Conventional wisdom dictates that if you want to make a purchase with money you don’t have, you go to the bank to get a loan.  It’s a time-honored system used by thousands of Americans every day.  But it consumes an enormous amount of resources, either in the form of your actual monetary payments, the amount of time and energy put into appeasing the bank, and the opportunity costs of not borrowing more cheaply.  Instead of rushing to the bank to fork over your money, why not try to find private investors?  Although it requires a bit more cultivation of relationships on the part of the real estate investor, the benefits of acquiring private funding are myriad when managed responsibly.

The most convenient thing about a private loan is that it’s fast.  There is no bureaucratic or administrative process to wait for—as soon as you reach an agreement with your lender, the money is yours.  Presenting that cash up-front and in-full is a reliable way to buy fast and at a discount.  Second, credit is not involved.  This means two things: 1) you do not need to have good credit to secure a private loan, only the ability to pitch your idea effectively, and 2) the loan will not follow you for the rest of your life by showing up on the credit report.  For an investor, debt can be crippling, and acquiring funding without affecting credit is a very valuable skill to learn.

One other advantage of private versus bank loans is that there is no limit imposed on the amount of funding provided.  In other words, you may be approved for a bank loan, but not for one in excess of $20,000.  If you can find someone with the demand (funds and will) to support your investment project, then you can ask for as much money as you deem necessary or fit.  Further, rather than jumping through the legally-enforced hoops of a bank loan, the private loan allows you to control your environment, by actually participating in the drafting of the contract, rather than merely reading and signing it.

Perhaps the greatest advantage offered by the private loan is the tremendous flexibility it allows an investor.  Especially in the world of real estate and investment, having cash in your pocket allows you to play by whichever rules make sense to you.  It always affords you an exit strategy without leaving unfinished business with the bank.  It means you can make offers on properties with the confidence that you are the buyer who will show up with the cash in hand.  And it is much cheaper than having an investment partner, who will invariably take a larger share of your profit than a simple investor.  If you can, work hard to cultivate your relationships with private investors, which may ultimately prove profitable for your business.

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http://www.indianainvestmentpropertygroup.com

http://www.practicallyfreehouses.com

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For the real estate investor, finding buyers in a slow economy is often a bigger challenge than finding sellers.  Buying a house is a financial investment that some people are afraid to make in a slow economy.  However, there are buyers out there who you need to attract.

A good first step is to hire a realtor that has extensive experience in selling the type of home that you have and is a full time realtor.  Realtors are especially helpful if you are flipping properties because they know that you will have consistent product for them to sell. As a result, they should be constantly marketing for potential buyers and keeping those potential buyers abreast of the properties that are in the pipe line.  This will increase the likely hood of having multiple buyers in different stages of the buying process at the same time and increasing the odds that one of those buyers will be the right one for your property. You want a realtor that is pro-active and aggressive.  Just putting an ad in the paper or on the MLS is not enough: the realtor should be holding open houses, sending out flyers to the community, finding local hot spots with high traffic and have an extensive network of lead generating connections. In addition, they should be technologically adept, posting on craigslist, backpage, Ebay, and the MLS or have a system already in place that does this for them because the majority of potential buyers now look on the internet first before ever contacting a realtor.

You can also create relationships with realtors who are moving properties in your area by inviting them to a showing of the house before you list it.  You can offer an extra bonus if they bring a buyer in a certain time frame, but even if they don’t, it is still advantageous to create a working relationship with the local realtors.  It will give you credibility if you plan to do more sales in the area, as they will know who you are and the quality of your properties.

Generally, expect a much longer timeline to find a buyer in a slow economy.  Make sure you budget these additional expenses into your overall evaluation of the property before you make the purchase. Keep in mind as well that there will be more houses on the market and greater choices for the buyer.  So if you want to get your house sold quickly, develop a plan to make your house stand out in the crowd from the very beginning. If the house is still taking a long time to sell, reducing the price may help.  But make sure that when you initially price the house; that you are comfortably in the local market range and not over pricing.  Over pricing in this economic environment could mean the kiss of death.  Check up on your realtor to ensure that he or she is being as aggressive as possible, and evaluate feedback from showings.  What are you hearing on a repeated basis?  Is there anything you can do to address the concern?  Listening to you potential customer feedback will provide insight as to what you may need to adjust. Often, it is only something minor and thereby finding the buyer you’ve been waiting for.

