The person who hasn’t heard that the current real estate market favors the buyer, is the person who has spent the last five years living under a rock.  In Tibet.  Anyone remotely involved in real estate investment knows that we are operating in a buyer’s market, but not everyone involved knows how to capitalize on those conditions.  While there are many ways to profit from the conditions provided by a struggling economy, one common strategy that homeowners attempt is simply to upsize their homes.  You do not have to be a multi-million dollar investor to want to take advantage of low sale prices, you simply have to have an understanding of how to navigate the buyer’s market.  Here are a few basic tips and strategies to be cognizant of before pursuing a bigger home in the current market.

First, and perhaps most important, you will have to sell your current home.  This can be both very difficult and incredibly frustrating in a buyer’s market, when prices are ubiquitously low.  The key to selling is to maintain reasonable expectations during negotiations.  It does the seller no good to pine over how much the house would have sold for five years ago; instead, think only about how much you can get for it today.  If this is a struggle, remind yourself that you will be purchasing an even more expensive home, and you must assume that the seller of that property absorbed an equal percentage loss of value (which for a more expensive property, translates to your saving more money than you lose!).  It’s all about the silver lining.

The second trend to keep in mind follows from the first: prices are lower in a buyer’s market, even for the most desirable properties.  That means properties that may have been outside of your price range 5-10 years ago, may well have fallen within the acceptable range during the recession.  Just as you must be reasonable about expectations for your own property, you should expect others to be reasonable about theirs.  In other words, never settle for overpaying in a buyer’s market.

Consult a mortgage specialist in advance of committing to the new property.  It is one thing to see a sale price and run with it in excitement; it is an entirely different task to accurately and responsibly track out how much the home will cost, over time, and whether or not you will realistically be able to afford it (10 years down the road, even).  This is a crucial step to upsizing often overlooked by amateurs, and this lack of foresight is often the demise of the over-ambitious investor.  That said, mortgage rates are currently at an all-time low (so if you can’t afford it now, you probably never will!).  Strike while the iron is hot, as they say, by locking in unprecedented low rates.

Remain emotionally detached.  This is sound advice for any investor, but holds especially true for those of us in the business of trading homes.  Emotional attachment to a living space is natural, but must be ignored or eliminated when it comes to assessing value and negotiating price.  It is absolutely essential that you detach emotionally from the home you are selling (remember the buyer will not pay extra for your experiences and memories), and that you refrain from establishing a connection with a potential new home (remember your negotiating opponent is fighting to minimize his losses due to the market conditions, and you must maintain a clear head to compete effectively).  In a buyer’s market, the supply of homes is high, and you—the buyer—have all the leverage.  Use it to get what you want in this incredible time for upsizing.

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Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

Many investors have suffered terrible, dramatic financial losses over the course of the last five years.  While there is no quick fix to prevent struggling through a recession, there are clearly defined pathways for increasing your profitability as a real estate investment professional, even during a recession.  The strategies are simple and stand to logic and intuition, but they warrant explanation as the only mechanisms for increasing financial gains in spite of the economic conditions.

The first method is to focus on acquiring new customers.  In any field, the key to success is customer acquisition and retention, and so it follows that when times are tough, the best way to secure more income is to secure more customers.  Make marketing your primary objective, if it isn’t already, and spend every spare minute of your day on the phone, writing emails, posting fliers—get your name out there, and bring the business to you.

The second, less-reliable method is to focus on your existing and previous customers in an attempt to sell them new property.  This is a romantic notion, but obviously during a recession it can be difficult to encourage a customer to make multiple enormous transactions.

The third strategy is simply to charge more.  In the scheme of options to increase profitability, this one is bland and devoid of creativity, but it is proven and effective.  If you have customers, and you need more money, charge your customers more money.  Balancing needs with ethics is often a difficult task, and it is up to the individual investor to establish rates that he and clients are both comfortable with.

The last two strategies presented here are infinitely more creative, and probably equally effective.  First, consider how the recession has affected the housing market.  People will always need to move from location to location, home to home—that cannot be altered by economic conditions.  It is the luxury transactions, not those borne of necessity, that have been so dramatically reduced recently.  Therefore, consider shaping your customer field to include only those who are likely to be moving of necessity (lower income, younger, etc.).  Rich old folks are great for a 10% commission, but when money is tight across the board, disposable income retracts deep into the wallets of the wealthy and the poor alike, and so “pleasure moves”—real estate transactions not driven by any pressing needs—become rare.  Do not hang your business hat on these pleasure moves during a recession.

