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ow is the best time in U.S. history to take advantage of the bank-owned property real estate market, get some great built-in equity, cash flow and, most importantly, build longterm wealth. However, most investors do not do the right due diligence when purchasing properties or even know how to for that matter. So, how does an investor do the right due diligence? Do you need to be an attorney, CPA or other financial professional? Well it helps, but it is not necessary. If you do not feel you are
I recommend going by the property or properties you plan on purchasing during the day on a weekday and again at night or on the weekends to really get a feel for the neighborhood. In addition, the tenants you are going to rent to in these bad neighborhoods are going to miss payments more, cause more damages to your units, and have a higher likelihood of moving out in the middle of the night and having their friends steal your water heater, AC unit and all of the copper piping. What do you do if you have already purchased in one of these
How to Do Your
A Step-by-Step Guide by Mathew Owens, CPA & Investor
experienced enough to do your homework the right way, hire someone who is. The extra cost of hiring a professional now will save you major headaches and possible losses down the road. OK, so your saying: What if I want to do it myself because I do not trust even the most seasoned professional with my money? Well get prepared because I am about to take you through a step-by-step guide to do the right due diligence on every property purchase. NEIGHBORHOOD ANALYSIS One of the biggest mistakes you can make when purchasing property is buying in a bad neighborhood. What is a bad area? When you are walking through the neighborhoods look for crack heads, 30" rims up and down the street, un-kept houses and major foot traffic. These would all be pretty good signs you may not want to buy there. Many investors just starting out (including myself) have made the mistake of buying in the wrong neighborhoods and trusted the seller when they say that its a quite family-owned neighborhood only to find out that during the day the place looks great, but at night its an entire different ball game.
DUE DILIGENCE
neighborhoods unknowingly? One way to go is to get a section 8 tenant. They are required to take better care of your unit and you get guaranteed rents. Another way to go is to sell as fast as possible and even possibly take a loss on it to get out of the property. Its better than losing money over your mortgage payment month after month because of the extensive vacancies, bad debt and repairs! MARKET VALUE ANALYSIS Let me start off by saying one really important factor you need to consider when buying property today: You are in a declining market! What does this mean? It means you need to pay very close attention to what the market value of the property is TODAY. Not three years ago. Many wholesalers, sellers and real estate agents will try to sell you on the highest appraised value ever received for that property. However, you should be buying property based on what the current financeable value is IF you plan to sell or refinance. If you are buying a property with cash and holding for long-term cash flow, it is less important if the property
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Vol 2 Issue 4 2009 | 5
Connect With Our Editor Online:
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has the right comparables for financing, but it still is a signification of the current value of the property. Good wholesalers and real estate professionals know how to find properties with these requirements and many times you as the investor do not know the difference or will never check. In order to get a property financed in todays lending market, banks require appraisers to use three comparable property sales within the last six months and within one mile. Banks can differ on these requirements and personally if a property does not have a minimum of six comparables within three months, I would not buy it if I am going to sell or refinance. If it takes three months to purchase, renovate and sell the property (sometimes it can take a month just to close escrow) then you want to still be able to use the comparables you pulled when you sell. Keep in mind there are many professional real estate investors that wholesale properties, but do not assume you will be able to find a buyer before you have to close escrow. You should have the funds ready to close escrow if need be. You definitely do not want the reputation of not closing your deals with the local real
estate agents and asset managers. We also take it one step further and get an appraisal on every property before we close escrow as well as pull the property tax assessors tax appraisal as a secondary check-on value. As a side note, there are many properties that are un-financeable and look like they have great cash flow on paper. However, when you get down to it the vacancies, repairs and bad debts make your cash flow significantly under expectation if not non-existent. All of these factors need to be considered when looking at the market value of your property and which investments to chose from. CASH FLOW & RENTAL ANALYSIS First things first: How do you compute cash flow? Most sellers will tell you, rent minus property management, property taxes and insurance equals cash flow. You as an investor need to watch out. Do not be fooled. Always, always, always include a monthly vacancy allowance and monthly repairs allowance when doing your cash flow analysis. If you do not include these items on a monthly basis you are going to find that the return on your money you
thought you were getting was not what you expected at year end. Many sellers rely on this downright lie to trick less educated or experienced investors into thinking their return on investment is higher. In addition to the cash flow calculation, you always want to take into consideration the tax benefits which can easily increase your cash flow return on your money with extra tax breaks. You can even get really creative and do a cost segregation analysis or build green for extra tax breaks, which is a great way to inch up that return a little on each investment. Also when you are computing your return on investment there are a couple of different factors to consider. First, you have your return due to the cash flow, which is basically your NET rent after all expenses and the mortgage payment if you have one. Next you have your tax breaks. Then you have your principal reduction on the loan every year and lastly you have the built in equity when you purchase the property. All of these items should be considered when you are looking at your return on investment and total increase in
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n the perplexing world of residential investments, two Memphis-based entrepreneurs, Ryan Hinricher and Stephen Green, decided to lead the pack and offer a concierge approach as investment home advisors. This white glove advisor role concept is unique and Hinricher and Green agree that its the future of inStephen Green, President vestment realty. This year, these two ambitious executives launched Investor Nation, focused on providing investors with a turn-key solution by allowing them to build a diversified investment home port-
gious financial institutions including Wells Fargo Bank and AmSouth. Green also served as an investment banker working closely on retirement acRyan Hinricher, Chief Marketing Officer counts at Fidelity Investments prior to embarking on the launch of earlier start-up companies including Green Financial. He then started renovating homes for out-of-state investors looking to own in the Memphis area. While its headquarters are in Memphis, Investor Nation also has satellite offices strategically located in Orlando, Florida, and Portland, Oregon, where
White-Glove Approach Positions Investor Nation Ahead of the Pack
by Carla Fischer and Marie Domingo
folio in the best real estate markets in America. In doing so, each many of their investors live. The company currently employs investor learns how to make savvy decisions when purchasing, ten people. Hinricher and Green believe that Investor Nations unique renovating and renting investment property. The companys objectives are to help the investor maximize the benefits of real white glove concept is the future of investment realty. Weve estate investing by offering tailored investment strategies to meet taken the approach of radical transparency, meaning we offer an incredible amount of due each investors individual Investor Nation offers out-of-state investors choice properties. diligence, from inspections, goals. appraisals and renovation To date, Hinricher and bids, said Hinricher. We Green have sold more than make this process seamless 400 properties in the last and easily accessible to all 36 months. As Investor of our investors from our Nation launched, its focus website. was on Memphis, but the Hinricher explains that company has since exonce the investor purchases panded to Charlotte, North a home, the company offers Carolina, and Atlanta, pre-screened licensed thirdGeorgia, and future reparty general contractors gions will be added. and management companies Prior to forming Invesas resources to collaborate tor Nation with Green, with the investor, making Hinricher held senior management posts at prestiContinued on next page >
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the process pain-free. time. Well guide you the whole Both Hinricher and Green way. Before you even purchase own investment homes and the home, you will know what spent years establishing solid needs to be done, how much it resources and consider clients will cost, how you will finance access to their contacts from the renovations, and who will their personal Rolodexes is part perform them for you. of the white glove service. Our key focus is working Our team becomes your sefor investors who are seeking senior advisor to help guide the cure assets to diversify their eninvestor, locate and screen tire investment portfolio and buy property as well as help comtwo to three investment homes to plete the transaction, Green supplement their 401(K) and Jim Williams, Charlotte Branch Manager said. Its an ideal solution for other retirement vehicles, anyone currently interested or already involved with investments explained Green. and who needs a senior advisor to handle time-consuming but Hinricher and Green plan to change the world of real estate as deadline-oriented projects. theyre doing their share to revitalize the economy. The investInvestor Na- ment homes we purchase are primarily distressed and foreclosed, tion identifies so we are revitalizing those homes at a rapid pace and delivering and introduces a positive impact to local neighborhoods and the economy on a investors to l a r g e r third-party scale, finance lender Hinricher specialists said. The who are familhouses we iar with the intarget are vestor homes usually in the desigthree-bednated area. room, twoTailored programs for investors, who perhaps dont always bath homes qualify within the normal Fannie Mae guidelines, are also ofbuilt after fered as an alternative method of financing. 1978. Terrance Hill, Marketing Stephen and I focus primarily on cash flow, based on how Investor well the economy is doing, said Hinricher. Our services are Nation purchases vacant and distressed properties in all the comperfect for someone seeking an investment property for the first munities it serves. Investors eventually restore the properties to some of the best homes in these neighborhoods. This attracts new tenants and positively impacts the value of the area. While Investor Nation realizes that the revitalization of homes benefits neighEstablished to deliver to each ingies to meet each investors indiborhoods, members of the company go a vestor a turn-key solution, Investor vidual goals. Ryan Hinricher and step further by donating time and money Nation empowers its clients to Stephen Green have sold more to local organizations such as Habitat for build a diversified investment home than 400 properties in the last 36 portfolio in the best real estate marmonths. As Investor Nation Humanity. kets in America. In doing so, each launched, its focus was on MemWe dont see ourselves as a sales investor learns how to make savvy phis, but it has since expanded to organization, we see ourselves as a serdecisions when purchasing, renoCharlotte, N.C., and Atlanta, Ga., vice organization serving both the comvating and renting investment propand other regions will be added munities and investors, Hinricher said. erty. soon. While its headquarters are
Facts about Investor Nation
The companys objective is to help the investor maximize the benefits of real estate investing by offering tailored investment strate-
in Memphis, Investor Nation also has a satellite office strategically located in Portland, Ore., where many of their investors reside.
