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

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

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

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

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http://www.indianainvestmentpropertygroup.com

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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.

Much of real estate investing comes down to analyzing data, so it’s important to know what numbers you should pay attention to…and what numbers you shouldn’t.  Math does not lie, but if not used and interpreted correctly, it can give a misleading picture.  This article will give a brief overview of some of the most common formulas you will come across in real estate and what they mean, but you should definitely do more research before you invest for the first time.

NOI: Net Operating Income

This is the most important number in real estate.  It is your total income minus your total expenses.  It is usually calculated on a monthly basis and will tell you your cash flow for that month.  Although the calculation is simple, the way to determine total income and total expenses can be difficult.

CAP Rate: Capitalization Rate

This is the NOI/cost, usually calculated yearly.  Some investors rely heavily on this number, and others just about ignore it.  It can be thought of as the return on investment you would make if you paid cash for the property.  Different markets have distinct CAP rates and knowing your property’s CAP rate can help you to determine how it fits in the market.

Gross Rent Multiplier.

This is determined by dividing the price of the property by the monthly rent, and is usually only used for rental properties with multiple units.  If it is under 100, the property should cash flow, and under 80 usually signifies a fairly decent deal.  This number can be used as a quick screening tool for good deals, but shouldn’t be the only formula you rely on.

DCR: Debt Service Coverage Ratio.

This is the NOI/annual debt service and is an important number in estimating if you will be able to get that loan.  Usually, lenders want to see at least a 1.20.   This would signify that in the case of a debt of $100, the income would be $120.  If the number is 1 then you’re breaking even.  Anything less than 1.0 means that you have to put money into the deal every month which is not a good.  Different investors have different comfort levels with this number; some prefer to be at 1.2, others are more secure with at least a 1.5.  The DCR is a very important number that  banks will look at closely if you expect to receive bank financing on commercial property.

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

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

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

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

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http://www.indianainvestmentpropertygroup.com

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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.

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

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

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

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

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Speaking to a group of real estate investors recently on finding private lenders to fund deals reminded me of how often people never start investing in investment property because of fear. Fear can be a great motivator or it can absolutely stifle people in their tracks.  Fear is a healthy emotion because it warns us that caution needs to be exercised. This is normal and healthy and used by our body as a protection mechanism to keep us safe.  Remember one thing however, fear is an emotion, and as such, emotions often cannot be trusted to be true or factual.  I am reminded of the acronym FEAR which stands for the following:  False Evidence AppearingReal. Ninety percent of the things we worry about that might go wrong or could go wrong never materialize.  It is the fear of the unknown that scares us. Even if something does go wrong, most of the time it never is as bad as we might think as long as we follow some simple guiding principles.     Any time you attempt to step out of your comfort zone in trying something new, you are going to feel some apprehension, fear and uneasiness.  This is quite normal and healthy because you have never done anything like it before, and it is unnatural to you.  At the same time, if you are never willing to step out of your comfort zone and learn new ways to better yourself, you will never receive the rewards of accomplishment, self confidence and success that you deserve.

So, how do you overcome the fear you are feeling? #1. Educate yourself about the situation from competent instructors that have done or are doing what you want to do.  Seek out the best you can find. #2. Seek out the advice and guidance of a competent mentor or coach that is doing or has been doing what you want to do. #3. Be willing to “Act” upon what you have learned under the guidance of a mentor.  #4. Evaluate what you have accomplished or not accomplished. What went well and what did not?  What must you improve upon next time to raise your competency level?

Just remember back when you were a child trying to learn how to ride a bicycle.  You probably didn’t learn how to ride the two wheeler the very first time you tried.  You probably had a few bumps and bruises along the way, but nothing life threatening.  The same is true in being a real estate investor in investment property.

If you are teachable and willing to listen to competent advisors you are going to be fine.  Education with wise counsel plus action equals success over time.  (Education + Wise Counsel + Action = Success) Don’t allow yourself to be controlled by fear. Learn how to manage yourself through fear by reducing the unknown.

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http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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

Real estate investors are losing money because they are afraid to invest in an unstable real estate market. Although fiscal conservatives will maintain that in order to reliably attain wealth, one must manage and minimize the risks involved in investment, there is also something to be said for taking advantage of a great opportunity. The financial crisis in this country has caused rental, leasing, and purchasing prices on properties to be driven through the ground floor and into the basement, widely increasing the margin for potential profit on a given investment; yet investors fail to act.

