Getting Started in Real Estate Investing: Part 2

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Getting Started in Real Estate, Steps 4-5:

 

Step 4: Move Forward on Your Selected Approach to the Market.

Here are some recommendations on how to move forward with the following approaches:

  • If you intend to “Buy, Fix and Sell,” finding and screening a good contractor is critical to your success. Even if you already have a background in this, it is still part of your due diligence. Attending real estate investment clubs and seeking referrals from other investors can provide some of the best sources for this search.
  • If you are going to “Buy & Hold” a rental property, then working with a good and well-respected property management company will be key. They will also be a great resource for managing your rental rates, as well the market.
  • Wholesaling – Here are three ways investors conduct wholesale deals:
    • Bird Dog — This consists of finding a property that meets or exceeds another investor’s expectations and criteria, then getting them to sign a bird dog consulting agreement with a pre-discussed finder’s fee that they have agreed to pay after an offer is made and closed on.
    • Assignment of Contract —This is when you find a property that fits your cash-buying partner’s criteria and put in a written offer on the property. When the seller accepts your offer, you then sell the interest in the property and/or the contract to your cash buyer for an assignment fee.
    • Double Close or Back-to-Back Close — This is the last of the wholesaling techniques. This is when you find a property that fits your cash buyer’s criteria and put an offer on the property between you and the seller with a second contract between you and the end buyer. Both closings will be scheduled to take place within a few hours of each other or within a couple of days. Your profit is received after the second closing.

Step 5: Find the Active Cash-Buying Investors in Your Market.

If you are going to be wholesaling, then this is one of the most imperative steps for you to take. Look for those who have closed on more than two deals in the last year. You might want to consider the following types of cash-buying investors: LLC companies, holding corporations, and/or trusts. You will often find these are the investors that do multiple deals a year.

Well, that’s it for getting started. Happy hunting!

How Leveraging Your Real Estate Investments Increases Your Return on Investment

Leveraging your real estate investment means using financing to increase your return on investment.  So how does this work?  Let’s look at two scenarios to illustrate how this is possible.

Scenario 1:

An investor purchases a rental property for $90,000 cash and puts $10,000 into improvements for a total investment of $100,000.

He or she then finds a renter and leases the property for $1,300 a month or $15,600 annually.

He or she has expenses of 35% for taxes, insurance, management fees, maintenance and a vacancy factor, equaling $5,460 annually and creating a net operating income of $10,140.

Since the investor’s Net Income is $10,140 and his total investment is $100,000, his return on investment equals 10.1%.

  • $15,600           Gross Annual Rent
  • –  $5,460           Annual Expense
  • = $10,140           Annual Net Operating Income
  • Divided by   $100,000           Total Investment
  • ROI           10.1%           Annual Return on Investment

Scenario 2:

If this same investor finances the purchase of this property by securing a loan for 80% of the purchase price at 4.5% annual interest, amortized over 30 years, his or her mortgage payments will be $365/month.

He or she will put $18,000 down and $10,000 into rehab for a total investment of $28,000.

The investor’s annual mortgage payments will be $4,380, decreasing his or her net annual income to $5,760; creating an annual return on investment of 20.5%.

  • $15,600        Gross Annual Rent
  • –  $5,460         Annual Expense
  • = $10,140        Annual Net Operating Income
  • –    $4,380         Annual Mortgage Expense
  • =   $5,760         Annual Net Income after Mortgage
  • Divided by     $28,000           Total Investment
  • ROI            20.5%             Annual Return on Investment

You can see from this example that an investor can increase his ROI from 10.1% to 20.5% by leveraging; thus doubling his or her income from the same monetary investment.

How to Start Making Money in Real Estate

I am sure you have heard it a million times now: “There is money in real estate” or “Anyone who is sitting pretty has invested in real estate.” While both of these statements can be true, let me share with you the reason why. Real estate is a very lucrative business to be in. The most important note on that topic would be diversification. Without diversification all of your eggs are in one basket and that isn’t a very promising business plan. Instead, you need to have multiple streams of income.

Cash Flow

You need to have passive income creating assets. For this I always go by the 1% rule. The 1% rule says that you need to collect at least 1% of your all-in price (including closing and repair costs) in rent. Really, what it comes down to is how much is your money worth to you and what do you need to get back to make it worth your time.

Paying Down Principal

While your tenants may be giving you cash flow, you can also profit by paying down your mortgage. This will give you more equity in your property.

Market Appreciation

The market has a tendency to double every twenty years. It often goes up and down in the short period of time; however, overall it is always rising. This could be a great investment if you have patience or pair it with another strategy, like cash flow, for instance.

Equity Capture

Often times this is seen in a fix and flip situation. If you were to buy a fixer-upper at a discounted price and then fix it up and sell it, your profit would be considered equity that you were able to capture.

Just imagine if you paired all four of these strategies into the same deal. Your profit margins would escaladed with patience.