For more information or to learn more about investing with Investor Nation, please visit: www.InvestorNation.com
Private Money:
The Biggest Power Tool An Investor Can Have
by Dave Lindahl
great rate of return. Stop and think of the kind of negotiating power youll have when you find a deal and know that you can get financing for it. You can drive a very hard bargain when, in effect, youre the only exit with a gas station for the next 100 miles for a seller who needs to get out of a property. You can ethically drive a very hard bargain with sellers because you need to buy the property at an excellent price in order to get financing. After all, your private lenders have two key requirements: Key #1: Private lenders want a high likelihood that theyll get their money back. When you buy a deal at a great price, thats another way of giving insurance to your lenders that theyll get their money back. In other words, if they finance you and later the deal runs into trouble, they want to know that the liquidation value of that property will more than cover their investment. Thats easy if you bought at a great price. Key #2: Private lenders want a great return on their money. Again, when you buy right, you can afford to give lenders an excellent return. At the right price, your property m i g h t generate a 10 percent return or m o r e . T h e s e days, your lenders might be delighted with an eight percent return and plenty of collateral. That would certainly be a far better deal than theyre getting in other investments. Where do you find these private lenders? Theyre all around you. Kate, one of my students, discovered from me how to do a quick, informal pitch to just about everyone she meets. Not pushy, but just matter-of-fact style. Her car mechanic had money to lend her! With all the potholes in New England where Kate lives, its no wonder that mechanics a rich guy. Another great source for private money is true self-directed IRAs. Warning: Most people think theyre in a selfdirected IRA when in reality, theyve been fed a pack of lies by their securities firm. Heres the scam: The Big Boys on Wall Street think were all idiots. They are also greedy. So this is how the discussion goes at one of the Acme Financial Services off-site planning meetings: Hey, lets tell our idiots um, customers that were putting them into the Acme Retirement Security SelfDirected IRA, when in fact well just allow them to invest from among stocks we sell them, bonds we sell them, mutual funds we make commissions on, and money market accounts we gouge them with. Well get our lawyers to put in really, really small print whatever we need to, in order to make it legal. The idiots will never know the difference! Meanwhile, smart investors would never dream of establishing an IRA with one of these big Wall Street firms. Instead, they establish a truly self-directed IRA. To do that, they go with a company whose only business is establishing IRAs. Contact me if you cant find such companies on your own. To summarize about IRAs: In the course of your normal conversations with people, just ask if they
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hese days, most real estate investors are sitting on the sidelines. The daily media drumbeat scares them into inaction. If theyre not hearing about higher unemployment, theyre told how many more banks failed and how much more housing prices have plunged. Id have to say its one of the best times to be an investor. You read that right: The biggest profits are made when everyone else is running for the door. Competition is much lower and so are prices. Investors who are smart right now will be extremely rich in just a few short years. I know what youre thinking: Yeah, sure. And how am I supposed to finance my deals? At all those failed banks? They were bad enough in the good old days, and now theyre not even lending to each other. Youre right. Banks are a lousy place to get financing now. The superior alternative is private money. Thats where you arrange a true win/win: * You have a property that needs financing. Youre willing to offer an attractive interest rate (or even equity) to people who finance it. * Those people are sick and tired of earning close to zero on their money, but they also dont want to take much risk. Private money is the way both parties win. You get your deal done, and your private investors make a
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Vol 2 Issue 4 2009
Expand Your Options:
Invest in Alternative Assets with Your IRA
by Hugh Bromma CEO of The Entrust Group
O
ver the past decade, more and more people are including alternative assets in their IRAs as a means to diversify. Alternative assets include anything that is not a certificate of deposit (CD) or publicly traded security, such as stocks and bonds. Typical alternative investments include real estate, private placements, equipment, leases, and notes. If you are looking into adding alternative investments to your IRA, take a moment to consider these tips. Time and Money You have a variety of asset types to choose fromsome are excellent for the short term, others might take decades to reap true benefits. So first, you need to determine your goals and objectives in terms of when you plan to retire or take distributions from your IRA. Your present age is an essential determinant of what you are looking for in growth and income of an asset. A real property asset might have more growth potential if you have at least 10 or 20 years for the asset to appreciate. The big-picture view would be to also consider whether it provides a positive cash flow to your IRA while waiting for it to appreciate. Of course, time can also cause physical depreciation, so proper maintenance is a cost to the IRA. If you have a traditional IRAearnings are taxable at distribution as compared to a Roth IRA in which distributions are tax free and not mandatoryyou must take distributions when you reach age 70½. So depending how many more years you have until you are required to take distributions, you might tailor your investments accordingly or choose to convert your traditional IRA to a Roth. Before making this type of decision, consult with your tax advisor on what works best for your situation. The minimum distribution requirement
rules allow you to take the actual real property as an in-kind distribution. You can also liquidate all or part of the real property. Rules to Live By Another thing to consider is the applicable laws and rules for the particular asset type. For example, a private placement is covered by securities laws and requires certain disclosures to the buyer. A note is a security in many states. Offshore investments require certain reporting requirements and, in many cases, the transactions cannot be made in the same way as you would for a similar type of alternative investment in the United States. There are even limitations for buying assets within U.S. territories, commonwealths, and possessions. You want to make sure that the person or company selling those assets is completely aware of the rules and laws that apply. So you need to be able to ask the right questions so that you know that you are getting informed answers. If you have any doubts, seek a professional who can help you understand the rules and laws for that asset type. Sellers and brokers should be competent in the area of specialty for the asset that they are selling. They should be able to provide you with any information or source to address your questions and concerns. In addition to the specific regulations regarding the asset type, you should be aware of the rules concerning prohibited transactions and the responsibilities involved in self-directing your IRA purchases. Your custodian and administrator should provide you with the types of permissible investments with your IRA adoption agreement. Due Diligence The questions you ask of a seller are part of you doing your due diligence for your IRA purchase. You should never make assumptions about an asset or neglect this essential step. Some things to ask are: Does the asset exist? Does the purported
Photograph by John DeCindis
owner really own it? Is the private placement really a security and what are the disclosures to be made? If the private placement consists of real property, who owns the property? Is there equipment or personal property being sold in a commercial building that generates operating income? How is the security interest in personal property perfected? Making the Purchase After youve taken your goals into account, you know the rule and regulations involved, and youve done your due diligence, youre ready to buy the asset with your IRA. The process of acquisition is simple: You order the administrator for the custodian of your self-directed IRA to buy the asset for your IRA. You do this in writing by fully describing the asset and the terms and conditions of the purchase. The administrator follows your orders completely, provided that you have not engaged in an obvious prohibited transaction, which should be outlined in your IRA adoption agreement. Your IRA is a legal entity and owns the asset until it is distributed to you or your heirs. Your administrator does not give any advice about your investment choices. The role of your administrator is to purchase the asset on behalf of your IRA, maintain the records for it, and report the results to you and the IRS. What your IRA invests in is up to you, but certainly you should consult with your advisors, attorneys, or accountants to help you
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Vol 2 Issue 4 2009
develop your financial plan, select your asset type, and perform the necessary due diligence. Self-direction For many people, having a self-directed IRA means opportunity: opportunity to diversify IRA funds into a variety of assets, reduce risk
and increase growth, and choose what to invest in while becoming knowledgeable about the choices. So if you are interested in investing in real property, precious metals, or private loans, to name just a few opportunities, consider establishing a self-directed IRA.
