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In an historically bad economy like this one, there is no shortage of motivated sellers, which means there is no shortage of opportunities for buyers to get creative with their financing terms.  In many cases, investors with little or no credit can arrange to purchase a home, with little or no money down, and with no new loans.  The nature of the slow market (the buyer’s market) is that it allows buyers to take advantage of opportunities while working to improve their credit and acquire funding for a down payment.  Here are a few ways to go about this.

The first option is the lease-to-own route.  This is when a property owner rents the property to a tenant who intends to buy, but can’t afford to make the down payment or take out a new loan.  Every month, a portion of the rent is put towards a down payment on the home.  No loan, no detrimental credit impact, a place to live, and time to secure funding.  Generally, the contract will extend between 2 and 5 years, will require a small down payment on the home (3-7%), and will put anywhere from 10-50% of the rental payment towards the purchase of the home.  At the end of the contract, a mortgage loan (substantially reduced from the initial purchase price) can be obtained to cover the balance.  It’s pretty simple, but lease-to-own’s provide some incredible ownership opportunities to those who, in better economic times, could not hope to put together a competitive offer on the property.

Another option which balances motivated sellers and small loans is what’s called a seller carry back mortgage.  This is basically when a seller agrees to act as the lender for a mortgage loan, allowing the buyer to complete the purchase and then repay the seller over the course of a few years.  It is very rare for a seller to agree to finance the entire purchase, but surprisingly common to find terms of partial seller carry back mortgages.  In these cases, the buyer takes a primary mortgage loan from the bank (one which is much smaller and easier to acquire than the loan for the entire purchase price), and a second mortgage directly from the seller.  This requires cultivating a pretty solid relationship with the seller, so bring your “A-game” when you follow leads—especially if you’re short on credit or cash.

There are many opportunities to simply find good deals—houses listed and sold below market value.  Be it through foreclosure auctions, probate sales, short sales, or creative financing terms, anyone can buy right now.  After all, it’s called a buyer’s market for a reason.  Use your head, not your money, and you can find a path to home ownership that won’t leave you destitute and with crippled credit.

http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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When thousands of your hard-earned dollars are at stake, it is important to know how to capitalize maximally at every opportunity that presents itself during the sale or purchase process.  A huge part of that comes with good negotiating, where you stand to earn or lose more money than at any other single stage of the process.  Good negotiating means more than simply making good decisions based on the numbers; it means playing to the psychology of the opposing party, and from time to time even bluffing.  In negotiating, one form of bluffing is the walk-out, which will be examined in depth.

When you walk out of negotiations, you feign disinterest in the deal and leave the discussion altogether—or at least you make the other party think you’ve left.  In fact, by acting disinterested, you can often generate a sense of urgency in the other party, and that will lead to lower offers (or higher, if you are selling and refuse a buyer’s offer altogether). This means more money for you when the deal actually goes down.

The art of walking out is in the timing and the effect.  Good timing means only walking out when appropriate (it only works when a deal involves either a lot of time or a lot of money, or both), and only after having negotiated pretty extensively.  This is to create the impression that you are an interested buyer/seller, but there is something specific that is ultimately holding you back (i.e., the price).

The effect you create is what will allow you to gracefully reenter negotiations following a walk-out, without seeming too desperate or indecisive.  If you offend the other party by being rude or curt, you are not likely to see a better offer down the road, and reentering negotiations will be uncomfortable if not impossible.  At the same time, if you walk out gracefully but return and appear more desperate, then the other party will acquire a sense of leverage and use it to raise the price.  Instead, return with an offer prepared, making it apparent that you left negotiations, decided you did in fact want to take part in the transaction, and determined the price that would make it work for you.

Walking out of negotiations can be an effective way to get a better deal (and remember—you make or lose your money when you create the deal).  If managed responsibly, without offending or appearing weak and desperate to the opposing party, it can be an effective strategy.

http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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Thinking with one’s emotions is rarely—if ever—a reliable way to earn a profit, in any industry.  In real estate specifically, trends tend to be more pronounced because any associated data relies heavily on a small number of very large transactions (as opposed to, say, the data pertaining to grocery store sales).  This means that any feature of a normal business transaction is going to be expanded and multiplied in a real estate transaction, where more money, more time, and therefore more emotions, are at stake.