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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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With all the fervor about real estate volatility, the high number of  foreclosures and the inability of many homeowners to sell their houses, investing in real estate right now might seem laughable.  However, real estate still, and will always, offer a way to generate a passive income stream.  Owning a rental property will allow you to receive a monthly income without being actively involved.  Let me modify that by saying you will have to be involved at certain points with renovations and fix-ups, but you are able to have a day job and be a landlord simultaneously.

Passive income only comes from rental properties, but of course there are many kinds of real estate investments that can also turn a profit.  Flipping properties, retail/rehab, and wholesaling are all actively involved methods for earning money in real estate.  Holding properties is a much more laid-back approach to real estate with occasional periods of active involvement.

The key in holding properties is knowing the Net Operating Income, or NOI.  This is the total amount that you will make on a monthly or yearly basis, and the objective is to have a high enough NOI to cover all expenses plus your debt service and still have enough money to put in your pocket. It is calculated by taking your total income and subtracting your total operating expenses, but excluding your debt service.  The amount of NOI should cover your debt service plus all expenses of operation.  If you do not have historical operating expenses to go off of, then error on the side of over estimating your expenses and under estimating your income.   The concept is simple, but the execution at times can be a little more challenging. Special consideration needs to be taken to ensure an accurate representation of the future, specifically, determining the occupancy rate and how many of those tenants will pay rent on time.  The NOI is useful in single family buildings, multi family buildings, and commercial properties.

Of course, there are many other ways of investing that will give you a passive income stream and do not involve real estate.  Real estate is just one of those ways, but it is a good one.  Long-term investing in real estate can help you to provide for your family, retire early, or create a vacation fund.  Learn more about how rental properties can generate income and get started today!

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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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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!

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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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A private placement offering, or private placement memorandum, is a way to secure funds.  The reason for the fancy name is that the person securing the funds does not need to be a licensed broker.  This type of method is a legitimate way for an experienced real estate investor to raise capital for deals which he/she does not personally have the adequate capital to invest.  If you’re interested in real estate but don’t like the idea of holding your own property, lending to an investor is a great way to earn a profit without having the hassles of rehabilitating a home or confronting unruly tenants.

The first step to investing with a private investor is finding them.  There are people out there who want to start private placement memorandums and are looking for investors.  The trick is linking up, and the easiest way to do that is through networking.  Start by asking people you know if they have any real estate background, or know anybody who does.  If they do know somebody in the real estate business, then ask to be introduced.

It’s important to remember that the rules of networking apply.  You have to build a relationship with your potential investor before you begin to discuss specifics.  Meet them for lunch, get a feeling for their lifestyle, and what they are looking to accomplish.   It’s ok to talk about your past experiences in real estate and why you are considering investing.  It’s not a good idea to say that you’re looking for a deal with 10% returns.  The reason for the relationship building prior to negotiating a deal is that it develops trust, and trust should never be underestimated when it comes to investing.  You will have to trust their judgment and that they have your best interests at heart.  If there is a tense period where the returns are not where you’d like them to be, you have to trust the investor to make the correct adjustments.  If the property is foreclosed, you have to trust the investor to have enough honesty to reimburse your investment before attending too their own.

If networking is not successful, either because you don’t know enough people or the people you do know are very removed from the real estate realm, you can try other venues.   If there is a local real estate investors association or something similar, you should consider joining it.  Getting spam email and mail is a light price to pay for potentially meeting some very experienced real estate investors.  You may want to take an instructional course on real estate, because some of the teachers are sure to be experienced investors.  Additionally, you may learn something useful!

If you’re the investor, you can find lenders through websites like angel-investor-network.com, but those investors are generally interested in large deals.  It is illegal to post ads looking for lenders on Craigslist or similar websites, because the SEC considers that public solicitation and the penalty can include jail time.

Just remember to be persistent, and you will find an experienced investor that you think has the potential to make a large profit.  Real estate isn’t going anywhere, (contrary to what some of the sensational media stories may have you thinking ) and you want to make sure that you don’t just find any real estate investor, but one you can trust and you believe will be successful.