Due Diligence, pg. 6
WEALTH. Next, you have your rental analysis. When doing this you want to ask property managers that manage properties in your specific areas; there are numerous sites you can go to in order to also get an assessment. Be conservative on the rental amounts as it affects your return on investment significantly. RENOVATION ANALYSIS When doing your renovation it is VERY, VERY important you have good team members in place that know how to renovate property and know how to cut costs. I recommend having more than one renovation team. If you only have one team they typically get a little sloppier and the price slowly rises over time. If you have more than one team you can switch back and forth to pressure them not to increase the price and take better care when doing the renovation, or you can go to someone else. There are a million and one ways a contractor can gouge you, but if you do your homework, you can significantly reduce that risk. First thing you can do is get a renovation bid, go through it with a fine tooth comb, and find out what materials they are going to
purchase and request that you pay for the materials cost directly. This takes a huge amount of risk off of you because the contactor then cannot hide costs in materials. Take a look at the large ticket items as well. Does the property need a new roof, electrical, plumbing, foundation, AC and heating unit? Look at those major items and any additional items and compare them item by item with the inspection report. If there is anything on the inspection report that is not on the renovation bid, make sure the contractor is aware of it and is planning on getting it fixed. Most people tell me not to over renovate. I actually do a little extra on every renovation to put it above the rest. What does that do? It helps you sell the property faster and/or rent the property faster as well, which both makes you a more successful investor. Also, I have found that when you do a better job on your renovations, your tenants tend to take better care of the unit and do not cause as many damages. CLOSING So who has ever been charged extra fees, costs, points or insurance while closing escrow on a property? If you have purchased one property
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by Greg Boots Manager of TKO Properties and Anderson Business Advisors, PLLC
s an investor in longterm holds, I know the importance of making sure that I am protected from any liability exposure associated with my investment property. The question then becomes should I use a Limited Liability Company or a Limited Partnership for asset protection purposes with my rental properties? Having consulted and educated thousands of investors across the country, I have seen both LLCs and LPs
What Entity is Best to Protect My Rentals?
used to hold rental properties. Both entities are extremely well situated to protect properties from unrelated liability exposure (called outside liability). However, there are two distinctions that make LLCs better suited to hold rentals and lease options. The first benefit deals with inside liability exposure. This type of harm occurs within the entity itself and is associated with the property. In a Limited Partnership, two classes of partners can exist: General Partners and Limited Partners. Limited Partners are able to contain their risk exposure to what they have invested in the business because they are completely passive investors. As passive investors, the Limited Partners are not able to participate in the management or running of the business. The General Partner is in total control of how the business is to be run. In exchange for the control, the General Partner is subject to unlimited liability exposure. Therefore, if a tenant is injured not only can the General Partner lose his or her investment in the business, but the General Partner can have all of his or her personal assets at risk as well. The way to avoid personal unlimited liability is to use an entity such as a corporation to serve as the General Partner. Conversely, an LLC has Members and Managers who are both protected from unlimited liability exposure if an injury occurs within the LLC.
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LLC or LP?
The next distinction is directly related to our tax benefits of holding long-term properties. As investors, we are able to capture the depreciation of our long-term holds on our 1040 returns (subject to income thresholds). In order to be eligible to capture the depreciation, we must have some participation in the operation of the investment property. Unfortunately, I encounter many people who have gone to their local attorneys and those attorneys completely ignored tax consequences and placed the rental properties in LPs for asset protection. If you place your rental property in a LP and you are the Limited Partner, you lose your ability to capture your depreciation on an annual basis because a Limited Partner cannot participate in the operation of the business. This is a huge mistake when it comes to tax planning. However, if you use an LLC for your investment, you do not lose the ability to capture your annual depreciation because even a passive Member within the LLC can participate in the operation to an extent that would allow for the full capture of the annual depreciation. When it comes to proper planning for asset protection, be diligent to ensure that you will not only receive the best level of protection but that your plan does not hinder proper tax planning. In almost all circumstances LLCs are the preferred entity to provide not only asset protection for your investments, but also solid tax planning.
Vol 2 Issue 4 2009
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Five Minutes with Kansas City Missouris Foremost Real Estate Expert
nvestors looking for high returns Reedy: Our key is volume. We make a returns can be as high as 63 percent. Our with a low entry point should smaller profit on multiple deals and leave average flip generates net profits after all consider investing in the Kansas the lions share for our clients. That fees, closing costs and commissions of 20 City marketplace. The area boasts combined with our hands-on approach percent to the investor. We actually have a stable and diversified economy and attention to detail makes it very easy one client who has made in excess of and affordable properties with a strong for us to provide the investor with a turn- $100,000 this year alone just on flip ROI (return on investment). Realty411 key flip or rental property with great properties we have done for him. Now spoke with Dan Reedy, owner of Missouri returns. keep in mind, this is on value-priced Real Estate Exproperties in Kansas change, to get the City. Our average buy inside scoop on and hold property is opportunities in about $50,000 and our I have had the chance to work with Dan and see how he operates his business. Americas finished flip property I have seen several of the projects Dan has done in rehabbing homes for heartland. is in the $70,000 to investors. His work is incredible. I was amazed at the lengths he goes to provide $100,000 range. the highest quality service at the best price. I would highly recommend Dan to Realty411: What Realty411: Whats the anybody who would like to find quality properties for investing. makes you so best way for investors to ~Adam Cazier, Provo, Utah, April 1, 2009 informative begin the process and about the real start making money? Realty411: Explain your hands-on Dan Reedy: They can visit our website estate market in Kansas City? Dan Reedy: First of all, I have lived in approach. at www.morekc.com and look at our this area my entire life and am very Reedy: Simply put, we handle everything current inventory, see rehab videos, and familiar with all of the positives and from beginning to end. We find the then call me direct at (816) 564-5265. negatives of almost every neighborhood property, rehab it, place the tenant and I will walk them thru the process and help in the Kansas City area. Secondly, we manage on a rental or resell to the end them to determine the best option based have done close to 1,000 real estate buyer on a flip. The key is having one on what they are trying to accomplish, transactions since our inception in 2005. point of contact for everything. budget and risk tolerance. We have also rehabbed hundreds of Realty411: What kind of returns are your properties for retail and rental and also investors seeing? mange over 300 properties in Kansas City Reedy: On buy-and-hold properties, our If you are looking for turn-key cash flow for investors nationally. There isnt very average ROI is 40 percent. We have a few and flip profits, visit www.morekc.com very safe, great neighborhood properties or call Dan Reedy direct on his cell much we havent seen. Realty411: Thats a lot of deals! What do that will dip to 35 percent. And, we also phone at (816) 564-5265. work in some higher risk areas, but the you attribute your success to?
What theyre saying...
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Vol 2 Issue 4 2009
The Bare Truth About Real Estate Investing
No Hype, No Pitch
The Naked Real Estate Investors Club sets a new paradigm in real estate clubs. We are based on being an affordable resource for all levels of investors across the nation!
Education Networking - Deals
Naked REIC offers a place where real estate investors receive support and guidance in their career. We are committed to bringing in quality training, education, support, deal making and camaraderie amongst our peers. Naked Real Estate Investors Club is built by investors, for investors.
