I= Income
D= Depreciation and Expenses
E= Equity
A= Appreciation
L= Leverage
--Perseverance and Discipline are Essential
Risks
-Paying too much
-Not enough cash Reserves
-Watch out for the SHARKS
-Poor financing choices
-Failure to prepare for vacancies or long sales cycles
-Poor tenant screening
Need to keep electric on and air conditioners.
Real Estate Investing can be Fun and Rewarding
– Leads to financial freedom
– Reduces the hours I work
– Provides monthly income
– Provides personal satisfaction
– Provides an income and tax benefits
– Provides asset growth & equity build up
– Helps me find my own home
BEST OF ALL?
I AM THE BOSS!
Steps in becoming a Successful Real Estate Investor
– Get an Education
– Find Funding
– Find Motivated Sellers
– Evaluate and inspect the Property
– Make an Offer % Close the Deal
– Clean up, Fix, or Rehab the Property
– Find a Buyer or Renter
– Find Me Next Deal
Skills and Learning
– Learn the BASICS
– Learn to be relatable to people
– Understand Real Estate Terminology
– Learn who knows and who 'thinks' they know
– Read, Read, Read
– Attend Seminars, Focus Groups & County chapter meeting
– Listen to CD's and DVD's
MAO- Maximum Allowable Offer
Remember REALTOR commissions
Holding cost – points and mortgage
Fix up Costs
Retail price minus 10-20% (price buyer will buy at)
If renting, plan on 1 month per year vacant.
Taxes
Capital gains tax
Do my Due Diligence
– Performing All of the practical, common sense and Legal steps to ensure you’re are fully knowledgeable
– Property condition, values., legal stats, ect
– All the people involved in the transaction
– Financial requirements to acquire the property
– Specifics of all agreements
Build your team
-Accountant
-Appraiser
-Attorney & Title Company
-Home Inspector
-Insurance agent-person who understand vacant home insurance and the investors’ side
-Lenders (private and hard money, Conventional)
-Partners and Mentors
-Real Estate agents
-Carpet & Tile installer
-Contractor
-Electrician
-Handyman
-HVAC service &/or installer Heating and AC
-Landscaper
-Mason
-Painter
-Plumber
-Roofer
Need money for
– Get an education
– Buy Business cards
– Buy a cell phone, fax machine and a PC
– Buy Bandits Signs- county web site and sign ordance
– Other marketing tech
Sources of Funding
Use your own Money
HELOC= Home Equity Line of Credit
Bank Accounts
Borrow against IRA and 401k
Friends and Family
Will the business produce enough income to compensate I for the time and capital I invest
Traditional or Conventional Mortgage
Difficult to get in this economic environment
Easier to get if you or your spouse has a job and a source of income
Know your debt to income ratio
Know your credit score
Higher rate of interest
Down Payment required
Takes time
Lenders Use the 8 “C” rules
1) Credit
2) Capacity
3) Capital
4) Collateral
5) Character
6) Conditions
7) Commitment
8) Cash Flow
Sources of Funding
– Choose carefully (be aware of the sharks) Are your partners Trustworthy?
– ALWAYS have a written agreement, include what each is supposed to do – in detail
– Have a plan before money is to be spent
– Keep accurate records
Private Money Lenders
– Relatives, Friends, Colleagues
– People who have self-directed IRAs
Hard Money Lenders
– Usually, you must have a tract record
– Will Lend 50-60% of purchase price
– Interest rate 12-18% + Points
– Short Term (usually 90 to 180 days)
You won't need a lot of money with...
– Seller Financing
– Lease with Option to Purchase
– Subject to (the Existing Mortgage)
– A little of this, a little of that!
FIND MOTIVATED SELLERS
Don't be a motivated buyer! I don't have to buy! Don't be in a hurry!
Begin with the END in Mind
That is, WHAT is your Exit Strategy? Know this before doing the deal.
– Buy & Sell
– Buy & Hold
– Lease Options
Buying Decisions
– What size House?
– What Price Range?
– What Age of House?
– What condition?
– Which Neighborhood Like? Drive the Area
– Where will you get the neighborhood
Start with Type of Property
– Start with single family or a duplex
– Look in “Bread & Butter” neighborhoods
– Find Properties where you can cash out easily
– Look for strong tenant markets
– ONLY buy Properties with a good price/rent ratio
– Buy properties with in a 30 min drive
– Go for favorable terms and/or a great price
Marketing Plan
– Who is your target market?
– What Methods will you use to attract motivated sellers?
– Active marketing goes after clients; IE outbound telemarketing, Mailings, Door Knocking
– Passive Marketing gets a sellers to call you; IE car magnets, direct mail, ads.
Marketing strategies
– Classified ads- We Buy Houses!
– Calling FSBOs in newspaper if the FSBO is in paper weeks and month the more motivated they are.