 

Finding Cash Buyers Leads Everywhere

In the real estate market, cash buyers are considered important because they provide liquidity to the industry. Cash buyers, from the term itself, are people or groups who opt to make real estate deals with cold, hard cash. They can be an investment group, corporations or individuals. Cash buyers may be heirs of estate properties who can easily give out cash as payment for the deal, business owners who are able to pay a big amount of money, or seniors who have saved enough equity from their younger years and are now enjoying their pension benefits. In other words, cash buyers are individuals who are truly able to pay cash for real estate. They attract investors or sellers because of this. They can make deals easy with their cash offers. And, they can become long-term investors once they develop trust and faith in real estate.

Leads, on the other hand, are simply future potential clients. When you have an individual’s name and contact number, or other contact details, then you’ve got yourself a lead. It does not necessarily mean that this person is interested in real estate. It just means that he or she is a potential client because you have his or her contact information, and you can try your luck at introducing yourself, presenting the properties you might sell and getting yourself a deal.

Cash buyer leads, therefore, are just names of potential clients. Now, the question is, how do you identify a cash buyer lead from other types of leads? This is when a basic knowledge of real estate comes in. You need to understand the different between these types of leads to make things easier for you. And, where can you find cash buyer leads, you ask? Everywhere. Like other real estate leads, cash buyer leads can be found anywhere.

To find them you need good and effective marketing. There are a lot of ways to market your business. You may choose to run ads in the newspapers, on bulletin boards, and on the radio. You may also post ads on websites like Zillow, Craigslist, or your own website. If you don’t and can’t have your own personal website at the moment, but still want your ads or posts to be more personal, you can always turn to social media. Market yourself and your business through Facebook, Instagram, Twitter, LinkedIn — the list goes on. There are a lot of options to choose from on the Web.

Furthermore, an even more personal approach is an outreach. It’s more personal because you get to contact people, maybe through email, snail mail, or mobile messages and calls. Outreach is simply reaching out to a list of people with working and valid contact details and offering them your business deal right away, or simply inviting them over for coffee so you can discuss more. Even the open world can be a good source of leads, if you know where to look. One of the oldest yet most effective methods is word-of-mouth. Be free to roam around, knock on houses, talk to people, and the like. It’s a process that requires quite an amount of time and effort, but it still works.

Building Your Credibility as a Wholesaler

So, you’re new to investing and you’re focusing your strategy on wholesaling. That’s a great place to start. I know you are all thinking, “How are these investors are going to take me seriously? I have no idea what I am talking about!” And your right, so before you go rushing out to build relationships with investors, do a little research. Let’s talk about some ways you can build your knowledge and credibility.

  • Learn the Lingo: Start by learning the language of real estate. Search out real estate terms online and make some flashcards or something to help you remember the concepts. Learn about the different investment strategies in real estate as well. Once again, just Google it.
  • Script it Out: There are hundreds of scripts you can hunt down on the Internet. Find some of them and make them your own by putting your words and personality into them. Next, practice your scripts with someone. Work out your nerves. You don’t have to be an expert, but be confident on how you present yourself.
  • Don’t Lie: Never make yourself out to be something you’re not. If you are new, let them know, but be confident on how you present yourself. People will want to work with you because of your personality. Never get caught in a lie with investors because if they don’t trust you, they won’t want to work with you.
  • Study Your Market: Get smart about your market by seeking out investment clubs in the area and attend their meetings. This way you will be around people who love real estate as much as you, and you can gain a lot of knowledge from these types of clubs. Next, search out your market statistics online. I suggest bestplaces.net because they have a ton of information for you and make it easy to understand. Also, talk to realtors who work with investors and get their opinion about the market.

These are just a few things I recommend doing to increase your understanding of real estate. Building your confidence using these methods will also build your credibility among your investors. Take your time to learn. Don’t rush out there and make yourself seem uneducated. Real estate is going to be around for a long time, so get yourself setup correctly.

Gypsy Real Estate Investing

Gypsy real estate investing is a great way to build a strong rental portfolio. My wife and I started our real estate investing this way by accident. We had a house built and had lived in it for a few years when we decided to move. I had just finished real estate school and received my realtor’s license. While attending real estate school, I met a mortgage broker who introduced me to real estate investing. I decided to research lease options and liked what I found, so I decided to give it a try. We decided to move and do a lease option on our house instead of selling it. After we moved, we acquired a couple of other properties that we lease optioned also. During this time, we kept looking for another great deal on a house for us to live in. When we found one we wanted to buy, we moved and lease optioned the one we had been living in instead of selling it.

The strategy is to find a great deal on a house to live in that gives you a better interest rate and smaller down payment. Live in the house long enough to find another great deal on a new house that you can move into, and then rent out the house you move out of. You can buy ready-to-move-in properties, or you can buy properties that need a little work. You can then work on fixing the house up while you are looking for another great deal.