When I say thinking emotionally, what I really mean is relying too heavily on whether or not you like the property, as opposed to whether or not this is the rightproperty for you.  For the first-time investor or home-buyer, perhaps the sheer excitement of going through the process for the first time will be enough to skew your opinions of the home.  Remember one thing: the first place you look at will only very rarely be the best option for you.  In order to make savvy business decisions that will result in profit rather than loss, you should expect to turn down far more offers  than you accept, which means you can pretty much expect that if you take 50 tours, the first one is not necessarily going to be the best one.

With that logic in mind, be wary of every tour, at every step of the way.  If you are excited about moving or home-ownership or the start of an investment career, remind yourself to look for reasons not to purchase the home, rather than the reasons to do so.  In any house you look at, you will find plenty of reasons to buy it.  Maybe you will imagine the color of the walls, or the arrangement of the furniture, or what it will look like with 3 kids and a dog running around.  These are dangerous sentiments, which all speak to an emotional involvement in your decision-making process.

Instead of the walls, furniture, and kids, why don’t you spend some time and energy coming up with all the features of the house that are going to inevitably result in not only a hassle for you, but also a significant cost.  Repairs, modifications, and updates are the big ones.  You almost never see a house sold in perfect, up-to-date condition, and it is of vital financial importance to know what you’re getting into before you sign the contract.  Basically, as you look at properties, try to talk yourself out of buying it.  You should be able to.  When you absolutely can’t come up with an argument against the property, and you are confident that is not the result of some arbitrary emotional attachment to the property, then you have found the right deal to pursue, and your next (or first) investment property!

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Most of us in the business of selling real estate are unsatisfied with our ratio of listing presentations to sales.  Ideally, we’d all like to sell a house every time we present one, but obviously it doesn’t work that way.  In reality, there are ways to maximize the use of your time by closing deals on more of your presentations.  The key, in many cases, is simply persistence.

Everyone has had the feeling of wrapping up a really good presentation, and sitting down to talk it over with your prospective buyers.  You come to the table confident about the tour you’ve given and the response and interaction of your customers, and you’re ready to do a deal.  But you sense their hesitation, and when it comes time to talk brass tax, they begin to pull away.  The most common line is, “We need to think about it.”  Clearly, there is nothing wrong with thinking about a major purchase, and you should encourage your buyers to consider the decision seriously before signing any contracts.

But the mistake many investors/sellers make is to allow the buyers to simply walk away when they say they need some time to think.  Whether or not you expect a call back from them eventually, allowing potential buyers to get up from the table and leave is a resignation of failure on your part; and while many people consider persistence in sales too be tasteless, keeping your customers interested and engaged can be done both tactfully and gracefully.

One of my first observations of sales as a kid was watching a sales manager at a fitness gym.  His job mostly involved employing borderline sales tactics to sell memberships, but that experience offered some valuable fundamental lessons about sales which can be applied in any industry—but particularly in real estate sales.  You never, never tour a new customer and let them leave.  When they say they want to think about it, you offer to think it over with them.  To hash out all the things holding them back from moving forward with something they want to do for themselves (after all, they got up and came to the gym, or attended your listing tour, or sought out whatever else you may be selling).  Offer to discuss the issues, to figure it all out together, now.

If not approached tenderly, this effort to maintain involvement can understandably be mistaken for prying into the buyer’s personal affairs, but you can always appeal to your experience with helping buyers and sellers through many transactions to encourage your customers to open up and share with you.

You will be surprised at how often simply keeping the conversation moving along (as opposed to allowing buyers to get up and walk away) can open the doors that ultimately lead to a sale.  As silly as it sounds, sometimes a buyer wants to feel wooed, like you care enough about their reasons for buying to get involved and help them work through their issues by providing information and expertise.  After all, you are a professional, right?

http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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There is a class of investors out there who believe that, because they are investors and not lawyers, they don’t need to trouble themselves with the details of the real estate contract.  These investors couldn’t be more wrong.  The contract is what lays out exactly what you are buying, what you are bound to, and what is owed to you.  It is essential to know exactly what you are getting into on every deal that you make, so that you can plan accordingly and protect your profit margin.  The good news is, the real estate contract is pretty standard, simple, and easy to navigate and understand.  In simple terms, here is an explanation of a basic real estate contract.

