In every field, newbies make mistakes.  Unfortunately, when your chosen field is real estate investment, those early mistakes can cost you thousands of dollars and potentially end your investment career before it even begins.  When the stakes are high, the mistakes can be devastating, and so it is crucial to know not only what you are doing right, but also what others are doing wrong.  Here is a brief list of the most commonly committed errors on the part of rookie or upstart investors in the field of real estate.  Some are catered to the current market, while others are applicable in any market, at any time.  Avoid these mistakes and you will be one step closer to going from novice to guru.

The most common—and probably the most costly—mistake made by inexperienced investors is the error of underestimation.  This comes in many forms, all of which can be career killers.  Parameters that are most commonly underestimated are money, time, and energy (our three most precious resources) required to complete a project.  Too many investors are swept away by good deals and victorious negotiations that they plow forward without properly assessing the situation.  Often, this results in insufficient funding or time to make necessary repairs to a property before sale; inability of the investor to maintain his lifestyle in the face of a new and time-consuming project; and stress that can lead to disinterest in an otherwise-lucrative career in real estate investment.  Too many investors say, “What a great deal!”, jump on board, and find they do not have the time, energy, and funding required to make the deal profitable.  A classic example is the young investor who purchases a dilapidated, foreclosed home with the intention of rehabbing and flipping it; the only problem is, he didn’t take into account that this might cost 8 months and $35,000 (neither of which he can afford), and so now he is stuck with a worthless piece of dilapidated property.  It is a rude awakening that scares many investors right out of the business.

The solution to the problem of underestimation (in all its various forms) is preparation, preparation, preparation.  Every move you make must be the result of careful planning, and if at any stage of the process you find yourself unsure of the best way to proceed, defer to someone with more experience and understanding than you, and heed their words.  When a lot of your money is involved, never make an impulsive move.

Another major mistake also stems from underestimation on the part of the inexperienced investor, but in a slightly different sense.  New investors in the field of real estate often fail to understand this is a “people business”—if you want to simply trade money with anonymous opponents and get rich, and then the stock exchange is the place for you.  As a real estate investor, your primary responsibility is as a marketer—that is, it is your job to acquire and maintain a base of customers.  After all, no customers, no business!  Every real estate professional has a day where they wake up and suddenly realize that they are not in investments at all, but rather in marketing.  New investors underestimate the portion of their day and career that must be devoted to directly interacting with human beings (many of whom will bear an inherent and cynical distrust of you, and the vast majority of whom will know nothing about the work that you do).  It can be frustrating, overwhelming, nerve-racking, even infuriating; but your reward for being a diligent marketer will be a steady stream of customers and business.  Get your name out there, remain prepared, and be cognizant of underestimations that can kill your career.

Tell us what you think by leaving a comment. If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

1. Determine your investment strategy.  There are hundreds of strategies you could use with a property, so figure out which one works best.  Do you prefer to buy, rehab and hold? Or buy, rehab and then retail the property? Do you feel more comfortable with wholesaling? Some properties can turn a profit with many different kinds of strategies, so you should pick one you have experience in or feel the most comfortable with.

2. Conduct Due Diligence on the Property. You should be able to estimate all your costs and potential profits in order to accurately predict the cash flow.  It’s important to include all costs, such as taxes, insurance, the cost of using private money (or a mortgage), maintenance, holding costs, liens, inspections, closing costs, and any other expenses.  A good general rule is to overestimate your expenses to allow yourself some wiggle room in case you have overlooked something or prices increase.  Also, set aside an emergency fund for the unexpected.  These precautions will help you to realize your profit in spite of a bad situation.

3.  Know Your Area. Thorough market research will allow you to make educated guesses about what the market will do, reducing your chances of unforeseen complications, such as attempting to sell or rent the property without success.  You want to be able to identify if the area is contracting, expanding or is stable.  This will also influence the type of investment strategy you will decide to follow.

4.  Have an Exit Strategy (or three). Work the numbers with a few different strategies to see if your property still positively cash flows.  These strategies, such as renting, lease options or wholesaling, are exit strategies that would still allow you to make a profit in case there is a complication with your primary strategy.  It’s a good idea to employ three exit strategies that cover all possible market activity. For example, if you purchase a property to rehab/retail on the assumption that the market is stable or growing, but it actually contracts, you can still rent the property to the increasing number of renters that a contracting retail market produces.

5.  Don’t Over-leverage. Leverage is one of the beautiful benefits of real estate, but over-leveraging is it’s evil twin.  If you are over leveraged, you are vulnerable if the market goes down.  If you see an amazing property but you have funds tied up in others, perhaps you could assign a contract instead of agreeing to purchase a property with only 5% or 10% equity. A safe rule of thumb is to have 20% equity in a property upon purchase. Less than that, and you’re needlessly risking your profit margin if the economy tanks.