Finally, consider using your current database of real estate customers as a launching point for the sale of products and services other than property itself.  This line of thinking can open a world of possibilities.  For example, if you open your computer to find a list of 100 people that have purchased a home in the last year, consider organizing a landscaping company, or a painting company, and call each and every one of your customers to try to sell them your new product.  Begging is shameless; diversifying is commendable.  Branch out, be clever, and bring home the bacon, even in the toughest of times!

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Lending money to someone who is more experienced in real estate is a good way to earn profits without worrying about learning an entire new industry.  You don’t have any of the problems associated with being a landlord, and you don’t have to worry about laws or taxes that you’ve overlooked if you are working with the right person.  The most important choice you have to make as a private money lender is looking for the right borrower and the right deal with that borrower.  If you have invested in the past in other areas like mutual funds or money markets, the process of due diligence is probably familiar to you.   Real estate is not much different: you have to find a knowledgeable borrower who you trust to make a profit on a deal in which you see potential.

The Loan to Value ratio is an important number in analyzing a real estate deal.  This ratio, calculated by the (loan) / (appraised value of the property), will tell you the risk associated with the loan.  A higher LTV indicates that the loan is riskier, because the amount that you loan is closer to the appraised value of the property.  The risk comes from the possibility that the borrower won’t be able to pay you back.  If that happens, the property will be foreclosed, and the money from that will be used to pay you back.  With a lower LTV, the amount you have loaned is lower compared to the property value, so you are more likely to recover your full loan in the case of a default.  Another important number to pay attention to is the value of the property.  Is the property worth $100,000 or $1,000,000?  A 60% LTV for the 100,000 property is less attractive than a 40% LTV for a 1,000,000 property.  In the first case, you have a $40,000 difference between the value of the property and the amount you lent.  In the second case, you have a difference of $400,000.  In the case of a foreclosure, you are more likely to recover the amount of your loan with the $1,000,000 property.  Generally, a LTV of between 60%-70% will give you the security you need to recover your loan in the case of a foreclosure.

The LTV is not the only criteria you should analyze when researching borrowers.  It is also important to know the three C’s: credit, capacity and collateral.  Does the borrower have a history of paying back his/her loans on time, or is his/her credit score poor?  The capacity is your judgment of the borrower’s ability: is he/she able to pay you back?  Is the borrower’s own money invested in the deal as well, which would further motivate he/she not to foreclose?  Is he/she experienced?  In order to judge capacity, you should build a relationship with the borrower.   Finally, collateral is the property itself.  Do you think the property or a combination of properties is a good investment?   Do you think in the case of a foreclosure, the property is adequate collateral?  These three criteria are a good way to get you started in researching your borrower and determining if he/she is right for you.

In researching a borrower and loan to give, LTV, credit, capacity and collateral are all good benchmarks, but do not give you the whole picture.  You must constantly ask questions and learn enough information about the investment to trust your own judgments.

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Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

If you like the idea of investing in real estate, but don’t want the hassle of owning a property and dealing with tenants, then there are multiple options for you to explore.  One such possibility is to become a private money lender, which is lending money to a borrower who is experienced in real estate investing.  The borrower is in direct contact with the property, so if the borrower invests in rental property, the borrower is the landlord and you are the private money lender helping to finance the enterprise.  In return for your investment, the borrower will pay you above average interest, and possibly other additional bonuses to make the deal attractive.

One of the benefits of being a private money lender is that there is a real asset as collateral on your loan.  Once you have selected the type of loan you’d like to fund, the property that the borrower purchases is used as collateral to repay you if the borrower defaults on the loan.  In lending money, it is comforting to have something real that you can see and touch to insure your loan.  Of course, this has its own risks, say, if there is an earthquake and the property is damaged, but unless you’re in California, you don’t usually have to worry about that. Requiring the borrower to maintain property insurance provides naming you or your company as an additional insured provides another layer of protection.  Essentially as long as the property exists there is collateral for your loan.

The first step in deciding to be a private money lender is determining what kind of loan you would like to provide.  For example, there are borrowers specializing in residential rehab properties (fixing up homes), rental properties, commercial properties (like shopping centers), or flippers, who buy homes quickly and sell them at a profit without doing much rehab.   There are no advantages of one type of loan over another; it is simply your comfort level which will determine what you are willing to lend on.     If you’re not sure what kind of deal you feel most comfortable lending on, research the different areas of real estate.  There are many educational programs available to get you familiar with real estate investing, at a price of course.  Researching real estate online will expose you to many possibilities as well.   While researching, make special note of the processes.  You want to be sure that the borrower is a competent and proven individual.