Visit Us in Our New Home at the
Los Angeles Meeting & Event Center
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10601 W. Washington Blvd., Los Angeles, CA 90232
www.realty411guide.com Vol 2 Issue 4 2009 | 17
NakedRealEstateInvestorsClub.com
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few years back, when real estate was doubling and tripling in price in neighborhoods all across the country, flipping houses was all the rage. In fact, there was even a TV show or two devoted to the practice, and it featured people making money hand over fist by buying properties, fixing them up, and then selling them for huge profits.
labor into a fix-and-flip and have nothing to show for it except a loss on their books. How could this be? Simply put, when it comes to fixing and flipping, time is money. Starry-eyed newcomers to real estate typically underestimate the amount of time and money it will take to fix up a property. They also underestimate the holding period. At the same time, they overstate the amount of money theyre
one thing you are not likely to get, Im sad to say, is a profit. There are too many variables, too many uncertainties, and overall, too much market risk. Fixing and flipping, unfortunately, is not the path to real estate wealth for the
The Truth About
by Charles Salisbury, MBA The concept is nothing new, its been around for years and has always been an option for making money in real estate, especially for those who are handy. The idea is that you locate a distressed piece of property in a decent or at least average neighborhood, buy it, fix it up so that it m e e t s community or neighborhood standards, and sell it. Even in these tough economic times, advertisements abound for seminars that teach the secret to house flipping and help you make your own fortune through the process. It sounds great, but Im here to tell you that more often than not, a novice investor can put a lot of time and hard going to earn when they finally sell the property. While theyre busy underestimating and over-estimating, the bank is busy collecting interest, because as I said, time is money. The longer it takes to sell a property, the smaller the profit and the greater the amount of money the fix-and-flipper will pay to the bank. And then you need to consider the risk factor. What if you buy a house today and the real estate market turns even lower, so that you cant even recoup your initial investment when you come to sell the house? Or what if you knock out a wall in the house and discover, to your horror, additional repair problems that are both expensive and time-consuming? To paraphrase Forrest Gump, a fixer-upper is like a box of chocolates you never know what youre going to get. But the
House Flipping
novice. Its a risky endeavor that involves a lot of work, a lot of time, and more than a good share of luck. The bottom line is that real estate is still the very best investment out there. But house flipping, buying foreclosed properties or property in probate is not a secret, fast path to wealth. So how can investors make money in real estate without having to paint walls and replace tile on weekends? By using a turn-key approach that is disciplined yet very effective. If you are interested in learning more about how my team and I invest in real estate, I encourage you to visit my website to read more information and articles about my investment philosophy. Chuck Salisbury outlines the safest, most conservative way to invest in real estate in The Incredible Investment Book. For a free newsletter, please visit: www.TenPercent Down.com or contact the author at: (949) 910-6028
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you never know what youre going to get.
To paraphrase Forrest Gump, a fixerupper is like a box of chocolates
Vol 2 Issue 4 2009 | 19
T op10
by Scott Meyers, CSSM©
Reasons to Invest in Self Storage
last apartment complex with all those tenants and toilets and traded them for self storage units filled with nothing but... STUFF! My passion, and my company, Self Storage Profits, Inc., www.SelfStorage Investing.com, is designed to share my experience with you so that you may find the joy of running your own real estate business without all the hassles that the traditional real estate investment possesses. Now, I will share with you the top 10 reasons why I decided to sell all my houses and apartments and say goodbye to all the tenants, toilets and trash to invest in self storage: 10. Endless Opportunities Contrary to popular belief, the large, public operators in the industry only account for about 25 percent of the estimated 51,000 facilities in this country worth $22 billion in 2007. That means there is a huge opportunity to pursue roughly 37,000 facilities that are available. Many of these are mom and pop facilities that are already established and cash flowing, and were developed specifically to sell off to investors once they were stabilized. 9. Demand Projections are on the rise Over 23,000 facilities have been added since 2000. But probably the most exciting prospect for the industry is the aging of the baby boomers. There are roughly 77 million baby boomers in this country as of 2007, and they account for approximately $2 trillion in spending power. A recent poll by the Self Storage Association of a sampling of Baby Boomers revealed that upon retirement, 50 percent planned to travel, 40 p e r c e n t planned to move, and 10
NOW
percent planned to start a new job. What do people do when they move? Thats right, they store stuff. Downsizing, buying a second home, or even a like swap in houses necessitates a need for storage. One economist recently compared the opportunity in this industry to sitting on the oil industry in the 1950s or sitting on Silicon Valley in the 1990s! 8. Multiple Ways to Increase Value Theres only so much you can do to a house or with apartments that truly adds value, or commands a higher rent. But with Self Storage, you can take a vanilla facility and create multiple additional income streams such as: a. Retail centers that sell locks, boxes, moving supplies b. A truck rental service through a 3rd party, or in-house c. A business center that charges for computer usage, copies, and fax d. Ebay® Add-it centers where customers can pay you to sell their stuff e. A pack and ship business These additional services can contribute as much as five to seven percent of the total income a facility brings in monthly. 7. Low Operating Costs With my apartments, I was responsible for paying the utility costs for many of the common areas and vacant units, and in some properties, the gas and water was on one meter, and was included in the rent. I was forced to pay for my tenants wasteful use of gas and water. With Self Storage, however, the expenses are minimal to begin with. You will pay for lights in the parking lot, and utilities for the office, but those can be monitored, and increases can be easily absorbed. This makes budgeting for utilities and other variable costs a breeze compared to properties with tenants and toilets. 6. Minimal Collection Losses Fortyseven of the 50 states have a lien law with regard to self storage collections procedures, and the other three provide for steps that an owner can take to collect past due
Continued on pg. 30
Vol 2 Issue 4 2009
Like many of you, I began my career by building a large portfolio of single family and multifamily properties. I spent the first 10 years in real estate investment fighting with tenants and toilets, and it almost drove me into the insane asylum and bankruptcy court! Chasing tenants that wouldnt pay, trying to stay ahead of rising taxes, insurance, utility bills, and the ongoing, unexpected maintenance calls, almost forced me out of the business. So I began to ask myself, what area of real estate could I invest in that could utilize the talents and experience I have gained, without all the hassles of tenants and toilets? Well, after weighing all options, and after speaking with many of my mentors in the industry, I ultimately chose Self Storage as the area I wanted to pour my efforts into and secure my future. So after 13 years of amassing a large portfolio of single family and multi-family apartment complexes, I began to sell them all off and begin investing in self storage facilities. And as most people say once they have found their true calling, I wish I would have done it sooner! The Self Storage business isnt without its fair share of challenges, however, and I certainly wouldnt call it easy. But my life has changed dramatically the day I sold my
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Due Diligence, pg. 13
in your lifetime you probably have been charged extra. Did you really think it cost $200 to pull your credit report? Well, do not feel too badly about it. The fact is that pretty much every single fee, point or cost on the closing statement is negotiable. So negotiate! Review the HUD closing statement in detail for fees. Some of them hide themselves as lender fees, broker fees, loan charge fees, processing fees, broker origination fees, settlement or closing fees, document
package before purchasing. Get the appraisal, before pictures and video, inspection report, renovation estimate, cash flow and profit analysis, assessors report and do your neighborhood analysis all before closing. These things are key and you do not want to slack off on them or you will find yourself losing money on your investments very quickly. MANAGEMENT Property management is the single most important factor in owning property. If you do not have good property management in place, you will have major problems down the road. Make sure you find a management company that has the right incentives in place. No mark ups on repairs and man-agement fees only when the property is rented are two major musthaves in the contract. I also write in every management contract, If ever I feel that the manager is not acting in my best interest at any time, I have the right to cancel the property management
agreement, void the contract without notice and take over the management of the property im-mediately. This little wording saved me a few times and is a great clause to add. Now we have our own in-house property management company, which is, in my opinion, the only way to go once you have enough properties in your portfolio. CONTINUED ANALYSIS Never forget: Your investment needs to be analyzed on a quarterly and annual basis to determine if you are getting the return on your money that you are expecting. Review those statements on a monthly basis and contact the management company with any questions as well. This helps with decision making down the line and helps mitigate any inefficiencies early to increase your returns. OCG Properties, LLC, helps clients do all of the right due diligence on every investment. If you would like to talk real estate, call (424) 757-4680 or visit online: www.ocgproperties.com. Or, feel free to email: invest@owenscg.com
Never forget: Your investment needs to be analyzed on a quarterly and annual basis...