Following these basic criteria will give you confidence in determining if a property is a good deal or not, which is the cornerstone to success in real estate!

Tell us what you think by leaving a comment.  If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

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

Every successful real estate investor has had a moment in their career where they realize the simple but profound truth that they are not in the business of investments; rather, they are in the business of marketing.  All business is essentially about attracting, acquiring, and maintaining a set of customers that are willing to do business with you.  Real estate is no different.  The most valuable skill you can develop as an investor is the ability to entice a person to do business with you—easy when you’re selling a cup of lemonade for a quarter, not always such a simple task when you’re selling a $300,000 house.

Before you can appeal to a set of customers, it is important to really understand what it is you’re selling.  You will not find much luck if you wake up and decide, “OK, now I’m a real estate investor!” and then simply go around spreading that to the world.  You need to have a purpose, a specialty, a niche.  Maybe you will decide to deal only in duplex units, for example.  Obviously, your niche is not a permanent decision, and it should not limit the development of your career; instead, establishment of a specialty offers two major benefits: focus for you—the investor—in a world characterized by overwhelming options and risks, which allows you to master one investment skill before tackling the next; and more importantly, it establishes to your customers that if they are looking for a duplex, then you are the guy.  Sure, they could go out and find an all-purpose investor who knows something about a duplex, or they could have you, who specialize in them!  Specialties and areas of expertise help establish the impression that you are a savvy and successful professional, focused on the goal at hand (and not some multi-million dollar hotel investment in Dubai!).  This incites confidence and helps in the acquisition of reliable customers.

Once you’ve established your area of investment focus, it is time to establish your area of marketing focus.  That is, where will you direct your advertising campaign, and who will you target?  There are a few options here, and every investor has his own style and preference when it comes to setting a marketing protocol.  While there is no single, golden ticket answer to the marketing question, time and sheer volume have served to prove that the best approach seems to be one that is varied and well-rounded; in other words, use as many forms of media and target as many relevant communities as possible for your advertising campaign, rather than focusing on one method (for example, a TV commercial) aimed at a single community (for example, single-family home-owners).  There are two basic approaches to marketing, regardless of the media: direct and indirect response marketing.  Direct response appeals to a specific set of people for a very specific reason: “Are you looking to rent a two-or-three bedroom apartment for under $1000 a month?”  This is a targeted ad, which will return responses from only those few customers who are interested in such a property.  Indirect response marketing, on the other hand, returns many customers, but you will have to sift through them to determine their interests, intentions, and legitimacy.  An example of this is: “Come to ‘X Realty’ for all your real estate needs!”  Although employing a diverse and thorough approach to marketing (employing internet, TV, radio, billboards, fliers, etc.) can be expensive and time consuming, remember that you will do no business without customers.  The more time you spend on successful marketing, the more time you will spend counting your money at the end of the day.

Tell us what you think by leaving a comment. If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

Investment real estate executed correctly provides at least 5 unique profit centers that can be outlined by the acronym IDEAL. When investing, seek to maximize each of these areas and you will be handsomely rewarded by creating true sustainable wealth.

I Income.   The consistent monthly income provided to you after expenses from the cash flow of the property. If you want true sustainable wealth, then make sure you are investing in areas that can provide you consistent passive monthly profitability.

D Deductions.  Federally approved tax advantage write offs on long term held    properties.  Included in this category, are depreciation write downs as well as long term capital gain rates for properties held longer than a year and a day. Also included would be any operating expenses connected with the property.

E Equity.  What other investment can you purchase and know instantly what your profit margin is. When you are buying significantly under current market values, you instantly have profit margins built into your deal, regardless of what exit strategy you choose to use.  You make your profit when you buy and realize it when you sell.

A Appreciation.  You can benefit from the natural appreciation of the market in general as well as force the appreciation of a property by rehabbing it and increasing the value. Whether you are a long term player or short term player, you have a large degree of control over the valuation of your property when you purchase correctly.  How much control do you have in the stock market?  Not much.  You often are at the mercy of the market.

L Leverage.   Where else can you own an investment for 20% or less of its current value while at the same time continue to receive income off of that investment and have someone else paying your debt down? Try purchasing a stock for 25% of its current value- it’s not going to happen. Leverage is a great advantage because it allows you to make a profit without having a huge amount of capital.  Keep in mind, however, leverage can slice both ways.  Over leverage and you get yourself into deep trouble very quickly.

