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

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

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

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

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If you are a real estate investor using private money, then you understand that having private lenders are critical to your success. They are the cornerstone of your business and should be treated like royalty. Without them, you don’t have capital to invest, and finding a few good private lenders could be the difference between success and failure. So, once you have a private lender, how do you ensure that he/she will continue to invest? The answer is not finding the best real estate deals and making the most profit, although surely that will help, but rather it is structuring real estate investments to fit the expectations of the private lender.

The first step is to have an in-depth discussion with your private lender to understand their expectations and reasons for investing. Is he new and inexperienced, unfamiliar with real estate? If so, you may want to invest short-term with his money, either on retail flips or rental properties, so he doesn’t get scared and back out. During this discussion, it is necessary to explain all the options and types of investing that you do and suggest the best choice for them. Is your private lender very experienced in real estate? In this case, the lender is more likely to want to assess the deals carefully and this may become more of a partnership than an average lender. You may want to structure the deal to split the profits instead of paying a fixed interest rate. This gets your lender more involved in the process and he may be willing to take bigger risks resulting in more profit, both for him and for you. Once you have a private lender, make sure to have a discussion about their expectations and reasons for investing immediately. It will make them feel more secure and reduce the chance that they are unhappy with the results.

The second step is to explain the risks to your lenders. Some factors are out of your control, and they should have a clear understanding of your goals and expectations. Obviously, you will not be able to predict 100% of the time what the market will do or how quickly a house will sell. As long as you keep them clued into your process, i.e. the logic behind your conclusions, they will be patient if the unexpected happens. After all, investment carries risk, and they should be prepared to accept that.

The third step is to create an emergency fund of your own, and of course, let the investors know it exists. This fund should cover any losses that the investor incurs or at least help to ameliorate the loss. If necessary, it is better to incur some personal loss than to lose part of the private lender’s principle. The private lender will more than likely be willing to invest again and you can try to recover your losses on the next few deals.

Understanding the private lender’s expectations, thoroughly explaining the risks, and creating an emergency fund will help to ensure that your lenders will be happy with your performance and will agree to invest again.

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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.

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Although speculation is a bit outdated and irresponsible in the current market, flipping properties is still a viable way of earning income when it is based on finding bargain purchases rather than riding an expanding market.  There are three different levels of flippers—investors who take part in one or more stages of this process.  They are: the scout, the dealer, and the retailer.  The designation is generally a function of the flipper’s experience in the real estate world, as each bears a different set of duties and responsibilities.

The scout is also sometimes called the “bird dog”.  Bird dogging is the process of gathering information about potential deals by investigating leads from trusted sources.  When the scout finds a good deal under market value, he will sell that information to other investors.  Scouts are generally real estate investment newbie’s; it is a great way to get started, because it requires no money or credit, teaches valuable lessons about how to find deals and the way real estate investment works, generates income, and provides an opportunity for the scout to cultivate relationships with investors and other important members of the real estate community.

The dealer, somewhat like a scout, also gathers and sells information about deals.  The difference is that the dealer actually enters into a purchasing contract with the seller.  Now, the dealer has the option to either close on the deal and purchase the property, or to sell the contract to another investor.  This allows the dealer a great amount of leverage for profit, since his purchase contract effectively controls what will happen to the property.  However, the dealer often has to put money down to secure the purchase contract, so he assumes more risk than the scout (as is always the case when the opportunity to profit is greater).  Dealing provides a great deal of flexibility to retain, rehab, and resell the property, or to simply sell the contract for a quick profit without ever dealing with tenants or even the property itself.

The retailer assumes the most risk, and stands to earn the most profit.  After purchasing the property either through a dealer or agent, the retailer rehabs and fixes up the property until it can be resold at a much higher retail value.  This requires an investment of money, time, and energy; but it is by far the most lucrative element of flipping a property, because what the retailer does inherently increases the value of the house.  The flipside is that the investment occurs over a much longer period of time than it did for the scout or the dealer (who both made their profit instantly).  The retailer must work—sometimes for months—to reshape the property for resale.

Each type of flipping provides a different level of risk, and a corresponding level of reward.  It is a structure that allows for involvement of real estate investors at every level of the game, from amateur scouts to the most highly experienced and skilled retailers.