preparation fees, notary fees, shipping and handling fees, just to name a few. You also want to make sure on every closing that your closing statements are correct and reflect the entire transaction and have FULL disclosure with the lender and seller/buyer. This will get you out of any problems down the line and make sure you do not cross those legal bear traps. For the closing make sure you have had the time to complete your entire due diligence
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Vol 2 Issue 4 2009
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Vol 2 Issue 4 2009 | 25
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RE Club Founder Ponders Meaning of LIFE
A few months ago, Bruce Norris was a guest speaker at my club in Los Angeles. I call him Nostradamus because he predicts future events based on past performances. He did a fabulous job of predicting the future of real estate in California and the nation, but I simply couldnt help but remind myself that the Life I know is highly unpredictable. His predictions were rather scientific, based on numbers, graphs and stats, but I am not ready to give up my notion that nothing is written in stone. The nature of Life is not all scientific, you see. Life is non-linear and follows the Chaos Theory. This means that although numbers do play an important part in shaping our decisions, no one knows for sure whats in store for us in the coming months or years. Chaos Theory, which is popularly referred to as the Butterfly Effect (a butterfly flaps its wings in the Amazon, and two years later theres rainfall in Kansas) simply states: The only prediction you can make about anything is that its unpredictable! In essence, things are not directly caused by other things. Life is not boring and translucent; instead, its marvelous and mysterious. The mysterious nature of Life is what allows the future to be wide open regardless of what the past looked like or what the stats tell us. My approach to Lifes events is this: Maybe and who knows. It reminds me of an old story of a peasant whose only horse ran away and left him without any means to make a living. His neighbors called this event very unfortunate. The wise old peasants response was a simple, Maybe and who knows. A few days later, the horse returned with another ten wild horses in tow. His neighbors flocked to his place and called him the luckiest man on earth. His usual response was, Maybe and who knows. A few days later, the peasants son broke his leg while riding one of the wild horses. Again neighbors gathered around him, offered their sympathy and told him how unfortunate he was. His usual reply was, Maybe and who knows. A week later, the soldiers came and drafted every able male body for an imminent war with another country but spared the peasants son. Once again, his neighbors called him very lucky. The message here is loud and clear: Every event that happens in our life is not to be judged as good or bad because we simply do not know whats coming next. There are no direct correlations between events and no one really knows what the future holds. Its the same thing with Life. Past does not equal the future. You can make all the predictions you want but Life remains mysterious and people are unpredictable. Whos to say California real estate wont make a full recovery in one to two years. I know stats state otherwise, but no one knows what Life will bring tomorrow. Its entirely possible that lower home values in our state could bring in thousands of people from all over the country and the globe to miraculously turn things around for us. After all, Life is a field of all possibilities. This is what Werner Heisenberg, a renowned German quantum physicist, called the Uncertainty Principal. My point is that you can very possibly shape your future based on your decisions today. Likewise, I know our country is in a lot of trouble now and many feel that our system might eventually collapse because of corruption in the government and our monetary system, but we could very possibly change the course of future events by our thoughts and deeds today. Life has a mission of its own. Life is non-linear. Life is mysterious and unpredictable. Life doesnt follow our limited human perspective. Need I say more? So, I highly encourage you to come to grips with this facet of our human exist-
ence: unpredictability, uncertainty, and insecurity. Worrying about future events is unproductive. Thinking that we are in charge is futile. Believing we can predict the future events based on series of numbers and stats can be detrimental to our mental health. What we need to do is to surrender instead of worry. Go on out there and do what you do best everyday, then surrender to Life for the final outcome. Welcome Lifes challenges, as they are part of your continual growth. Your only certainty is uncertainty. And, if you really wish to have security then seek insecurity! One more thing, no matter how bad your life is now or has been so far, it can turn on a dime and be completely different tomorrow. As a matter of fact, things are never as good or as bad as they appear to be. Theyre usually closer to the middle, but our judgmental minds cannot understand the concept of balance. The only catalyst to a better, more fulfilled life is your knowing that youre protected. The more you come to peace with yourself, the more you look at Life as a playground, the more you project positive thoughts, the more you realize your seren-
Hundreds of members visit monthly. ity is in your surrendering and not fighting with Life, the quicker youll succeed in all areas of your life. So, play the game like a child and you will enter the Kingdom of God, Universe, Nature, Life, or whatever else you wish to call it. Best regards, Sam Sadat Founder and president of the National Club of Real Estate Investors and the Los Angeles Real Estate Investors Club, visit: www.ncrei.com and www.lareic.org Email directly: sam@samsadat.com
24 | www.realty411guide.com
Vol 2 Issue 4 2009
Bank on Land A
by Bonnie MacKinnon
s a long-time reader of Realty411, it is a thrill to contribute something to this publication. Just like most readers, I am an investor. I have several parcels in Palmdale and Lancaster, which are growing areas outside of Los Angeles, Calif. Ive seen my parcels grow tremendously in value in the boom years and hold steady in more recessive times. I have tried other investment vehicles, like the stock market and rentals, but I always come back to land as being the best and most hassle-free way to make my money grow. Theres a common saying: Sometimes its easier to make money than it is to keep it. Boy, have we all learned this lesson over the last six months! As the stock market dropped to levels not seen since 1990, I stood by comfortable in the fact that my money both cash and IRA funds were safely secured in land. My stock market investments have taught me a lesson: Its one thing to make money, but you have to hold on to it and, even smarter, to make it grow. Another thing that I appreciate about investing in land is the fact that it earns its value based on truly organic elements: population expansion and time passing. How many times have we made an investment in which the results were dependant on some person or set of persons making the right decision?
MONEY FOR LIFE Invest in stocks, and youre investing in the principals of the company and their financial savvy and common sense. If they make the wrong decision, your money gets hit. Invest in a rental property, and youre relying that a set of people from property managers to cleaners to rental personnel are all communicating and coordinating effectively among themselves to make sure the renters are taken care of. Nope, give me something I can understand and control, and Im a happy camper. Give me Los Angeles County with a population of 18 million people. Give me an economy thats the 11th strongest in the world. Let me stand back and watch people migrate to Los Angeles because of its financial opportunities and then migrate to Antelope Valley for its space and affordability. Give me land. Lastly, I was talking to a long-time resident of Palmdale. Hes seen the effects of the growth and popularity of the area with retailers and businesses over the past 40 years. I mentioned to him that I had a nice 10 acre parcel on the east side of Lancaster at 35th St. East and Avenue F. Just wait, he said, In 10 years, youll be downtown. Youll be sitting on a goldmine. That type of care-free investing sounds good to me.
Invest Where it Makes Sense
by Kathy Fettke The old adage, "Invest in your own back yard" is still true. But in todays information age, our back yards have become much larger. Through Google maps, we can visit any location in the world at the click of a button. We can research MLS listings nationwide. And with direct flights, we can be in another state in just a few hours. I live near San Francisco, where the median home price is $656,700. Median rents are $2,234 for a typical 3/2 home. Median income is $63,393. In a city like this, it clearly makes a lot more sense to rent than to own. And the only reason an investor would buy in this city would be for the potential appreciation not for cash flow. Lets compare rentals in San Francisco to Dallas. In Dallas, you can expect to get at least 1.2 percent of the purchase price in rents: a $100,000 property would bring in $1,200 in rent. You could buy six and a half of these for one home in San Francisco. The rental income in Dallas would be over $7,300 per month, compared to the $2,234 youd get in San Francisco. Thats a $60,792 difference in annual income! After 10 years, the difference is $607,920. Many people will hold out for the possibility of the San Francisco property doubling in value over 10 years and worry that Texas properties never appreciate. What they fail to see is that income can be just as lucrative as appreciation, but its less speculative. In todays economy, investors are looking for the sure thing. While thats a tall order, most people are finding that cash flow today is better than the hope of appreciation in the future. The economic crisis we face today is different than other downturns. An asset bubble collapse can last much longer. The Great Depression in the U.S. and the asset collapse in Japan in 1989 are examples of this. It has been 20 years, and Japan has still not recovered. Ask investors there if they would
Live Where You Want,
have taken cash flow over appreciation. The appreciation never happened. The biggest hurdle investors need to overcome when investing in cash-flow markets is the worry that their property is so far away, and out there on its own. While this would be tragic, it does not have to be the case. Good property managers are the key. Real estate is a business and must be treated as such. All good businesses rely on delegation. Real estate investors are no different. They hire teams to help them succeed, and a good property manager is one of the team members. Therefore, live where you want (even if it means renting) and invest where it makes sense, in areas with affordable markets with high job and population growth as well as landlordfriendly laws. For more information about Kathy Fettke, please log on to: www.RealWealthNetwork.com. Real Wealth Network helps investors build their teams. As the network grows with investors sharing information, our list of tried and true real estate professionals also grows. Membership is free and access to this list is available to those who ask and includes CPAs, 1031 exchange companies, asset protection specialists, property managers,wholesale property sellers, and turn-key property networks.
