply of new customers.

Retaining clients is a simple matter of human relations.  From the minute you meet a potential lead, you need to remember that they are a prospect for long-term income for you, and therefore every lead should be treated accordingly.  Although you don’t have to be best friends, it is incredibly helpful to establish a friendly, sociable, and unfailingly polite relationship with every lead (or at least with those who allow it).  While being friendly alone is not enough to secure long-term business, it goes a long way in distinguishing you from the crowd of real estate professionals fighting for business.

The next step is to always have your client in mind.  It is all too easy—especially after your first few deals as a real estate professional—to lose sight of your clients and focus only on how much money you can get out of every deal.  After all, you are in it to earn a living, and why sell yourself short?  But a customer who walks away certain that you have protected their interests at every turn, becomes very likely to return to you for a second or even third transaction.  It is worthwhile to go the extra mile for your clients, to work late on their behalf even though you know it won’t translate to any greater income on this one deal.  While you might work harder for the same result now, that hard work could translate into easy business down the road.

Perhaps the most challenging aspect of retaining clients is not being in their good graces (which should be the result of the above strategies), but simply staying in touch.  For typical clients, a real estate transaction is a huge and rare occurrence, often separated by years or even decades of stagnation in between purchases.  While it may seem like pestering people who have no interest in buying or selling, remember that it is as much your job to contact old leads as it is to contact new ones.  New leads are easy—they usually come with business in hand.  But old leads, since they are not actively looking to buy or sell, require a legitimate reason for calling (“Hey, I just wanted to see how you’re liking the new house” only works for so long).  Events such as open houses are perfect opportunities to break out your database of previous customers and get on the horn.

If you’ve done business with them before, then you know they are serious customers (even if they’re not looking to do business now).  Statistics will tell you that it is worth your time and energy spent on someone you know is a serious customer, since so many new leads tend to be nothing more than a waste of time in the end.  Establish a good relationship with your customers, and do everything you can to stay in contact and be the first name that pops into their minds when a real estate need arises.

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Investing in pre-foreclosures is a great place to start in the real estate industry.  Here are five major advantages that pre-foreclosures offer to any investor, but especially those beginning their careers in real estate.

1. Specificity – A common mistake made by inexperienced investors is to apply stock-market lessons to real estate investment, for example that it is wise to diversify your portfolio.  Although this is certainly true for real estate investment, actually investing in different types of properties requires an enormous effort and aptitude that most new investors simply don’t have without experience.  Pre-foreclosures provide a clearly-defined niche in which an investor can begin to learn and master one aspect of the investment process at a time.  This is a much more sensible way to approach a career in real estate.
2. Negotiating Leverage – Another advantage of pre-foreclosure is that, by definition, no one is currently making payments to the bank.  This means that when you sit down at the table to negotiate with both the seller and the bank, you become the golden ticket, the solution to their problems—and that gives you the leverage.  Everyone else at the table is losing money, and you are offering to pump some of your money into the scenario (easing the financial stress for all other parties involved).  Those parties should be inclined to bend a bit to your negotiating will, if you learn to exert it properly.
3. Motivated Sellers – It stands to reason that you can maximize your opportunities in real estate by only dealing with sellers who really need to sell, immediately and at almost any cost.  This is certainly easier said than done (because no one, especially those in dire financial straits, is looking to get fleeced on a deal).  However, working only in the pre-foreclosure market guarantees the investor that he will be working with a population of sellers for whom failing to sell means crippling financial repercussions.  These motivated sellers provide opportunities for substantial profit margins and speedy deals.
4. Discounts – Huge discounts can be relatively easily negotiated with banks and lenders, who are under enormous pressure to liquidate bad loans rather than repossessing property (since banks nationwide are already backlogged with property).  This is a great way to save (make) money.
5. Equity – Pre-foreclosures provide a unique opportunity for investors to walk into relatively large equity spreads, since the property is maxed out with loans and you can request that the lender discount what is owed on the seller’s payoff.

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