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In real estate wholesaling, finding your buyers is the most important step.  However, once you have your buyers, you need to market your property to them.  Marketing involves work: it is not simply showing a picture and talking up the location.  Marketing requires due diligence because in wholesaling, you are generally working with buyers who are experienced with real estate.  They are looking for facts and figures, and unless you can give them that information, you are wasting their time.

The presentation of your property to a potential buyer is very important.  In your presentation, you should know the general market data of the area.  This includes the average rents, average holding time of a house, the gross rent multiplier, and the actual after repair market value of the house.  If you’re dealing with a buyer who generally deals with properties out of town, this data will be more useful and help develop a level of trust. The presentation should also include data specific to the property you are selling.  If it needs rehabilitation, you should have some general bids from contractors (this is also especially useful for an out of town buyer, as they don’t know which contractors to use).  You should have the property inspected and include the highlights from their reports, such as any plumbing, electrical or infestation issues.  It’s also important to have cash flow data, which includes the management fees and any other expenses that make up the total expense of owning the property.  These facts and figures will help an experienced real estate buyer know if the property is a good deal and they can make a quick, informed decision.  They will appreciate your work and will likely agree to look at other properties you own.  Before you know it, voila! They are an active buyer who repeatedly buys from you.  Treat all your buyers with professionalism and show them the work you’ve done to research the market and the property, and you can build a reputation that allows you to wholesale properties in minutes.

The effort involved in locating buyers, properties and marketing is substantial.  Of course, if you wholesale a few properties now and then it is not as labor-intensive, but you must make sure your buyer-list is up to date.   Wholesaling can be a rewarding experience after you’ve completed a successful sale, but in order to get there, remember to line up your buyer first then market your property.

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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.

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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 Appearing Real. 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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To enjoy life one need is for a long term, solid and certain source of income to provide us with a comfortable and secure lifestyle.  With massive economic and global changes continuing, a traditional 9-5 job is not secure nor does it afford us a style we consider comfortable.  Many people are now creating their own businesses and other income sources.  Due to steady clientele and potential wealth building people have purchased investment real estate for long and short term financial growth.   The term Investment Real Estate indicates a property bought and sold for the purpose of leasing, growing equity and selling for a profit.  This is a property that is lived in by many. While getting rich and building long term wealth have happened, there are some significant dangers too.  I call them dangers as they have the capacity to ruin one financially.  Of the many dangers possible the significant ones are constant reparations, empty units, bad renters (both non payers and destructive renters), and the big one; foreclosure.

Ideally, you acquire a property in good condition, below market value, rent it out for a profit over payment, and watch the equity grow.  But not all is ideal.  Many of these homes are in disrepair from either lack of funds for maintenance during the previous owner’s tenancy or vandalism in retaliation for the foreclosure.  Getting a property with numerous problems costs you up front money, increasing your investment, decreasing the ‘equity profit’.  Excellent home inspections save you thousands.

Repairs and maintenance are key to your to success as livability and appearance keep you from having another danger occur, empty units.  Every day your unit sits empty you still make the mortgage, insurance, and tax payment.  Making one mortgage payment can be a challenge, but having another one and no income to cover it can cripple you financially.  Add the growing risk of homeless squatters, vandals, and other things that happen to vacant properties.  And the cash to cure this is RIGHT NOW cash or credit cards, which is another monster but adds to the issue.

Occupation is the desired result for success, but sometimes you get more than you bargained for.  With the recent economic downturn the number of non paying tenants has grown, as has the number of destructive tenants.  Studies show that poverty creates petty crimes of passion such as vandalism and domestic issues.    If they are already so broke you are not getting paid the likely hood of them having first and last for another place is small.  Pepper this with legal fees for eviction and even more repairs.  Becoming a vicious cycle it only takes a few months of carrying 2 or more mortgages and your neck is on the line.

That line is foreclosure.  Yes, the same list you got that beauty on will be where it returns to.  While it is wise to create an LLC and put the properties under that name to lessen or avoid losing all of your personal assets your credit will never be the same.  Depending upon the type of foreclosure, HUD, Government, Bank, standard, it is the biggest black mark credit wise you can get.  Also, the type of foreclosure dictates the time and process of repossession and additional fees.

When you  create the financial success plan for your life and Investment Real Estate hits the idea list it is wise to remember the dangers, that are talked about here.

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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.