Vol 2 Issue 4 2009
26 | www.realty411guide.com
Birmingham
Affordablity and High Returns Make this Southern City Shine
Thinking about heading South to expand your portfolio? Regionally speaking, the South is leading the nation in economic stability and growth. This booming and stable region provides investors with a low entry point (Investors can buy with as little as $1,500 down.) and outstanding returns. How does a cash on cash return of 400 percent sound? Here are some other reasons why Birmingham, Alabama, is attacting investors from across the nation. Realty411 Staff
Market411
* An Old City Embraces a New Economy *
* Birmingham's economy was transformed by investments in bio-technology and medical research at the University of Alabama at Birmingham (UAB) and its adjacent hospital. UAB is now the area's largest employer and the largest in Alabama with a workforce of about 20,000. * After Charlotte, NC, Birmingham is the Souths leading financial center with headquarters to three of the nations top 40 banks in deposits and assets. * Telecommunications provider AT&T, formerly BellSouth, has a major presence with several large offices in the metropolitan area. * Major insurance providers (Protective Life, Infinity Property & Casualty and ProAssurance, among others) are headquartered in Birmingham and employ a large number of people in greater Birmingham.
Inside Scoop on Birmingham
This vibrant city is gaining attention as being a key market for investors. CNN/MONEY named Birmingham, Ala., the 10th best overall real estate market in the nation. Birmingham is the third best cash flow market in the United States, according to Nuwire Investor. Relative to all metro areas exceeding one million persons, Birmingham has the lowest unemployment rate. Birmingham is the third fastest growing real estate market in the nation, according to CNN/MONEY.
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Vol 2 Issue 4 2009 | 27
LAND BANKING
A Real Asset Predictable - Profitable Smart - Simple - Safe
A stronger alternative to traditional markets Excellent placement for cash, self-directed IRAs, old 401(K)s Customer receives a grant deed, fee simple ownership and title insurance
A Proven Formula for Building Wealth Since the 10th Century.
Numerous Advantages to Land Banking exist, such as:
Historically safer Far more profitable than paper assets Risk is minimal, not relative to market and position No management or maintenance 1031 exchange
Add Land to Your Investment Portfolio!
ACE CAPITAL GROUP
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9454 Wilshire Blvd., Ste. 600, Beverly Hills, CA 90212 Cell: 562-945-3510 lmeza@ace4wealth.com www.ace4wealth.com
Lou Meza
Those Insurance Villains!
L
by R. Michael Wrenn, President and CEO of Renovators Insurance
ets talk about those Insurance Villains. You know, those agents and companies that take your money and then never pay a claim due to the fine print! I just dont know how they get away with it, and if I didnt need that darn stuff, I wouldnt even buy it! Those fast talkin no good
scoundrels. I guess after 35 years in this business, I have heard it all
even a thank you or two. I developed a program that today insures over 4,000 locations for investment property owners and rehabbers. We started this with about 32 HomeVestor franchisees in 1999, and now we have over 600 clients nationwide. I know you investors very well after 10 years. Busy, busy, busy, you are for sure! Youre running around doing deals and taking for granted the insurance youve placed on your prized developing assets. I know you almost better than you know yourself as it relates to your consumption of time and energy and attention or focus on insurance policies, and their appropriate coverage on your rental, renovation or vacant properties. Ill go even further: You dont know much about your risks. But, one thing you need to know is: If you make a mistake on this, it could take you out of the game. So, youve had a claim and it wasnt covered, surprise, surprise. But, you know, maybe I can help you with that. Maybe I can give you some good, sound advice that can save you money and may even lead to a claim being covered and paid
it just might even save your little bottom (line) sometime! If youll take my advice you can exit this business at retirement with a valued relationship and probably even
www.realty411guide.com
a good friend too in your agent. If you dont, youll probably always be talkin about those Insurance Villains. So, here we go, and pay attention...OK? 1) Find an agent (preferably one with at least three years experience) who you like and trust and knows about the issue of vacancy in the various property insurance policies
and the Insurance 101 issue of replacement cost and actual cash value coverages. Tell him or her exactly what you do and then tell them exactly what you know about insurance. Next, rely on that agent to educate you on just the basics over the next say six months. Go to lunch or breakfast a few times during this period and just talk about YOUR business. They will usually buy too! 2) If after six months you dont sense they know anything or they dont care about you, then fire them and start the process all over. You have no time to invest on an agent who doesnt get you or seem to care enough to get your business and its unique needs. 3) Explain your risk preference and ability financially to handle higher deductibles in the event of a loss. Then tailor the program you buy to your personal risk level,
and take as much risk as you can afford to take; choose those higher deductibles. But, do not fail to buy all the liability insurance you can afford as this is where someone takes you out if you have none and someone is hurt or receives damage to their property where you might be negligent. (You know, negligent
its where you didnt take out that dead tree and it fell on your neighbors car or house
or that hole you failed to fill in, but the neighbors kid found, fell into and broke his neck.) This is really simple enough, dont you think? And, oh, if you buy based on price only, you might want to take all the whining about those Insurance Villains and make it into a song! Remember the old adage: You get what you pay for. The biggest issue of all is finding that agent who really cares. If he or she really cares then everything else will generally work out just fine.