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Over the course of the past few years, one of the benefits of our otherwise-ravaged economy has been new initiatives from the federal government to provide incentives for consumers of various types.  It’s like a psychological stimulus plan.  The government is doing everything it can to hold consumers by the hand and say, “It’s OK, everything’s going to be fine and back to normal in no time.  Here’s some money to spend, and we’ll go ahead and get rid of these taxes.  Just go out and spend some cash!”.  Obviously, it’s not been quite that simple, but some of the government’s new initiatives do in fact seem to be overt attempts to stimulate consumption.

Many investors (both seasoned and amateur) as well as start-up homeowners seek to make the most of their money by purchasing property under the market value.  Unless you strike gold and happen to find the one seller on earth who doesn’t care about money, getting a home for less-than-market-value is most likely going to require making sacrifices in terms of quality, and this inevitably means sinking additional funds into repairs, replacements, and improvements.  Due to this additional, post-contractual expense associated with rehab properties, many buyers fail to properly plan for this process, and end up with a defaulted mortgage and a failed investment attempt.  For that reason, it is essential to research thoroughly what will be required to bring a property to market value, and factor that into both your profit margin and your mortgage considerations.

The federal government’s new way to keep us pumping what little money we have into the economy (especially banks and other lenders) is called the 203k Rehab Loan.  This is a loan program through which home buyers can apply for funding from the federal government to purchase and repair the property.  The catch?  The property must be your primary residence.  It’s not all bad though, you merely have to reside there for any 2 years (not necessarily consecutive) during a period of 5 years.  This means you can’t simply use the government’s money to buy up and repair investment properties and become the next American billionaire.  However, there is room to navigate within the rules, and many investors use the 203k Rehab Loan as a means of doing just that—meeting minimum residence requirements in order to maximize profit opportunities.

The 203k is largely ignorant of credit history.  It is designed to give low-income families opportunities during difficult economic times to raise a family in a home and neighborhood whose quality exceeds that which they could have otherwise afforded.  It is a reliable and safe source of funding, and with the number of available rehab properties below market value reaching record levels, there has never been a better time to take advantage of federal incentive programs to buy a rehab home!  Who knows, in ten years, it could make you $1 million!

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One of the real oddities of life occurs when kids can—simply put—just do stuff.  Have you ever experienced this?  You may struggle and struggle to learn a new skill, and you turn to the left and see a 6-year-old pick it up and master it in five minutes.  Sometimes we chalk it up to the increased synaptic plasticity associated with youth, sometimes we call it instinct.  But you might also say that, somewhere along the line, those of us that aren’t kids lost the inherent ability to do some of the things we may once have done naturally.  Now it’s time to observe, and learn those lessons once again.

The classic example of a kid’s ability to stump an adult (other than perhaps learning languages and new video games) is a kid’s simple ability to get what he wants.  This is not done artfully, skillfully, or even tactfully; rather, kids are successful be means of the bluntest, broadest, but perhaps deadliest tool in the arsenal: persistence.  Consider:

CHILD: “Can I have this toy?”

MOTHER: “No.”

“Please? Can I have it?”

“No.”

“But I want it!”

“No, honey.”

“I want it! I want it! I want it!!”

“No! Stop it!”

“I want the toy NOW!!!”

“OK, I’ll get you the stupid toy.  Stop screaming.”

Sound familiar?  The mother didn’t do anything wrong, but the child did two things right: relied on his relationship with his mother, and refused to give up (despite his repeatedly rejected requests).

This is a skill set many investors have lost, and need to find.  Implemented with perhaps a bit more control and precision than the child in the above example, persistence and the establishment of a rapport with your negotiating opponent can be the recipe for getting exactly what you want out of the negotiation.  Most investors now realize that negotiating means compromising, and you must be prepared with an asking price and a more reasonable price for which you would settle.  But where those investors go wrong is by jumping too quickly to their compromise price.  Instead, they should learn from their children or the former version of themselves that sometimes when you ask two, three, even four times for the exact same thing, you might just get lucky.