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Investing in real estate—especially for those who are relatively new to the business—can be exhilarating. It is fun, exciting, nerve-racking, tense, sometimes joyful, and often bitterly disappointing. During a buyers’ market like the current one, this gauntlet of emotions shifts toward the joy and excitement side, and away from the anxiety-producing side of tension and disappointment. Great, right? The problem is—again, especially for rookies—is allowing yourself to be swept away by the fun and excitement of finding good deals everywhere you look, and forgetting why you ever worried in the first place. Too many buyers are too relaxed these days—they see a low price, they walk through the property, and they buy—only to discover later that real estate investing is still a very risky business, in any economy.

The key to reducing risk is enhancing preparation. In real estate investment, that’s easy; all the steps are laid out for you. All you have to do is not skimp or cut corners. Never pass on an opportunity to walk through the property (and never buy without being given that opportunity!), because it will offer invaluable insight as to the condition, livability, and atmosphere of the home that you could never get from a conversation or brochure. A walk through will give you a sense of the previous owner’s maintenance of the property, of what realistically needs to be done, and even what you may want to do that’s not been done before. The walk-through is your chance to meet, greet, and familiarize yourself with the property’s identity—an interview.

If the walk-through is the interview, then the inspection is the cavity search. The walk-through, while essential, is absolutely not a substitute for a proper inspection. Furthermore, a seller’s assurance that the home has been inspected (and even the inspection report itself) is absolutely not a substitute for conducting a proper home inspection (even an additional one!). An inspection, conducted by a licensed professional of your choosing (it’s important for every investor to have inspectors and other professionals that they know and trust), will provide detailed information about the guts of the home. What works, what doesn’t? What could use some repairs or updates, what will require those repairs in the future, and what absolutely needs repairs or updates immediately? Is the property up to codes and standards? Are there any features of the property that make it vulnerable or susceptible? And crucially, what will be the cost of making the repairs, improvements, updates, and modifications called for by both the buyer and the inspector?

Your walk-through will give you a sense (a gut feeling “yes” or “no”), and the inspection will provide the evidence to support or refute your feeling. The former is largely emotional and a function of perception, while the latter is strictly business. How feasible is this project going to be? Will you profit from your transaction? Too many investors, at ease perhaps due to the favorable market conditions for buyers, walk in to a property, love what they see, are floored by the low price, and simply buy it. No inspection. While some of these buyer’s may be thrilled, others may soon discover that they’ve overlooked a costly issue. Failing to properly inspect a home (or walk through it carefully) before investing is a gamble that’s simply not worth taking.

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Investment real estate is a great addition to an investor’s portfolio for creating wealth and long term capital gains. Every investor seeks ways to increase wealth and reduce risk.  This is primarily accomplished through portfolio diversification.  The traditional thought promoted by securities dealers is that you need to be diversified into stocks, bonds and mutual funds to reduce risk. These funds are further dissected into small cap companies, mid cap companies and large cap companies in addition to sector funds such as health care, utilities and technology. The types of funds that are available are almost endless.  The bond funds are almost as endless as the stock funds. Now I ask you, how does the average securities dealer stay on top of all of these funds selecting the best ones for your situation when he is dealing with multiple clients at the same time?  It is a challenging task. Don’t get me wrong, I am not bashing the securities dealers.  They play a vital role in wealth creation, however, you need to understand their limitations.  Also keep in mind that most securities dealers work for a specific company. That company also has a specific agenda. That agenda may be in line with your agenda and it may not be.  How do you know?  Remember it is your money and you  utimately have control and responsibility.

Their are funds available that offer you the opportunity to invest in real estate for further diversification via a REIT. (Real Estate Investment Trust). This is one way you can invest in real estate.  Keep in mind though, do you understand what the fund invests in, what is the track record of the company and how much of the profits are siphened off for management fees and overhead? That could be money in your pocket!  These are things you really must understand.  If you are someone that wants to have a little more control over your money and know exactly where it is being invested, then real estate investing through owning investment property or being a private lender to talented real estate investors is clearly an option for you. When you understand and follow the proven principals of real estate investing that have demonstrated success repeatedly over time, in my opinion, it is safer than the stock market and more predictable than the stock market.

Here are just a few of the additional advantages owning investment real estate provides:

• Leverage – The ability to control and grow an asset exponentially without all of the money up front.
• Appreciation- The increase in value of property over time via market appreciation, forced appreciation through higher and better use or rehabilitation.
• Depreciation – Tax advantage right downs on long term held properties.
• Capital Gains - Long term capital gain rates significantly lower than ordinary income rates or short term capital gains.
• Cash Flow - The consistent monthly income provided to you after expenses. If done properly, far out performs the dividends received on stocks or bonds.
• Security – When done properly,your investment capital being secured by an asset that will never be zero.  Not necessarily true in the stock market.
• Peace of Mind – Knowing where your money is invested and the details of the investment asset.  Do you really know what is going on inside the company of the stock you have purchased?