One thing with this strategy that helped us be successful is to not be in a hurry to find the next deal. We were able to acquire other properties using creative terms in between each move, which helped.

Of all the properties that we have owned and rented out, or lease optioned, the ones we lived in before renting them out have brought us by far the largest returns. Obviously, you have to be okay with moving that often. But if you have a long-term plan, you can create a very profitable passive income using the gypsy method.

5 Ways to Stay Motivated When Starting a Business

Starting a business is very challenging for most people. Not having a plan and clear goals are two of the most common reasons why people fail at getting their business off the ground. Many people love the thought of being their own boss. The freedom of running your own business sounds exciting; however, it takes motivation, discipline and following through to be successful. Here are a few simple steps you can implement to help get your business started.

 

  1. Find Your “Why”: Write down why you want to start a business.  This is a reminder of what your true reason and motivation are for making a change. Your “why” keeps you moving forward when things get tough or you’re having a bad day.

 

  1. Set Specific “Goals”: Write down at least 3 – 5 short-term goals with specific deadlines for reaching them. Have 2 long-term goals to reach for. Break your goals down into weekly tasks. Track your progress. Each step forward increases your interest and your confidence.

 

  1. Connect with a “Mentor”: We all look up to and admire someone who has had success. Reach out to that person for advice and counsel. Learn from their successes and failures.

 

  1. Say “No” to Negativity: When external events prevent you from reaching a goal, try not to fall into a negative mindset that will cause you to lose motivation. Surround yourself with positive influences, friends, and colleagues who are supportive through the good times and the tough times.

 

  1. Start a “Routine”: Start every day with a routine. This will help your mind and body be alert, focused and prepared to create new habits. Spend time reviewing your plan and make a list of what you need to do that day or week.

 

Too many people wait to feel motivated before they do anything. The truth is, happy productive people do not wait to “feel” motivated, they just get to work. “To be successful, you have to have your heart in your business and your business in your heart” – Thomas Watson

What’s the Difference between Residential and Commercial Real Estate?

Real estate is simply a property of land, a building, or land and the building on it, including the other resources in it. It has four major types. The two most common types are residential and commercial real estate.

Residential real estate is a property type that includes newly-constructed and renovated homes. These are properties that are either built or rented for residential purposes. This may differ in types in accordance with the neighborhood they belong to and the entity owning the property. Apartments and condominiums are considered residential real estate. They are both individual units in a certain building. The difference between them is that a condominium has facilities that are co-shared with other condo-unit owners, like pools, fitness centers, concierges, and more. Single-family and multi-family houses also belong in this list. Mobile homes, as well, are considered residential real estate even if they are movable on wheels. These, and a lot more, are residential real estate properties because they are acquired for non-business purposes.

On the other hand, commercial real estate (also known as investment or income properties) refers to properties intended to produce a profit. These may be structures or land properties that are either bought or rented for that said purpose. These include office buildings, industrial structures (more known as commercial buildings), warehouses, healthcare units, and a bunch more. Any type of structure that generates income is commercial real estate, even restaurants, hotels, resorts and malls. Even multi-family residences (apartments) can be considered commercial because of their profit-generating status. They do differ in various places and tax obligations.

Commercial properties are known to be more pricey compared to residential properties. Not always but most of the time, they are more expensive because they generate income. And, anything that produces a profit is eyed by a lot of possible buyers or renters. The higher the demand, the more reasons to increase in value.

Having Confidence in Real Estate

Investing in real estate is a risk. Like many other businesses, you cannot fully guarantee that you’ll get your money back as soon as you want. And, over the years, stories of recession and succeeding foreclosures affect the market. Stories of investors pulling out their shares from investment groups exist in the industry. When you invest in real estate, you invest a big portion of your assets into something uncertain. Thus, a lot of people hold back from investing in real estate.

Through the years, the industry has gone through a lot of forwards and backwards. Similar to other business industries, this is normal and painful, but true. There are some situations you can’t control. And, as a real estate investor, or any business owner for that matter, you need to learn to flow with the changes in the market. Or, better yet, navigate the changes and save your investments. Build confidence in your investments. Yes, it’s difficult to entrust your assets in properties and people. It’s hard to know if you’re making the right decision for your possessions and if you’re investing the right way. That’s why you need to be a well-informed investor. Be knowledgeable about the basics of real estate investing. Always allot time in studying your target market. Understand the difference in each market area and thoroughly review their economic and demographic status. Be very careful and meticulous in determining your goals for investing and the things you’ll have to do to attain those goals. Remember, you can never go wrong with the right amount of know-how.

If necessary, get yourself a mentor. It can be a consultant who’s already an experienced investor. Experienced investors have already been through a lot in the industry and already know how to play and, of course, win the game. Or, you might also want to join investment groups. Especially if you’re a beginner, groups like these can help you become the confident investor you’ve always wanted to be.