Vol 2 Issue 4 2009 | 29
Self Storage, pg. 20
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rent. Each states law differs slightly, but most give the self storage facility owner the ability to perform the following steps when a tenants rent is past due: a. Remove the tenants gate code from the system, locking them out of both the facility and their unit. b.Place another lock on the unit to keep them from entering it. This is what we call over locking the unit. c. Auction their goods if payment has not been received, typically within 90 days after they were given notice. Each state requires that the tenant be given notice when they are past due, and most require proof that notices were sent by certified mail or some other traceable format. Each state also specifies specific timing for each one of these actions, and also requires that proper notice is given to the tenant, and to the public by way of the local newspaper that their unit is being auctioned off. The laws also specify what an owner can and cant do with regard to the tenants belongs, and most require that the entire unit is auctioned off as a whole to avoid any liability. Either way, this is far better than a landlords recourse when going through the legal process of evicting and collecting back rent from tenants in the single family and multifamily apartment world. 5. Excellent Cash Flow Rental rates for self storage facilities are similar to other real estate product types; however, lower development and operating costs create higher profits and a greater return for investors. In addition, leases are month to month, which provides the ability to raise rents in conjunction with market de30 | www.realty411guide.com
mand. If you raise rents once or twice a year by 3 to 5 percent, multiplied by several hundred units, with no increase in expenses, you begin to see why industry experts so often refer to self storage facilities as the proverbial Cash Cows. 4. Low Risk Self storage space is rented on a month-tomonth basis to hundreds of different customers, most of which are individuals and small businesses. With self storage, no single move-out is going to cause a major drop in rental income. Compare this with other forms of commercial real estate, where a flagship tenant or multiple high paying tenants can really spell disaster. In addition, self storage has the ability to absorb economic fluctuations better than other real estate investments. For example, when the economy is good, people buy more; therefore, they need extra space to store their extra stuff. And when the economy is down, individuals and businesses may downsize their house or business space, and therefore turn to self storage as a cost-effective place to store their belongings. As a result, self storage has the lowest failure rate and subsequently lowest loan default rate of any real estate product type. 3. Leverage or Other Peoples Money (OPM) Given the fact that self storage has the lowest loan default rate of any real estate product type, lenders are now making 80 percent to 90 percent LTV loans on established, well-constructed, and well managed facilities with strong track records. In addition, there are several private investors that are funneling millions of dollars into the market to partner with self storage developers and investors due to the industrys tendency to outper-
Vol 2 Issue 4 2009
form the stock market and other real estate investments. 2. No Tenants The number of times you will be in contact with the typical self storage customer is very minimal over the duration of their tenancy. According to the Self Storage Association, 95 percent of self storage customers do not return to their unit until the day they move out of the facility. Therefore, the industry norm for hiring a manager is based on a one to 400 ratio, or one manager to manage every 400 units. There are also several owners who are taking advantage of new technologies that have become available in the self storage industry, most notably, kiosks. These machines resemble an ATM and are typically installed at the front gate and allows a customer to rent a unit, pay with a credit card, and even dispense a lock, all without ever coming in contact with the manager. In contrast, the widely accepted rule of thumb for managing single family and multi-family properties is a one to 100 ratio, or one manager for every 100 units. Quite simply, single family and multi-family tenant commands a greater amount of babysitting. You have to chase them for
rent, answer their maintenance calls, respond to complaints about dogs, kids, their neighbors, broken down cars, noise, bugs, etc., and spend an incredible amount of time writing letters and responding to each one of these issues. By comparison, I have never taken a phone call from the patio furniture in unit 105 complaining that the lawnmowers in unit 106 were playing their music too loud! 1. No Toilets! The typical self storage facility is constructed from steel or concrete, has a steel roof, metal doors, gravel or asphalt drives, and most likely, a stainless steel fence. Some may have a small office on site with a computer, phone, and one bathroom...thats it. Steel walls and roofs last for decades without any maintenance. Door springs need to be replaced from time to time, and every 10 years or so you may have to add more gravel, or resurface the lot, but can be easily budgeted for, and most fences last 20 to 25 years without the need for any maintenance. And of course, the enemy of all landlords, toilets, or any other indoor plumbing for that matter, is nonexistent in a self storage facility. And unless you have
climate controlled units, there are no furnaces, air-conditioners or water heaters to maintain. There are many other reasons I prefer this type of investing to other real estate product types. For one thing, I can honestly say that I thoroughly enjoy the business, and I am thankful for the opportunity to pass this knowledge on to others that may be interested in the industry. In addition, I consider myself a life-long student in the business, and I believe in perpetual improvement. I encourage you to visit our website and to share your thoughts on our products and services and ultimately, share your testimonials of facilities you have successfully acquired. Your success is what makes this journey so much fun! Dedicated to your Quick Self Storage Success,
Scott Meyers, CSSM©
Sign up for Scotts Secrets of a Self Storage Millionaire online newsletter at: www.selfstorageinvesting.com
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hether youre buying preforeclosure, foreclosure or REO properties, doing research is essential so that you acquire a good deal. However, its especially important to do extra research if youre focusing on foreclosure or pre-foreclosure properties. Why? Because these properties are generally sold as-is. That means not only is the property itself sold as-is, but the title is sold the same way. So an investor may encounter plenty of unpleasant surprises, such as a home that requires a lot of repairs or has liens and outstanding debts that must be satisfied before one can get a clean title. (I can share with you many horror stories about people who didnt research liens before bidding!) Research Comparable Sales The next thing you need to do is find out what other similar properties in the same neighborhood have recently sold for this is called researching comparable sales. Doing this will help you estimate the market value of the property youre interested in. Real estate agents typically run these sort of reports, and your agent can quickly create one for you. Indeed, if you get comparable sales information from an agent, it will almost certainly be more accurate and/or detailed than information you can gather for yourself. However, technology has made it possible for investors to be able to get a head start and do some preliminary research online. Here are some of the most popular websites the general public can use to gather this type of data:
W
http://www.cyberhomes.com http://realestate.yahoo.com/Homevalues http://www.zillow.com http://www.domania.com/ h t t p : / / w w w. r e a l e s t a t e . c o m / h o m e pricecheck/ http://www.eppraisal.com http://www.buyhomeswithmatt.com The reason I gave seven different websites is because an investor is going to get different figures from each of these sites. If you use just one site, youll probably get an inaccurate picture of the current market. Thats why its best to use several different websites and calculate an average figure for similar properties. Then, simply base your estimate on that average. As mentioned previously, youre looking for similar homes in the same neighborhood. That means you should look at things like square footages, number of bedrooms, number of bathrooms, size of the lot, which schools are closest, zoning restrictions, quality of construction and the like. INSIDERS SECRET: Usually, you want a list of at least 10 or 15 similar properties that have recently sold in the same neighborhood. The more recently these properties were sold, the better (as market conditions can and do change). If youre looking at properties that were sold more than three or four months ago, make sure that you also have some knowledge of market conditions. That way youll know if the properties were sold for a higher or lower amount than the current market.
Vol 2 Issue 4 2009
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Investors Flock to Find Deals in Arizona
rizona has quickly become a favorite location for investors from all over the country. What makes it such a prime market to take advantage of? Out-of-state investors see a great opportunity to get a return on their investment in several different ways. The Phoenix market draws in buyers of all types looking for primary residences, vacation homes, and cash-flow rental properties. A lot of great deals exist, but as with any investment, it is important to do your research and know what to take advantage of. Many people have already discovered Arizonas potential, as investors currently account for close to 20 percent of the sales over the last few months. If you have the funds to invest in the right property, the strong Phoenix rental market will turn your investment into a great cash-flow opportunity. Considering the low interest rates and deflated prices, the term cash-flow property is a common thing in Arizona. So, in the midst of this deflated market, what is the best way to purchase a home in Arizona? It can be frustrating dealing with bank owned properties and short sales because of the bidding wars and response time necessary. There are certainly deals when purchasing like this, but it is important to do your due diligence and have plenty of patience. Many investors are finding the perfect way to buy with ease in Arizona is to look to wholesalers for great deals. You can usually find better deals than you would
A
by Joseph Calderon, owner of Camelback Wholesale Properties
with bank-owned properties and will generally receive a response within 24 hours. Be prepared to pay with cash or hard money and pay your own closing costs and you will be amazed at the deals available and the convenience of dealing with private investors. Then arises the question of where to buy? When researching neighborhoods in Arizona, keep in mind the city of Phoenix itself is larger than Los Angeles geographically. That fact, along with the many growing cities
sprawled around central Phoenix, gives you a huge area to shop in. When looking for short-term investments, the areas closer in towards Phoenix generally provide a larger return and can be easier to find renters for. Although the demand for central area homes might be higher, the outlying areas also have some incredible deals on practically new homes. As these areas continue to grow it is almost a guarantee you will gain equity in your property.
The properties in most demand are currently those under the $350,000 price tag. The $50,000 to $150,000 range seems to be the most desired, as people who were previously renting a property can now purchase one for the same monthly cost. This, along with the $8,000 tax credit, has really stimulated the Phoenix market. Typically, in the latter part of the year, we see the market slow down but as foreclosures still pour into the market through trustee auctions, REOs, short sales and preforeclosures, it is still an excellent opportunity for investors of all types to capitalize on. Investing in real estate can be an extremely profitable venture, but it is important to work with people who are experienced in a specific market. Camelback Wholesale Properties has been working with investors in the Arizona market for many years now. Our resources can be of great assistance to anyone looking for an incredible deal.