If your goal is to develop long term lasting wealth, then real estate needs to be at least a part of your investment portfolio.  I know of no other investment that can provide you all of the key advantages that have been outlined above. Moreover, real estate historically has created more multi-millionaires than any other asset class.  People may make their fortunes initially in other areas, but for sustainable long term wealth, investment real estate continues to be the asset of choice.

Tell us what you think by leaving a comment.  If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

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

Private money is a great way to fund a real estate business because it provides a large amount of money quickly and flexibility without the red tape, loan approvals, or hidden rules and regulations that come with bank loans.  If a real estate investor has an adequate and stable supply of private money, they can offer and close a deal fast, sometimes even within 24 hours.  The high frequency of transactions allows businesses to thrive, producing a steady and profitable cash flow.

The hardest part about securing private money is finding the investors, especially for a novice real estate investor who is just starting out and doesn’t have the record to backup the return claims.  There are many people out there who have the finances to put down $50,000 on a deal, but the problem is how to find them and persuade them to invest in your deal.

The first step to this problem is to define who your target is.  Are you going after clients who have $20,000 or $2,000,000 to invest? These are two different types of investors and the answer will depend on what kinds of deals you are considering.   As a beginner, it is easiest to talk to friends and family, people with whom you already have a personal relationship, because they will be more willing to invest than a person with whom you have a strict professional relationship.

However, you still need to go about this professionally.  Before you talk to anybody about investing, you need to have a structured business plan that will convince them that you mean business and you know what you’re doing, regardless of the experience you may have.  Even your own mother may think twice if you casually say you’ve got this deal and you want $50,000.  Instead, ask to meet with them over lunch or dinner and present your detailed business plan so they can review it for themselves.  They will invest for three reasons: 1) they like you, 2) they trust you, or 3) you’re credible.  For the new investor, credibility does not mean experience, since the number of deals you may have done will be little or none.  Instead, credibility comes from your character and due diligence: are you an honest person? Can people vouch for your character?  Does your business plan show carefully thought-out research, strategies and backup plans?  In presenting your business plan, it is important to play to your strengths, i. e. even though you don’t have experience, you are a hard worker, thorough researcher, and you know what you’re doing.  Your family and friends won’t hold the inexperience against you and you may walk away with your first private money lender.

The last key to spreading your business outside your immediate circle is to ask your friends and family if they know anybody that may be interested and would they introduce you.  If they are impressed with your business plan and presentation, you will soon be meeting potential clients and cultivating new relationships to grow your private lender base.

Tell us what you think by leaving a comment. If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

In any type of major investment, it is important to select the right product to get the right deal.  However, every good investor knows that those deals come with a wide range of potential profit margins, and what separates small profits from enormous ones (and consequently separates merely surviving investors from those that thrive) is the negotiating phase.  This relatively brief portion of the investment process could account for thousands, tens of thousands, even hundreds of thousands of dollars—depending on the investment type.  So every aspect of negotiations can be valuable, a tool used to leverage higher profits.  Here’s one more tool to add to your arsenal: productively rejecting an offer.

Countless deals have fallen through because one side rejected an offer during negotiations.  And that makes sense—one side says “No”, and the deal is off.  But of those failed deals, how many of the buyers and sellers involved probably reflected down the line something to the effect of, “I really wish I could have gotten that deal done, it would have made/saved me thousands!”.  Often offers are rejected on the assumption that there will be a counteroffer process, and the two sides will finally settle on a reasonable price.  But tact is important in the psychology of negotiations, and a tactless rejection of an offer can literally be a deal-breaker.

Here’s your solution, bearing in mind that this is a tactic for negotiating, and not a recommendation for a way of life (in life, personal accountability is key!).  When you want to reject an offer, consider acting a little torn up about it.  You really want to accept the offer—after all, it’s a great offer—but there is some external influence preventing you from doing so.  My boss has given me a ceiling price, the board has said this is outside of the budget, etc.  You can blame your inability to do the deal on anyone other than yourself, while you maintain the impression that you really want to get the deal done.

It is a way to tactfully reject an offer while sustaining the conversation with your negotiating opponent.  Everyone involved wants to get the deal done—that’s why you’re sitting at the negotiating table—and blaming the offer rejection on an external influence (one that’s not present at the table) is a way of moving forward in the face of an unacceptable offer.  Remember that psychology is vital in negotiating, and you want your message to vouch for your side, but your pathos to speak to your opponent.  It’s a delicate balance; but when you find it, it works.