If you have capital and you’d like to invest it in real estate, being a private money lender is a great option.  You’ll enjoy a high rate of return with the property being used as collateral for the loan provided.   You get the benefits of real estate without the hassles of dealing with phone calls at 2 am to fix the broken water heater.  If you conduct your research thoroughly, you will determine the type of loan and deal you are most comfortable in lending on.

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Equity is the difference between the value of a property and the balance of the mortgage left to pay.  As the value of your home increases, due to appreciation or improvements you’ve made (also known as forced appreciation,) and as you pay off your mortgage, the equity increases.  Building equity is essentially building wealth.  When investing in real estate, one of the goals is to increase equity in all the properties you own.

A simple yet effective way to increase equity is to improve the value of the property, which can be done through repairs.  Cosmetic repairs, like a new coat of paint or new floors, are not too costly and can add to the aesthetic appeal of the property.  Intensive repairs, like wiring or plumbing, may be necessary if there are problems with the property, but are also costly.  You need to select which repairs provide the greatest returns.  Traditionally this has been remodeling kitchens and bathrooms.  Putting in granite countertops, a stainless steel sink, tiling for the floors, modern lighting and large mirrors are all ways to increase appeal without an unseemly cost.  Think of it from the buyer’s view: when he/she enters the home, he/she will be impressed by the appearance.  Modern bathrooms and kitchens give the impression that the entire house is modern and up to-date, even if it was built in the 1900s.  A more modern and appealing house usually translates into a higher sale price.

Another way to build equity is to increase the payments on your mortgage, thereby paying off the remaining balance more quickly.  Some banks do not allow mortgage payments to exceed a certain amount, (why would they agree to less money?) so if you are frustrated with the rules, you may want to refinance.  Refinancing may allow you to lower your interest rates or reduce the term of your mortgage, reducing the balance you owe for the mortgage and increasing your equity.

The equity that you have accumulated is realized once the property is sold.  With the extra wealth you have accumulated, you may want to continue to invest in real estate.  There are many venues of real estate investing, and building equity allows you to explore those options.  With real estate, as with any investment, wealth accumulates more wealth.  So build up that equity and keep investing!

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Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

It is amazing how often kids naturally do things that adults spends years trying to relearn.  Negotiating is one of those things.  Although most real estate investors have developed their negotiating skills well beyond the capacity of a 10-year-old, there’s one thing the kids got right—persistence.  Somewhere along the line of developing a sense of shame and a social conscience, many seem to lose the ability we all had when we were 10: asking the same question again and again, regardless of the response.  Clinicians define insanity as doing the same thing repeatedly, expecting different results.  But in the world of negotiating, that’s called persistence, and it’s just good business.

The nature of negotiating dictates that your first offer is, in almost all cases, not going to be accepted (what a world of profits that would be!).  So while it’s not altogether surprising that most investors spend a great deal of time and energy preparing their initial offer, it is rather remarkable that so many fail to prepare their negotiating plan beyond that point—even knowing they will need to come up with counteroffers on-the-fly.  Preparation means being prepared for the almost-inevitable contingencies of negotiations, but it doesn’t necessarily mean being prepared to compromise.

Of course, if you’re dealing with a negotiating hard-liner as your opponent, then you need to be prepared to shave a little off of your expectations.  However, an opponent’s rejecting your initial offer is not a necessary indicator to revert to your bottom-line price.  Where most negotiators go wrong is establishing two points—the low offer and the high offer (or the reverse, if selling).  The first is an ideal price you’d love to pay (or receive), and the second is the one you’d settle for as a result of negotiations.  That’s all fine—the mistake is jumping to your second number too quickly.

Remember what you did when you were 10, and you wanted something from your parents?  You asked, they said no.  You asked again, they said no.  And eventually, you asked, and they caved.  It’s simple, it’s beautiful, and it works (even on professional investors).  When someone enters into negotiations, they are trying to get something that they want.  Your opponent wants what you have, and they are trying to be good negotiators—just like you.  It takes a lot to muster the energy and self-control to say “no” to something you want; and for many people, doing it twice is too tall an order.  Negotiators sell themselves short by failing simply to be persistent with their initial offer.

Nothing but experience can provide the insight required to develop your timing, tone, and approach to these matters.  But here’s a tip to hang your hat on: instead of offer-counteroffer-acceptance, consider simply trying offer-offer-acceptance.  The worst that can happen is your opponent rejects the same offer twice, and then you can proceed as you would otherwise with sacrifices and compromises.  But keeping with that first offer twice, three times, even four times (shameless though it may feel), may well produce incredible results, despite the relatively low marginally energy input required to adhere to this strategy.  Channel your inner-10-year-old, and keep at it!