For information about purchasing wholesale properties in Arizona, please contact Joe Calderon at (480) 321-5094 or email: joe@camelbackwholesale.com
...you will be amazed at the deals available
www.realty411guide.com Vol 2 Issue 4 2009 | 33
by Lori Peebles
I
nvestors: Do you need some tips to help you land an REO property? Its a competitive marketplace, and if you want to succeed, its time to set aside your preconceived notions about real estate and learn from others who have already developed a proven system of success. The owners of Nationwide Property Investments, Michael Gier and William Barnard, have been successfully investing in real estate for many years. Realty411 recently sat down with them to discuss their careers as national investors and to learn tips on succeeding in the current
previous profession? A: Ive been self-employed most of my life. My last business was a printing business. Q: Is part-time real estate investing a good way to go for most people? Michael: To start yes. Keep your real job until you have been successful with your investing for quite a while and you have plenty of money saved up to live on if need be. William: Then, it may be ok to quit your job and invest full time. Q: As partners, youve worked on land develop-
Investor program to educate and instruct the students on exactly how to profit from the current REO market. We teach them exactly what we currently do to make money, and how we do it every little detail. Michael: Its easy to get excited and see the possibilities while sitting in a workshop, but its very different when you are out in the real world by yourself. William: Thats why our program works. Students get the teaching they need and
Insider Tips
from the Masters of REOs
market. The investors-turned-educators also gave Realty411 the inside scoop on their new Make Me An Investor eightweek REO program designed to give individuals a step-by-step guide to fixing and flipping REOs for profits. Q: How long have you been investing, gentlemen? Michael: I started back in 2000 and went full time in 2003. William: For me, I started investing in 2004 and went full time in 2006. Q: Michael, I know you used real estate investing as a way to make money to supplement your acting career. How did it feel when you started being successful at real estate? And, did that start taking over your life? A: It felt great. My first investment property made me $170,000 net! Then, I started building speculative homes making $20,000 per home and eventually $150,000 per home. It then became an easy choice: I did real estate full time and entertainment part time. Q: William, I know youre a full time investor now, but what was your ment projects, speculative buildings, short sales, youve purchased fixer uppers and flipped them. What type of investment strategy is best for this type of market?
William Barnard and Michael Gier
also the hands-on training out in the field that is required to succeed.
My first investment property made me $170,000 net. Then I started building speculative homes making $20,000 per home and eventually $150,000 per home.
William: Currently, our focus is on buying REO properties, rehabbing them, and selling them to owner occupants. We also do short sales. The real estate market locally (and abroad) is ever-changing, and investors need to adapt to changes and apply the strategies that are viable to their current market conditions. Michael: Thats also why we offer our eight-week Make Me An Investor REO program, its what investors should be doing in this market. Q: What makes your REO program unique from the other educational REO products on the market? William: We created our Make Me an Michael: We teach how to get the deal before the MLS, what team members you need and how to get them, market and financial analysis, raising the money needed, calculating the repair costs, hiring and working with contractors, and exit strategies so you can get paid. All of this isnt just taught, but its experienced out in the real world. William: You cant get better education than that. Q: Choice foreclosure properties are difficult to acquire in todays competitive climate. I spoke with one investor in San Diego the other day who was simply frustrated because all his
pickings had multiple cash offers. What advice do you have for investors trying to land deals? Michael: You have to eliminate the competition. William: We do this by getting the property before it hits the MLS. Its one of the very important things we teach our students. Its difficult for investors to get a deal after a property is already listed. Q: Do you recommend that investors form partnerships to buy properties? What tips can you offer our readers in choosing a partner? William: Weve been lucky that our partnership works, but most partnerships do not work. Michael: We recommend that the only partnerships you create are with money partners. And, be sure to keep complete control of your
business. Q: Whats the best (and worst) part of being a fulltime, self-employed real estate investor? William: Real estate investing offers me the freedom to work when I want, which is actually all the time because I love it. I can also make as much money as I want to because there are no limits as there are in a regular job. Most importantly, I can be my own boss. Michael: As for the worst, its still a job, but theres no guarantee of a paycheck. And, sometimes you have to spend many more hours working because it is your business. But, we wouldnt change it for anything. We love what we do. Vi s i t : w w w. N a t i o n w i d e PropertyInvestments.com
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Vol 2 Issue 4 2009 | 35
A New Way to Buy in California
by Linda Pliagas Real Estate Sales Agent and Investor
P
rices have tumbled in the Golden State. California is in the midst of the largest foreclosure market ever experienced. Investors are scouring to find the best choice properties, and the frenzy of activity is quickly turning the gloomy market into a very competitive one. While everyone wants to profit from this recessionary cycle, the reality
opportunity with The Herrera Sindell Group, they do not write a check directly to the firm, instead funds go straight to the escrow holder for the property the investor has chosen. Having dealt with numerous acquisition companies throughout the country for years, I realized this was a refreshing and unique concept. Also, what really caught my attention is the fact that the company will match an investors funds, dollar for dollar. That means if you have $50,000
this is the truest joint venture format any investor could long for. By participating as an equity or credit partner, an investor can purchase a local property (one that they choose), invest less money, and not have the typical hassles that automatically go along with landlordship. In fact, they will take care of any and all management issues. The Herrera Sindell Groups unique acquisition program enables investors to choose either a short-term 90-day Fix
The Herrera Sindell Groups Joint Venture Program Enables Smaller-Scale Investors to Profit from California Pre-Foreclosures at a Fraction of the Cost.
is, very few people actually will. The and you wish to buy a property in and Flip investment or a long-term Buy average smaller-end investor simply California, they will find a pre-foreclosure and Hold with a three to five year exit cannot compete with a sophisticated deal property, negotiate with the bank and plan. They offer clients a list of available maker who has a stash of cash on hand. match your funds to the penny. In essence, properties, so they can choose the It takes money to buy in investment that best suits their The Herrera Sindell Group, from left to right: California, and if you want to buy a needs. Michael Herrera, Richard Sindell, and Juan Herrera. distressed property right now, you Started in 2003 by Juan Herrera, Photographed by John DeCindis for Realty411 Magazine need a lot of it. Why? Because the an investor, and Richard Sindell, a average investor simply cannot broker and attorney, The Herrera compete in this market. Im an active Sindell Group specializes in agent myself in Los Angeles, and do acquiring properties in the preyou know what kind of offers my foreclosure stage. Their reputation clients and I have to compete with? as closers attracts distressed We have to go head-to-head with homebuyers into their office on a investors who can fund and close a daily basis. deal in days and who write up offers While smaller-scale investors with zero contingencies. may not be able to compete with Many people contact me wanting their seasoned counterparts, The to buy a foreclosure and have to be Herrera Sindells joint venture turned away because they lack program allows individuals to access to substantial resources. This acquire prime California real estate is exactly why I was intrigued when at a fraction of the cost and risk. a colleague told me about a unique Their company opens the door so acquisition firm located in Sherman that investors of all levels can also Oaks, Calif. profit in this down market. The Herrera Sindell Group operate a privately held acquisition To schedule an appointment and company and concentrate only in the discuss a joint venture opportunity, Southern California market. What please contact Joe Guardado, makes them unique is the director of real estate investments, transparency they offer investors. at (877) 949-2772. Or visit their For example, when a person website: www.herrerasindell.com invests in a Joint Venture (JV)
36 | www.realty411guide.com Vol 2 Issue 4 2009
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a truly self-directed IRA. Theyll stop and ask what you mean by truly. Thats your opportunity to explain how the world really works, and how real estate is the best-kept secret for IRA investors. It actually gets better. Theres a way to get paid by lenders for the privilege of financing your deals. Im dead serious. You can get an
acquisition fee for being the glue to put a deal together. Its way beyond the scope of this article to explain the ins and outs of getting paid to receive financing, but its a straightforward process. The mainstream news media would have us believe that the longer were in this recession, the more doors to opportunity are closing. Thats why theyre journalists who will be lucky
to retire with a gold watch. On the other hand, I want you to retire filthy, stinking rich. You can do that by refusing to listen to people who only sound like authorities, but who have no personal experience with what they write about. Instead, renew your subscription to this magazine where I, and many other actual in-the-trenches experts, give you news that can
actually make you money. In 2010, theres no higherpayoff activity you can pursue than to get good at attracting private money to finance your deals. Youll be handsomely rewarded for creating a win/ win for all parties involved. Visit www.DavesOffer.com/ Realty411 to recieve a free wealth-building report.
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Michelle Fennegan Commercial Broker Ph. 956.497.8917 mfenn123@yahoo.com Vol 2 Issue 4 2009