The contract will clearly identify both (or all) parties involved, as well as the property in question.  This means an address and description of the property.  The main ingredient in the contract brew is mutual agreement, whereby both or all parties agree to the same terms of a deal, following an offer, usually a counteroffer, and finally acceptance of terms.  These must all be clearly laid out in the contract.

In addition to identifying parties and mutual agreement, here are some other elements which all real estate contracts should and in fact must possess.  It must be in writing in order to be enforceable.  An oral agreement is nice, but unfortunately if things go south, then the victimized party will be out of luck trying to cite the contract is binding.

A price for the property must be stipulated.  This does not necessarily mean a number of dollars that the buyer must pay (although it could); rather, it has to point to a value which can be reasonably ascertained at a later date, such as an appraisal value.  This, like everything else in the contract, must be as specific as possible: not just “an appraisal value”, but a specific appraisal done by an agreed-upon appraiser at an agreed-upon time.

Usually, a contract will include some consideration.  Consideration is essentially the value of the agreement itself (as opposed to the transaction), and it comes in the form of a small good-faith fee paid by the buyer to instill confidence in both parties.

Finally, signatures are required, as in all contracts.  No third parties or notaries have to be used, but both parties (or representatives thereof) must ink the contract.  Beyond that, it’s just about filling in the particular details of your transaction.  As stated above, the real estate contract is standard and simple, but you need to know what you are looking for when reviewing a contract.

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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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So you found a multi-unit property you like? Perhaps you found a single-family home that you could foresee as a multi-unit.  Either way, there are some key considerations to keep in mind before you purchase a multi-unit property.  Multi-units are a wonderful investments, but there are a few caveats unique to multi-units that can tie you up and prevent you from realizing the full profit they can offer.

1) Zoning

Multi-units are subject to zoning laws, which are determined by each community.  Communities generally want multi-units to be in certain areas and prohibit the conversion of new multi-unit buildings in other areas.  They also regulate what features a multi-unit must have. They control the location and structure of multi-units through zoning permits, which a building must have if it is a multi-unit, similar to a driver needing a driver’s license.  If a multi-unit violates the zoning law, it is subject to steep fines that can be in the thousands of dollars.   Unfortunately, the permit system is not perfect and many multi-units exist that violate zoning regulations.  If they are sold, the new owner is responsible for the fees and construction involved to comply with the standards, even though that owner did not build or initially create the multi-unit complex.  That is why it is imperative that you make sure your building is in compliance with zoning laws, even if it has existed for quite a while.

2) Costs

Maintenance in a multi-unit building is often more labor intensive than in a single-family home, because you have a larger number of appliances, more people to deal with and often a yard or a common area that no one is responsible for.  A safe way to determine maintenance costs is to set aside a minimum of 5% of the gross scheduled income per unit.  This is not your total cost, however–vacancy should also be a minimum of 5% of the gross scheduled income per unit.  If it is an older building, bump the numbers up to a minimum of 10%.   If you figure in taxes and insurance, your gross operating costs should accumulate to about 30% to 40% of the gross income. If you hire a property management group, obviously the costs are going to be a little bit higher.  If the multi-unit has a yard and you don’t feel like making the trek to manage it, it is always possible to ask a tenant to do this in exchange for lower rent, or just pay him or her. Again, this would add on to your expenses.

http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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Owning or managing property for rent is a relatively reliable and time-tested means of establishing lucrative cash flow.  However, no facet of real estate investment puts investors closer to the consumer than being a landlord—and that means taking risks.  Anywhere you go, there is no shortage of people looking to take advantage of those around them, and in property rentals that means tenants looking for a free ride.  The biggest headaches for the average landlord are brought on by dealing with these troublesome tenants, and that means confrontations, evictions, collections, even legal action.  This is not a reason to turn tail and run, however; prudent and thorough landlords have every opportunity and advantage to protect themselves—if they have the knowledge to do so.