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Becoming and remaining a successful real estate investor requires consistently making smart, practical decisions.  While the vast majority of decisions arising from a career in investment are the quotidian minutia—this is no less important than big decisions—often, careers can be made or broken on the basis of a few key decisions about big investment opportunities.  The difference between good and great careers, is the simple difference between the will to find good and great deals.  There is no question that locating the best deals is a matter of willingness more than one of ability or skill—there are plenty of deals out there waiting to be found.  The problem with most great deals is that they are not yet deals at all; it is up to you—the investor—to locate candidate properties that may produce the great deals that vault your career to the next level.

Unless you are a multi-million-dollar investor buying and selling 20 properties per year (and in that case, you are surely not reading this article), then the best way to find profitable deals is to locate distressed properties.  There are myriad strategies at your disposal for finding distressed properties.  Among the most effective of them, are the simplest:

Driving through neighborhoods This is maybe the best way to get deals that bring no competition to the table.  In other words, generate a list of neighborhoods that meet the specification of your business plan, and spend a day driving through all of the neighborhoods.  You are looking for any signs of physical damage or distress.  The houses do not have to be on the market; in fact, ideal properties will not be listed, and you can simply ring the doorbell, strike up a conversation as an investor, and try to get your foot in the door first (or at least plant the seed and drop your business card).  Drive-through’s can be an incredible resource for discovering great deals and motivated sellers that no one else knows about.

Talking Word of mouth requires no money, no training, practically no time, and it is often the most reliable source of great deals (that actually follow through to completion).  The best way to start a network of spies and scouts is to never be shy.  Strike up as many conversations as you can; get people talking about what you love—real estate.  Give everyone you meet your card, and implore them to keep ears and eyes open for you.  It may feel shameless at first, but remember that even if you have the same conversation in one day with 30 people (and it feels excessive), each of those people only has that conversation once, so any feeling of discomfort is probably limited to your end and not your friends’.  Leads generated from conversations with friends are often the ones that are ultimately the most dependable when it comes to completing the deal (it’s harder to screw someone you know!).

More conventionally, there are always the Foreclosure Filings lists, which report properties at risk of being foreclosed by lenders.  Historically, there is no more motivated a seller than the one who is at risk of losing everything. Foreclosure lists will always produce potential good deals, but they bring a great deal of competition along with them.  If you want to try your luck against the pack, these lists are an incredible resource.  Otherwise, consider going old school with simple neighborhood drive-through’s and conversations with friends.  You’ll be amazed by the results generated from the simplest strategies.

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Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

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In this slow economy, there are many homes being foreclosed.  You may have considered buying a foreclosed home, which is generally sold below market price.  Buying a foreclosure can yield big profits, if you know what to look for.  Some foreclosed homes sell at only 5% below market price, and when you include renovations that many foreclosed homes need, it is not a great deal.  Other foreclosed homes sell 20% to 40% below market price, and those are the kinds of homes that you want to find.

There are a few ways to find foreclosed homes, and you can buy at any point in the foreclosure process.  I would recommend buying directly from the bank, which is the safer way.  Riskier alternatives include buying from the current homeowner after the lender has served a notice of default but before the bank owns the property, or at a foreclosure auction.

Directly from the bank: This is the easiest, safest way, and the recommended way for first time foreclosure buyers.  You are not responsible for any outstanding liens, and you do not have to have contact with the evicted tenants.  This type of purchase is also known as buying REO (real estate owned).

Buying from the Homeowner: Generally, the most profitable way is to buy directly from the homeowner, but it is also the most stressful way to do it.  Not only do you have to be in contact with people who are losing their home, but the deal may fall through and you are responsible for getting an inspector and any outstanding liens on the house.

Buying at an auction: Auction prices generally run at around 10% below market value, so you’re still getting a good deal. A major drawback is that you cannot inspect the homes before you purchase them.  You must buy it on the spot, which means you can’t asses the location, which is the most important criteria when investing in a home.  Auctions are the easiest for people because you have the choices of foreclosures laid out in front of you, but it is worth avoiding auctions so you are able to personally visit the home before investing.  Additionally, most auctions require you to pay with cash or a cashier’s check, or procure the rest of the amount in a short time period.  If you are unable to, you lose your deposit.

Ultimately, how you buy a foreclosure is up to you, but if you’re new to the foreclosure process, it will be easiest and safest to buy directly from a bank.

