Real Estate Genius Investment Software Blog

By James Orr

You have looked at 6 (maybe 12 deals) and you are finding it near impossible to make them cash flow based on collecting a reasonable rent and getting 30 year fixed rate financing.

Take a deep breath. This is one of the most common problems for real estate investors and what I believe to be one of the things that discourage many people away from starting a lucrative real estate investing business. There is hope though.

First, unless you happen to be lucky enough to live in or near a city that has a low income area where you can still buy “rental houses” where the values are about 100 times the monthly rent, you need to realize that finding these deals is like the Easter Egg hunts you had as a kid. You got to look at a lot of deals to find that special one that will work.

How many will you need to look at? It can vary, but I do not think that looking at 100 is out of the range of possibility.

What?! So, I need to look at 100 houses to find one that will work? Yes, you might need to look at 100 houses, making better distinctions about what might work and what will not work to find a good deal.

You may also find that putting out marketing to find motivated sellers makes finding these types of houses easier rather than just looking at houses that are for sale by owner or listed with a real estate agent.

Buying houses at a discount and/or with good terms can significantly improve your ability to make a house cash flow, especially if the interest rate on the terms you can get from a seller is much better than the current rate you could get from a bank or lender.

What if you have some houses that are very close, but none that will have positive cash flow? First, keep looking. Second, there are some ways to ethically increase the amount a tenant pays you in rent which could make a negative cash flow house a positive cash flow house.

For example, if instead of just renting the house, you sell the house on a rent-to-own, you can get payments that are on par with what your actual mortgage, taxes and insurance expenses are because they need to be able to pay your actual mortgage, taxes and insurance payments to afford that house.

When you interview your potential buyer, you explain that market rent is $1,000 (or whatever it is), but that if they have $10,000 to put down toward purchasing the house their mortgage payment with taxes and insurance would be $1,400 (or whatever it is).

You tell them they need to pay the $1,400 but that you will credit the $400 above market rent toward the purchase of the house when they do go out and get their own loan and buy the house from you. In the meantime, they rent with the payment that resembles your mortgage payment.

James Orr is a professional real estate investor and marketing expert.

You can subscribe to his real estate e-newsletter and access audio downloads, articles, marketing materials and educational real estate videos at his Real Estate Investing blog.

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By Bill Wise

We all have heard of the investor that made $100,000 on one house. That is the kind of story that gets told, but what about the investor that makes $15,000 on all his houses? We don’t hear as many stories about that as is deserved. Think about it. How often can you expect to find the $100,000 dollar profit? Not often, maybe never. Most houses, however, offer the potential to make $15,000. If you buy 4 houses a month and net $15,000 on each that is $60,000. A good month for most of us! How do you do that?

First, you need to realize that this takes work and the longer you work at it the more you have in your pipeline. Deals that you tried to make several months ago will surprise you and come to fruition when you don’t expect it. This is a good reason to not overpay. The seller that says he will not take your price today may well call you in a month or two to ask if your offer is still open. But how do you find motivated sellers?

Abandoned Houses

By driving neighborhoods you are interested in and identifying abandoned houses you will build a list you can contact by phone or mail. Get a $35.00 tape recorder and a $250 dictating machine and drive recording the addresses you like. Then use the tax appraisal district’s list of owners and make contact. You will find that some of these owners want to sell.

Code Compliance Officers

Code Compliance Officers routinely identify problem houses and contact the owners to request that the house be brought into compliance with city codes. They can be an excellent source of leads for those houses that an owner has a problem with. Some of these owners lack the means to bring the house into compliance and will entertain your offer to buy.

Estates

You can contact the surviving member after a death and find properties that need to be sold. This is touchy and requires finesse, but can net you some good properties.

Direct Mail

Direct Mail is tested and true. It works! Make a regular mailing part of your plan for success. Mail non-owner occupants as well as owner occupants. Be sure the house has been owned for at least 12 years or longer. That improves the likelihood that there will be enough equity for you to make a profit. You will have trouble buying houses for less than the mortgage balances, but these owners have paid down their mortgage and appreciation has increased the value so that the equity is sufficient for you.