There have never been as many foreclosures and short sales as there are right now, and although the economy is showing signs of steady improvement, the forecasted numbers of foreclosures in 2010 and 2011 are supposed to set records (measured in millions, not thousands). Even for the unlucky investors who took enormous hits to their portfolio and equity during the course of the last five years, there is no shortage of opportunities for creative financing terms. One of the benefits of a slow economy is that is generates desperate sellers; and since we’d rather not perceive ourselves as taking advantage of the unfortunate, we remind ourselves that buying short sales and foreclosed properties helps quite a few people out of a very sticky and unsettling financial scenario.

The most costly mistake that investors will make this year is not losing money, but failing to capitalize on opportunities that could generate substantial income. It is common knowledge even in high school to buy low and sell high, so why do investors think it wise to wait until the economy stabilizes to invest? By then, so many real estate investors will have garnered enough capital to jump on the short sales and great deals that the demand will once again be on the rise, and we’ll be back on our way to the seller’s portion of the real estate cycle. Take advantage now, before the recovery bubble takes shape, and you will reap the benefits as the economy is revitalized, breathing new air into that real estate bubble. After all, it’s called a buyer’s market for a reason. Buy, buy, buy, and take advantage of the opportunity to be creative with the financing—you just may make a fortune without using any of your own money!

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http://www.indianainvestmentpropertygroup.com

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As I continue to consult with individuals who want to invest in investment real estate, I find that most novice investors and even some seasoned investors really don’t have specific objectives in mind when they are investing. Some want to just diversify their overall investment portfolio, others want to just earn more money and others want to get out of the 9-5 rate race.  These are all great objectives on the surface and real estate investing can provide you all of these benefits. However, you must go much deeper into your approach if you truly want to be successful.

This type of investor is what I call being an opportunistic investor. The opportunistic investor purchases investment property on the premise that the property is a great opportunity. They end up purchasing properties here and there and have no real plan in place on what to do with the property, how to efficiently manage the property or what the best exit strategy is for the property. An opportunistic investor does not take into consideration how the investment property fits into their overall strategy.

The investment property may very well be a great opportunity, the more important question to answer though is this; “Does the property fit into your overall strategic plan?” That question is a totally different question than answering if the property is just a great investment opportunity. It requires that there be a purpose and direction in your over all investing approach.  An opportunistic investor rarely demonstrates any direction.  If you follow the really great investors, you will find they have specific objectives they expect to achieve with their investments and that they have specific metrics in place to determine if they are on course.

If you want to be a successful real estate investor, you must learn to become more strategic in your approach than opportunistic.  This doesn’t mean you ignore great investment opportunities.  What it means is that you evaluate every potential investment against your overall strategic plan. If the deal fits your strategic plan, then by all means take advantage of it.  If it doesn’t, you can still benefit by referring the deal to another investor whose plan it would fit. This can be done through an assignment fee or a referral fee.  Either way, it can be a win-win scenario for you.

The point to take away is to know the difference between being an opportunistic real estate investor and being a strategic real estate investor. The really successful real estate investors are strategic. I will share more on how to become more strategic in the future.

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http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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

Are you thinking about purchasing real estate as an investment?  The best way to start is to acquire a real estate agent.  But, depending on what type of real estate you’re investing in will determine the type of agent you need.

If you’re looking to invest in residential real estate and grow your portfolio over time, you will want to work with an agent who specializes in residential acquisitions.  This is a professional who primarily works with other investors locating properties that may be undervalued for reasons of foreclosure for example.  These types of agents are immersed in the residential investment market and are aware of local opportunities to increase value quickly.  Real estate has traditionally been known as a long-term investment opportunity.  However, recent times dictate many opportunities to increase value in your investment quickly.   If your reason for purchasing real estate is to build an investment portfolio, you will definitely want an agent who has his finger on the pulse of the below market housing scene.

If you’re looking to purchase a commercial building, you may require a different agent.  While there are many agents who specialize in both investment residential and commercial property, you need to be sure your agent knows his stuff.  You are going to need help in underwriting the investment and determining any upgrades needed prior to leasing.  This agent will be the one helping you lease your investment property after it has been purchased.  He needs to understand how to market this type of property, what commercial tenants are looking for and how to negotiate rents for office space.

However, if your interest lies within the retail market, you will require a different type of agent.  Retail real estate is truly a small world.  Agents who specialize in this type of real estate are very specialized. A retail agent will be able to help you purchase the right location for your endeavor.  A retail agent has a great depth of knowledge on the types of national tenants looking for space, what type of space they prefer and the markets they are currently looking to break into.  He will also be valuable in helping you determine which local tenants will enhance your investment and which ones to avoid.  Additionally, retail leases are structured differently from commercial.  A retail agent will know which clauses are market standard, which ones you should negotiate and which ones to hold firm.  Your retail investment is really only as good as the tenants who occupy it.