– Business cards
– Business Associates
– CFRI Associates
– Business Associates
– Real Estate Agents & Broker
– Bandit signs
– Car Signs
– Post Cards, Letters, Yellow Letters- will have to mail 6 times or more.
– Foreclosures Reports
– Internet Marketing (using your Website)
Talking with Sellers
– Learn to prescreen Sellers- Find Motivated sellers
– Learn how to gather Information- Find the WHY- more info the better.
– Learn what information to gather
– Learn to negotiate
– Learn to close- have FAR/BAR ready, get signatures
Obtain the Required Property information
– Ownership
– Title Status- Liens?
– Outstanding Debt
– Property Description
– Sales information- If there is a listing agreement.
Present the Offer
– Always start with a low Offer
– Negotiate
– Have a Purchase and Sales Agreement
– Include Contingencies; ie Right to inspect, Seller to pay closing costs, Partner approval, clear title, ect.
– Purchase, use a Florida Land Trust.
Elements of a Real Estate Contract
Who- Identifies the Buyer and the Seller
What- Legal Description of the property
How Much- Purchase Price, The KEY is Consideration
How- Closing cost instruction
When- Inspection & closing date
Who- Signatures of ALL Parties
Evaluate the Property
– Location, Location, Location
– Comps
– Property Inspection
– WDO
– Survey
– Foundation type
– Type of construction
– Type of Flooring
– Type of Roof
– Exterior covering
– Window type and style
– Doors
– Insulation system
– Plumbing – water & drain (inside & out)
– Electrical
– Heating and Air Conditioning
– Other related systems
– Age of the House
– Condition of the house- Problems with it? Are they Fixable? How much for repairs? Know this!
– Living area (sq. ft. heated/cool)
– Functional Obsolescence
– Interior Amenities
– Exterior Amenities
– Outbuildings – storage sheds/outhouses
– Landscaping
– Cost of repairs/Renovations
KEEP EMOTIONS IN CHECK
Don’t fall in love with property
Property must benefit you financially
Remember, money when you buy but we get paid when we well.
Evaluate the Deal
– Does seller need to sell or want to sell?
– Can you create Multiple Offers?
– Monthly Expenses
– Profitability
– Does the property meet your Goals?
Close the transaction
– Use an Investor-Friendly Title Company
– Ensure clear title and get title insurance ALWAYS
– Review the Settlement statement (HUD1)
– Find an Investor Insurance Agent who specializes in REI property
– Review the notes
– Annual Percentage Rate
– Finance Charge
– Total Payments
– Property Insurances ( Flood If Necessary)
– Late Charges, Pre-Payment Penalties
– Assumption
Improve Property
-Clean Up if you’re going to wholesale
-Repair if your hold and rent
-Renovate if you’re going to sell retail
-Stage the property for rentals and retail sales.
Find a Buyer or Tenant
– Buy and Hold – Find a tenant
– Buy a Lease Option – find a Tenant with Option consideration
– Buy and Sell Wholesale (AKA Quick Turn or Flip) Find a Buyer
– Buy and Sell Retail – find a buyer
Short Sales
You'll need
– an Authorization to release Information from homeowner
– A hardship letter from homeowners
– A limited power of attorney
– Proof of funds letter
– Patience and perseverance
Buying & Holding Tips
– Get Seller Financing whenever possible
– Good Locations – NO WAR ZONES!
– Rent Must cover monthly Expenses
– Prepare to hold the property indefinitely
– Take existing Loans “Subject to”
– Always get in “light” Little money as possible
Rental Property
– Tenant screening walk them out to their car. If it’s a war zone so will be house
– Credit, Criminal, Sex Offender
– Contact PREVIOUS landlord(s) and not the current one. The current one wants to get rid of bad tenant and may lie.
– Visit their current residence
– Confirm Employment- make sure it’s not a friends number
– Get tax returns & Pay stubs.
Lease Purchase tends to be better tenants
Subject To
Taking over the payments of existing mortgage
Proven Real Estate Investor Principles
• Analyze Properties in an objective manner
• Determine your offer, it can vary widely but still reach your objectives ( think transaction engineering )
• Investing Frequently may require use of borrowed funds but remember the cost of those funds
• Net income must pay an adequate return on my investment
• The chances of losing your investment increases as you reduce the amount of equity in the property.
• To maximize the long-run returns and resale value of your property, you must plan for a continuous program of maintenance, repairs and updating
• Also consider vacancies, cost of vacant house insurance vandalism.
Audrey Byllott: Presenter
From My Notes: Andy Carson
These are notes and not advise. Joing your local Real Estate Investor group to get more information. Learn your local Laws. I am not a lawyer or an accountant. I am not giving advise of an sort.
Central Florida Realy Investors http://www.cfri.net/ let them know I sent you.
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