This becomes especially true when you’ve established some sort of relationship with your opponent (not necessarily friendly, but he shouldn’t hate you going into the discussion).  This ensures that—provided your opponent has some degree of conscience—it will be more difficult to write off your repeated requests (just as it was for the mother to refuse her son over and over).  If your opponent has no connection to you as a person (rather only as an opponent), it will be infinitely easier for him to simply get up and walk away from you.

The combined effect of this relationship with a bit a juvenile persistence is often your opponent’s—albeit reluctant—willingness to accept your offer.  And the difference between achieving your asking price, and settling for your compromise price, is the very difference between being an average investor, and a great one.

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There is no shortage of real estate in which to invest—it is simply a matter of finding the properties that are likely to be profitable.  Although much of this is based on the investor’s involvement in and knowledge of the local community in which he works (therefore providing for informational gaps that give some investors a competitive advantage over others), there are some reliable sources for finding investment properties which can be accessed by anyone.  This includes, but is not limited to: real estate agents, market listings, wholesalers, and public auctions.

Real estate agents tend to be a good source for finding property for those who are not intimately aware of the real estate available in the community.  One would not be hard-pressed to find an experienced real estate investor working through an agent, for those who are relatively new to the process, real estate agents can be an extremely advantageous source of information.  It is the job of an agent to be aware of the local property that is available for purchase, and they tend to use software which organizes those properties into a more effective form where the investor can narrow down the options based on price, location, or any of a multitude of other parameters.  Although agents can be very helpful, the drawback is that their income is derived from the investor’s pocket.

In order to cut out the middle man, one approach is to subscribe directly to market listings.  Although this, too, requires payment from the investor, the market listings do not earn a percentage of the price of purchase of the real estate; rather, there tends to be a relatively small monthly or yearly subscription fee to gain access to a list of available real estate.  Subscribing to market listing organizations requires a proactive investor who is familiar with the language and process of real estate investment, and who is himself willing to search for the right property (as opposed to delegating that responsibility to a real estate agent).

Wholesalers can be anyone or any organization which owns a great deal of real estate—enough that each property does not need to be sold at exorbitant prices in order for the organization to profit.  The most common type of wholesaler is a bank, which usually has a Real Estate Owned (REO) department to manage all properties owned as a result of foreclosure.  Accessing this source requires an even greater familiarity with the process of real estate investment, but the reward is property that tends to be sold well under the market value.  It is something akin to buying groceries from an enormous national supermarket, as opposed to the small mom-and-pop store at the end of the block.  Sometimes REO properties are auctioned off publicly.  This is a forum where anyone can purchase bank-or-wholesaler-owned properties cheaply, but—as all auctions do—it requires competing with whoever else happens to attend on that day, and it can therefore be unsuccessful.

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http://www.indianainvestmentpropertygroup.com

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Understanding the difference between land and the actual house itself may seem obvious, but many people don’t realize that it should impact their investment strategy. Land is in demand, and as our population increases, the demand for land will increase, appreciating in value. (Side note: this is not true for all land. Some land can be undesirable because of its location, but often this is not the case).The house, on the other hand, is a physical structure which will need repairs and depreciates in value. When looking to invest for the long term, you should be thinking about the value of the land more than the value of the house. The opportunity for your maximum returns comes from the appreciation of the land.

If you are distinguishing between house and land correctly, you will come to the conclusion that the best investments may be in small, ugly, run-down homes if they are in a good location. You can buy those properties for cheap and either destroy the house and sell the lot (sometimes poor structures detract from the value of the land) or you may improve or rebuild the house. The house is always changeable, but the land is not.

A great way to get a feeling for the potential value for the land is by looking at government plans for the community. Growing communities are key places that will maximize your profit. Indicators for growing communities include plans for building shopping centers, expanding roads, new hospitals and increased public transportation. You can find out this information by contacting your economic development office or your town hall. Another area is by looking at the school system. Are the schools ranked near the top? Strong schools are an attractive aspect for parents. You may also want to look in areas on the fringe of big cities or commercial centers, because those prices will increase as the value of being close to the city increases. Spend most of your time researching the land, not the actual house, and you’ll make a better long term investment.

Tell us what you think by writing a comment. If you would like updates of when new posts are made to this site, make sure you subscribe to the RSS feed.

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.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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