Whatever type of investment property you wish to purchase, choose a real estate agent who has a great depth of experience in that area.  The more knowledge you have going in, the better your investment will perform.

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http://www.indianainvestmentpropertygroup.com

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You’re ready to hire a property manager to handle your investment property but what should you look for in a property management company?  This choice is an important one. After all, you will be working closely with the people assigned to your rental property.  These folks will handle your investment and ensure your budgeted profit is met.  The key is to make a choice that best fits you as an investor.

First, you should feel the company’s representatives see this endeavor as a partnership.  After all, this real estate investment is important to you but it will also be important to the property management company.  If the property is managed well, you make a profit.  You’re happy with the company and the firm continues to renew their contract with you and in turn make their management fees.  The company could potentially see the relationship grow through additional investments and contracts if that is part of your investment plan.

Any property manager worth their weight realizes the benefits in working with the owner.  An ability to talk to your property manager and know he or she hears you is very important.  But, the reverse is true as well.  Remember, the folks that do this job every day know a lot about the ins and outs of managing a property and turning a profit. Listen to their advice.  When the property does well, the investor, the individual managers and the company do well.  It’s a team effort.

Then there are the practical things to look for in a firm.  Does the property management company offer all the services you need?  If you want a manager that will handle making plumbing repairs but can also advice you on additional investment opportunities in your market, you wouldn’t want a company whose manager is really a tenant relations type only.  The firm you will be looking for is one where the manager wears many hats or perhaps there are multiple people within the company; one to handle the leasing of your investment, one who maintains the property and an investment advisor to work with you on growing your investment portfolio.

Something else to consider is the location of the firm you choose.  Do you want your management firm to be local to you or just your investment?  While telecommunications has made keeping up with things from afar tremendously easy, you may be the type that prefers face to face meetings without a trip on a jet involved.  Then again, if you work well previewing budgets and communicating via email, finding the best firm possible may be your only priority.

While most property management companies offer similar services across the board, there are those that stray from mainstream.  Decide first what your needs are in a property manager.  Investigate your options and choose the one that best fits your needs.  The partnership you choose can be one of the most important decisions to your investment property.

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http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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

In a heavy buyers’ market, it can be both frustrating and costly to try to sell or rent your investment property.  Most property owners are forced to a standstill during economic periods which favor a huge supply and relatively low demand.  However, the beauty of real estate is the eternal guarantee of change—people will always need to buy, sell, rent, and move.  So business is getting done, and shouldn’t your business interests move forward as well?  In order to continue doing business in a down economy, property owners must find creative ways to distinguish themselves and their properties from the field—a field which at the moment is vast, but which is targeting a relatively small population of customers.

There are many simple ways to make a property stand out.  The most obvious are the superficial modifications: improvements to the appearance and general “livability” of a home at the surface level.  These include updating systems, improving landscaping, repainting, etc.; and strategies like these are thoroughly explored and available from a multitude of resources.

In addition to these aesthetic improvements which will enhance your property’s curb appeal and impact upon presentation, consider offering creative transaction terms to your customers.  When a potential buyer or tenant is shopping for properties, most of their options in a broad category will appear pretty much the same—size, features, location, etc., will all probably be standardized based on the customer’s search field.  Therefore, the customer is looking for small features or details that distinguish one very similar option from another.  Many owners and managers simply offer discounts (or increase the price and then say they are offering discounts—hey, that’s business!).  Others include coupons and package deals and so forth.  These strategies are all tried and true, but common.

It is your property, which means you don’t have to follow any of the conventional rules of transactions.  Feel free to get creative—put yourself in the buyer’s shoes and consider what might appeal to you (this will probably be a function of the type of property you own, since features that are appealing will be very different between the $2 million and the $30,000 price range).  Consider what your individual business can handle.  Do you own the type of rental property where you could attract lots of business by offering dramatically reduced rental prices in return for requirements that the tenant handle repairs?  This is not a typical strategy, but it has worked in the past.  Many tenants of a certain socioeconomic class would much rather pay less now, and worry about costs in the future (and if they are contractually bound to make necessary repairs, then you hold the cards).

Obviously, this strategy will not work for many property types and many business needs.  But the point is this—get creative.  Offer something that no one else is offering, which generally means taking a bit of a loss yourself.  But it is extremely important to keep in mind that if you plan to do business in a buyers’ market, you simply will not generate the kind of income that you could under different conditions more conducive to seller profit.  That is why so many owners are stagnant in this type of economy.  But if yours is the type of business that requires perpetual motion (looking at you, landlords!), you need to maintain reasonable expectations of profits, hunker down, and offer up a sweet and unique deal for buyers/tenants.  Times are tough—but they’re not impossible.

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http://www.indianainvestmentpropertygroup.com

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