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You’ve already decided that you’d like to browse the foreclosed properties and look for potential areas to make profits.  The only question is, where do you start?  Foreclosed properties are not difficult to find, but you need to know what you are looking for.  Many services will find a list for you for a pricey fee, which is unnecessary if you take the time to research it yourself.

The first step is research the market price in the area that you are interested in.  You should get a good feel of what a range of properties are selling for, so you will know if one is underpriced.  You can research this on zillow.com or realtor.com, or find a real estate agent who is knowledgeable in the area you are interested in.  Once you have a fair idea of the market price of certain properties, make note of ones you come across which are especially cheap.  Generally, these are the foreclosed properties. You can cross reference the cheap properties by using a search engine to determine if there is anymore information on them online.

Another valuable resource is the tax record of the county you are interested in.  These may also be available online if you go to the town hall website, or you can visit town hall in person and ask to see their tax property records.  These records will tell you how much the property you are interested in sold for and when.  Properties that are cheaper now than what they were previously sold for merit further research.  Cross off all the properties that are either more expensive or the same price.

Large banks like Bank of America and Chase also have foreclosure lists.  You can either call them or find them online.  You can locate properties you are interested in, and then run them through the tax records of the county, eliminating ones that are not low enough.

If you are interested in jumping in the process at an earlier stage, before the bank owns the property, you may get a better deal on price.  The lender must file a notice of default, which are publically available.  You can locate properties this way, and then either contact the homeowner or the lender if the homeowner no longer owns the house.

If you find foreclosed properties early on in the foreclosure process, the lender may agree to a lower offer because they want to unload their assets quickly and they have not yet paid the liens or invested time in the property.  Alternatively, if you find a foreclosure that has been listed for a year or so, your low offer may be accepted because the lender or bank is eager to unload a non-performing asset.

Lastly, a possible way to find foreclosures is to subscribe to an online site for a fee, like foreclosure.com, which sometimes is expensive.  However, if you put in the effort and time needed to research available foreclosures, you avoid the cost of subscribing.  Foreclosures can result in big profits, but they do require sufficient research.

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Based out of Indiana, Jay Redding is a real estate entrepreneur, consultant and educator with experience in residential and commercial investing.

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Foreclosed properties, unlike other houses on the market, may have certain strings attached.  Before you go ahead and sign the deal, be aware of these complications of purchasing a foreclosed property.

The Current Homeowners

The homeowners who have defaulted on their loans may be pretty upset.  Some of them take out their rage on the property, smashing walls and stealing appliances and wires from the walls.  You have to know if the former homeowners are currently living in the house if you are interested in purchasing it.  If you buy the house at an auction, the house may still be occupied.  You will be responsible for evicting them, which may take a while, and during that time the house may be damaged.  Evictions are a messy process and the homeowners, depending on their personality, may threaten you with retaliation.  Sometimes it may be advisable to offer them moving money to leave.  If you buy a house from a bank, the owners have most likely already been evicted, so just ask to see the house to make sure it isn’t damaged.

A Poorly Maintained Property

The current owners defaulted on their loans, meaning that they most likely didn’t have enough money to maintain the property either.  Make sure to hire a home inspector and be prepared for problems in plumping, electrical wires, and infestations.  Try to estimate the cost of fixing the problems as accurately as possible to know if the house is still a good deal.

Laws That Can Hurt You

Laws governing foreclosure are state-based, meaning the laws vary among states.  Some states have laws which allow the original homeowner to buy back their property if they can procure enough money in a certain time period.  It is possible to get a waiver of this ‘redemption right,’ so look for that.  Additionally, if you are buying the house pre-foreclosure, and the homeowner has declared bankruptcy, beware.  If the house is sold at a price too for under market value, the bankruptcy trustee can repossess the house, claiming that the sale was a ‘fraudulent transfer,’ and that the house was an asset which could have paid the debt to the homeowner’s creditors.  If the homeowner has declared bankruptcy, check with the bankruptcy trustee before making the purchase.

Outstanding Loans or Liens

This is a problem if you are buying a home pre-foreclosure or at an auction, but not directly from the bank.  To uncover if the homeowner has a second mortgage that he/she is not telling you about, liens (fees from not paying bills/taxes) from utilities or property tax or other loans against the property, run a title search.  You will be responsible for any obligations relating to the property after purchase. Don’t expect the homeowner to be upfront about these items.
Buying a foreclosed property can be a good investment, but because the current homeowner has defaulted on their loans, there are specific dangers to watch out for which are unique to foreclosure cases.  The best way to prepare yourself is to learn the state law with the help of a lawyer or real estate agent and learn all you can about the property you are interested in.

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