Tell us what you think by leaving a comment.  If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

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

An integral part of real estate investing is researching and choosing the market in which you want to do deals.  Once you have identified your market, you also need to continue to update the data so that you can decide to remain in your market or move elsewhere.   Furthermore, thorough market research is a key component of any business plan, and if you hope to secure private money, the lenders will be reading the market section very carefully.  Diligent market research attests to your competence as an investor and will play a crucial role in your success.

There are companies dedicated to researching the real estate market, and for a fee you can find out all the data you desire.  However, if that is not in your budget, it is possible to do the market research yourself.  Another added benefit of doing your own market research is you will get a good feel for the economy during the research process, much more so than if you pay a company.  Browsing through data and digging through the records at town hall may not seem like fun, but you will absorb more information and gain experience if you do the research yourself.

Start by identifying a community of 250,000 or more people and research the economic base.   A population of this size has more infrastructure and more opportunities than a smaller community. Additionally, the size of the community has implications for it’s economic base. It is more likely that the community is supported by a variety of industries rather than a community that is employed mainly by a few extremely large companies, such as General Motors.  If these companies go out of business, it will dramatically affect the community and real estate prices will drop.  In a larger community, the population can absorb these losses and although real estate may drop, it will not be as drastic or for as long as it would be in a small community.  As part of your research, it is critically important to find out the economic structure of the community and the areas of industry that play a prominent role.

In your market research, you will also need to know the normal rents, the after repair values, the average number of days on the market, etc.  for the last 6 months to a year.  This data will help you evaluate the potential growth over the next few years.  Unlike selling short or other stock market techniques, real estate profit is only realized in a growing market: there is no gain for betting that the price of property will drop.  The best thing you can do if you think the market is shrinking is to avoid investing in that area.  If the numbers aren’t working out in your chosen market, don’t fall victim to investing in it anyway simply because you’ve done the research.  Pick a new area and use your newly learned techniques for researching it.  You will find a market that is ripe for investing, and you’ll impress your private lenders with your due diligence and methodical research as well.

Tell us what you think by leaving a comment. If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

Business plans are always important for any kind of business, but for real estate, they are paramount because they can make or break a relationship with a client.  If you’re just starting to raise funds for your business, the private lenders will look over your business model, carefully critiquing you and your strategies as an investment.  The business model reflects upon your competency and is integral for attracting clients, so you want to make sure it is clear, professional, and complete.

The first thing you will hand to your potential investors is the executive summary.  Consisting of 3 to 4 pages, it should have the highlights of your business, which include an outline of your strategy, your market, the types of properties that are targeted, how to attract buyers and sellers, marketing plans, the range of opportunities that are available for investors, how their money is secured, the types of returns to expect, the timeline of those returns, the potential problems and the ways that your business will mitigate them.  A few more pages to map out how the investors can invest, how you can protect them, and examples of how it works will help to give a clearer picture.  With clarity comes comfort, and if the private lender feels comfortable with you and your plan, they’ll invest.  If they’re interested, they may ask to see your business plan.  A solid plan is about 20 pages and it includes more detail about each of the topics in the executive summary, plus information about your team and the responsibilities of each member.

You should have this information assembled and ready to hand out before you meet with a single private lender.  Approaching a lender without this will make you seem amateur and you only get one shot at a first impression.  In fact, your business plan can be a good excuse to meet with a private lender for the first time.  Assuming you have some prior relationship with the lender, you can call them and ask them to review your plan and give you feedback.  Phrasing the conversation in ways such as, “I respect your opinion,” and “Your expertise would help me,” appeals to the lenders ego and will help to persuade them to look over your plan. If they think your plan is great then they will ask if they can invest and get in on it.  If not, their feedback will be very valuable and you can always ask them to review it again at a later date after you have made adjustments from their suggestions.

Your business plan is the gateway for accumulating private money lenders. Once you have interest, you must be diligent in cultivating that investor-client relationship so that they will want to re-invest.  A business can thrive on only a few active private money lenders, so get to researching for your business plan and your effort will be rewarded.

Tell us what you think by leaving a comment.  If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

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

In any industry, there are cases of both great success and terrible failure; in real estate investment, it is no different.  As the economy changes naturally over time, so do the needs of consumers and investors in the real estate market.  Perhaps that is why there is no “golden ticket” secret to real estate investment success that has withstood the test of time.  Some strategies work in one market and then fail in the next, and it can be difficult for investors and realtors to keep up—especially if they’re inexperienced.  Perhaps this article would be more appropriately titled, “The Influence of Media in Real Estate Investment Success”, because it poses that one of the keys to surviving and thriving in this particular market is intrinsically connected to the media, and especially to the news—as are so many other facets of our modern lives.