It is important for landlords to hope for the best, but expect the worst.  That means going into every new tenant relationship with an open and optimistic mindset, but at the same time making preparations on the assumption that this is going to be the worst tenant you’ve ever dealt with.  It is practically a universal standard that new tenant applicants must provide a verified bank account at the time of application, but most tenants believe that is enough to protect themselves and collect their assets in the long-term.  One of the oldest tricks in the book, however, is tenants’ applying for and moving into an apartment, and then immediately switching bank accounts to avoid collections.  The best defense against this ploy is for the landlord or manager to check everycollected rent check against the account listed on the application, and investigate any differences.  This will be invaluable in the event of any legal action down the road.

If things fall apart, and a landlord finds himself having to evict a bad tenant, the strongest and most effective legal recourse is a bank levy.  After a money judgment has been issued as a result of the eviction, a bank levy is the judicial process by which funds are seized from a bank account to satisfy that judgment.  First a writ of execution must be requested from the same court where the eviction was implemented.  That writ must be served personally by the sheriff or proper process server to the bank that maintains the account in question, and is most effective when brought directly to the same branch used by the evicted tenant.

The bank is required to honor the levy, but only if they can definitively identify the holder of the account.  Usually this is not a problem, but in some cases it is not enough to have the name of your tenant; the more information you can provide on your evicted tenant, the better the chances of his being correctly identified at the bank for a levy—which is why it is so essential to keep accurate account records for all tenants, even while their checks are clearing without incident.

Owning and renting property is still a great way to maintain a steady income, even in the face of deadbeat tenants looking to take advantage of your willingness to put yourself at risk.  To ensure that your experience as a landlord is a generally pleasant one, the best thing to do is carefully screen new tenants.  Of course, sometimes a bad apple will find its way into the bunch, and so it is of vital importance to conscientiously and thoroughly keep up-to-date records and notes on all tenants, in the event that your relationship with one becomes a legal one.

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

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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If you are interested in purchasing and repairing a property for resale at a higher price (or rehabbing), then you’ll want to avoid each of these mistakes commonly made by unsuccessful rehabbers.  Most are the result of trying to save too much time or too much money.  Remember, rehabbing is neither instantaneous nor sure—it requires time, money, and effort to eventually turn a profit.  The first mistake is not understanding this fact; but if you can overcome that, then the rest will be easy to avoid.

The second killer is failing to do proper research.  The bulk of the rehabber’s work is not in fixing a home, but in searching for a home to be fixed.  To lay down that kind of capital, an investment property should meet all of your business’ needs (location, design, price, size, type, etc.).  You need to find the right size and style of home, in a proper neighborhood, and in a good location with access to shopping, culture, and transportation.  As much as 90% of your time should be spent not on your current property, but on your next one.

Another major mistake is assuming you can cut corners, and do repair work yourself in order to save money.  This is like the owner that sells a house themselves to forego the  listing fee—they often end up getting screwed.  Buckle down and spend the money to hire a certified professional to make repairs.  Not only will avoiding the shoddy repairs save you money down the road, but having that certified work on record will increase the value of your property for resale, and it will also free up the time you would otherwise have spent doing manual labor, to pursue your next investment opportunity or to line up your backend buyer.

Be mindful of your cash flow.  Too many start-up investors find a great deal and jump on it, not realizing that sometimes even a great deal is simply too big.  If you can’t afford to pay the bills while you own the place, then the possibility of selling the property for a $100,000 profit is pretty much worthless.  Make sure you go into the process with enough cash reserves to cover your costs of ownership, etc.  If you don’t have these reserves, then you must understand that, and avoid deals that will be too expensive and crippling for you to own.  Instead, do a couple of small deals until you’ve built up the proper reserves to sustain you through a bigger one.  Investing success is about moderate growth and consistent work; it is only very rarely the product of a one-time, major deal for a brand new investor.  Understand this, and the strategies to avoid, and it can be a tremendous chance to profit!

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

http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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