Investing in investment real estate provides an investor unique advantages compared to stocks and bonds plus diversification for one’s entire portfolio. It is not unusual for the financially astute individual to be invested in stocks, bonds, mutual funds and investment real estate.

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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.

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Do you want to invest your funds in real estate but don’t want to spend the time necessary on the tedious aspects of acquiring and maintaining one or more properties?  Do you know that real estate is one of the best ways to invest but perhaps you have little knowledge of the ins and outs?  The real estate investor has many options at his/her disposal.  There are professionals that can handle some or all of it for you.

Real estate has become more complicated during the current economic times.  It has also become more exciting and lucrative in many ways.  There are great deals to be had and there are many experienced wholesale investors out there to help you benefit from them.  A good real estate agent can handle complicated deals such as short sales and foreclosures.  Many agents also know excellent wholesalers.  These types of deals can provide a real increase in value quickly.  In today’s real estate market, there are often more deals like these than there are traditional ones.  Real estate professionals are embedded in the market and can often tell you where and how to find such investment opportunities.

Your first decision is to choose what type of investor you want to be. A Limited Partnership, also referred to as an LP, joint venture or equity arrangement allows one investor to provide funding while another will provide his/her time and skills to find the investment property, handle the purchase and even manage the property if the intention is to hold onto the asset. Profits are split between the investors in this type of arrangement.

You may prefer to do a Private Placement or PPM where your funds will be pooled with other investors and the entire transaction from beginning to end will be controlled by someone else, usually an experienced management team.

A skilled real estate wholesaler can provide you a Turnkey Investment Property.  As the investor, you purchase a discounted property that has already been renovated and leased.  Property management is already in place.  This can be done with a tenant in place who wishes to rent to own.  The tenant will buy back the property from you, the investor, in the future providing you with the security of a buyer from the beginning.  Or, it may be a discounted property your wholesaler locates, rehabs and flips providing you with an immediate profit.  It really couldn’t be easier than that.

So, if you want to be a real estate investor but prefer not to be a landlord, the only work you really need to do is to find a good wholesaler with a support team.   While he/she is working hard, the investor reaps the benefits.

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By far the best way to make money in a capitalist economy is to know something.  The more you know, the more opportunities arise for you to translate that knowledge into tangible form—namely, money in your pocket.  Dealing with taxes is no exception; actually there may be no better example of turning knowledge into money.  If you put taxes into very simple terms, everyone pays some amount related to their value.  If you normalized the amount that everyone pays in taxes to exclude consideration of the taxpayer’s value, you would see a fork in the road where you can pay the standard amount with no exclusions or deferrals, you can make a mistake and end up paying far too much, or you can use your knowledge to keep the money in your pocket where it belongs and out of the hands of the government.

In 1997, the laws governing tax exclusions for home sellers were made much looser.  Before the change, someone selling a home would find it very difficult to meet all of the requirements to get a tax exclusion on gains up to $125,000.  But now, it is relatively easy to qualify (especially if you are aware of the requirements and standards of eligibility going into the purchase of your home—and if you are a real estate investor, then hopefully you are aware of such matters).  A single homeowner can altogether avoid capital gain taxes up to $250,000 on the sale of a home (a married couple can skirt up to $500,000), provided a few conditions are met.

First, the home being sold must be the sellers principle residence for at least two years out of the five year period leading up to the date of sale.  The two year period does not have to be consecutive, and the requirements do not speak to what happens in the property during the time when the seller is not residing there primarily.  Secondly, this is a tax exclusion which may only be utilized once in a two year period (with some exceptions).  Thirdly—and this is really more of a help than a disqualifier—if it is a couple filing for tax exclusion, only one spouse has to meet the residency requirements cited above.

All said, the eligibility requisites are not too stringent, and it is important to take advantage of this opportunity to save an enormous amount of money upon sale of your home.  Further, if you are a career investor, consider this opportunity when designing your investments and living considerations, because it may just be worth living in an investment home for two years to earn back the money that would otherwise have gone to the government when you resell !

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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.

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