The key is this: Stop watching the news. Or rather, stop incessantly relying on and obsessing over the news (we all have to stay informed!).  News media—TV, radio, print, internet, it’s all the same—is notorious for focusing primarily (if not solely) on the bad.  Who’s dying?  Who’s gone broke?  Who’s broken the law?  What crises are occurring?  What do we have to be worried about?  All important information, but heavily lopsided, and driving fear into the hearts of investors nationwide.  Fear can be incapacitating in business, and real estate investors who make their business decisions based on this imposed fear of market trends, foreclosure rates, absence of buyers, etc., doom themselves to failure.

It is important to be careful, and it is crucial to base your decisions off of market trends and upcoming changes (as always).  However, the bottom line is this, regardless of what the news may tell you: There is a profit to be made in practically ANY market, at ANY time. National trends and figures are important, but real estate occurs at the local, even at the individual level.  A good deal is a good deal, and a confident investor can always find business.  The beauty of this field is that, trends aside, there is always a solid baseline demand for property.

Some investors may be wondering, “I watch a lot of news, and I’m concerned about the economy, but I’m still out there investing.  Why am I not successful?”  As an investor, your primary responsibility is to acquire and keeping customers (that means gathering leads, finding deals, and bringing those deals to fruition).  It is a people business, and often huge financial deals may depend on one individual’s impression of or confidence in another.  Consequently, those real estate professionals that are consumed by the negative trends and the media scare frenzy, are making that same impression (even if only subtly) on their customers, and the result is a deal falling through.  Be aware of what’s going on in the country, but understand that real estate investment occurs at a relatively small, limited, local level.  Particularly if you deal in small properties, single family homes, etc., it is essential to bring this confidence to the table for the assurance and maintenance of your customers.

Tell us what you think by leaving a comment. If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

In the past decade we have all been witness to a national economic downfall that ushered in unprecedented rates of foreclosed homes and loans.  This is a tragedy, to be sure, that amounts to the suffering and financial stress of literally millions of Americans; however, as the old adage goes: “One man’s trash is another man’s treasure”, so too does it go with foreclosures.  For those investors with the initiative and knowledge to do so, investing in one or many of the record number of foreclosures could be the best way to turn a substantial and reliable profit in the years to come.

The situation, in brief: banks and lenders issue mortgage loans using real property as collateral.  When the mortgage holder defaults on their payments (fails to pay enough times or for long enough that the bank finally must take action to avoid further losses), the bank will foreclose the property, which means they assume ownership of the home in return for a cancellation of the debt.

Foreclosure could mean temporary homelessness and an ugly credit report for the defaulted mortgage holder, but that doesn’t mean that you—the investor—are preying on the suffering by swooping in for a deal.  On the contrary, it will invariably lift a huge financial burden from the shoulders of someone who was surely being weighed down by the stress of bills, collectors, and impending consequences.  Furthermore, you will be relieving a bank—which is invariable looking to unload its accumulated surplus inventory—of tremendous financial stress.  The great deal you get on the property does translate to a loss absorbed mostly by the bank, which in most cases is big enough and has enough investments to dissipate the blow with negligible effect.  The bank tends to be more concerned with cutting their losses and unloading the property cheaply, than with holding the property (at a cost) until they get every penny of its retail value.  Bottom line: you can get a foreclosed property very cheap at auction.

In most cases, foreclosures are characterized physically by relative disrepair, and certainly nothing that could be immediately flipped at retail value.  After all, these are people who could not afford to live in their homes, let alone maintain and improve them, which may speak in part to why banks are more inclined to sell the properties cheaply than to hold them. Something you should be aware of if investing in foreclosures: you are NOT buying a retail product; you buy a dilapidated, sub-market product (a good deal), and turn it into a reasonable, at-least-average home (a great return).  You don’t have to make your foreclosure investment the nicest home on the block, but your property needs to be repaired and updated in order to fit in with the surrounding neighborhood and market.

Once you have a product that fits with its retail surroundings, owning a foreclosure property is no different than having used any other method of acquiring property—except that you saved tens of thousands of dollars.  And a retail home means options for profiting: you can resell it at its new retail value for a hefty one-time profit, you can rent the property to tenants for a sustained income, or you could simply live in the home or hold it for as long as you see fit.  With the economy behaving the way it is, on-the-mend, buying and holding (especially buying low, improving, and holding) is as reliable as ever a way to turn a long-term profit on your investment.

Tell us what you think by leaving a comment.  If you would like to be notified when new posts are made to this site, be sure to subscribe to the RSS feed.

http://www.superiorprivatemoneyreturns.com

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