There are many other ways to locate properties. Use your imagination and you will discover that there are ample ways open to you to locate properties. Good Hunting!

Bill Wise has been buying and selling real estate for 32 years. He teaches a course in buying and selling houses in San Antonio, Texas. The knowledge in his articles is hard won from actual in the trenches experience. Visit his web site at http://www.real-estate-investing-training.com/

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By James Orr

“How should I get started with real estate investing?” The question varies slightly, but the core of it is always the same. And, for a new real estate investor, I think it is an important question to ask.

Years ago, when I began speaking at our local real estate group, I used sit down with each person, usually over lunch, and try to determine their knowledge level of real estate markets, financing techniques, sales skills and other critical knowledge areas before recommending how they should get started investing in real estate.

After doing a dozen of these meetings, it occurred to me that the answer I gave was the same regardless of their experiences, skills and knowledge.

Without fail, I encouraged them to start out wholesaling.

What is wholesaling?

Wholesaling, is finding great real estate deals. Then putting the house under contract and finding another investor or retail buyer to buy the contract to buy the house from you for a profit above what you agreed to pay the seller.

For example, you by at a big discount and sell that discount to someone else for a fee.

Why wholesaling?

I recommend wholesaling to starting real estate investors for several reasons.

First, it is a very low risk way of getting involved in real estate investing. When you put a house under contract, you are putting up as little as $10 and ideally no more than $100. Beyond your time and some marketing expenses, that is all you should have invested in your business when starting out.

Second, it is an exceptionally excellent way to learn your market. As a new investor, you might think that $10,000 below a refinance appraisal value is a good deal on a house. Your market will likely teach you otherwise and better to learn that lesson from trying to pass of this type of deal with only $10 invested in a binder deposit rather than try to sell this house while you are making mortgage, utility, taxes and insurance payments on a house you actually bought.

Third, you will get to know other investors and can learn from them. As a wholesaler, you should be finding what other investors want and are looking for in deals. Some will be helpful and will want to share information and time with you. Many will not; do not take it personally. There are good and bad folks in this industry just like there are good and bad lawyers, doctors and accountants.

Fourth, you can generate quick cash. A challenge common with many real estate investors is cash flow. Learning wholesaling is learning how to generate quick cash. Master the ability to generate quick cash and you have solved a lot of problems.

And finally, you can find great buy and hold deals for your portfolio. Inevitably, as you look for wholesale deals you will find exceptionally good long term buy, rent and hold properties for your own portfolio. I strongly suggest that you do half a dozen or more wholesale deals before you consider buying a long term rental. By then, you should have a much better idea of what a really good deal is than you did on your first day as a real estate investor.

James Orr is a professional real estate investor and marketing expert.

You can subscribe to his real estate e-newsletter and access audio downloads, articles, marketing materials and educational real estate videos at his Real Estate Investing blog.

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Saw an interesting article in the Wall St Journal this week. How Good Are Zillow’s Estimates? discusses, surprisingly, the accuracy of Zillow’s estimates. Bet you never saw that coming.

In any case, the article pulls out a few interesting data of interest to Zillow users, based on research performed by the Journal:

• * Median difference between Zillow’s ‘Zestimate’ and a property’s actual sale price was +/- 7.8%.
• * Zillow was within 5% on about 1/3 of properties.
• * Zillow was more than 25% off on about 11%.
• * Zillow tends to perform best in neighborhoods where houses are of similar quality and price range. It underperforms on very high end and very low end properties.
• * Zillow’s estimate can only be as accurate as the information available, which may not take into account, for example, that the house recently burned out or was flooded.

At this point in its existence, it should be clear to all reasonable observers that Zillow presents a data point. The numbers it provides should not be the sole basis on which you make a pricing or negotiating decision. However, the accuracy is reasonable, especially in the middle-market. And the ‘implied’ accuracy (Zillow presents its estimate of a house’s value right down to the dollar, ie. $157,243) can be a powerful psychological tool in real estate negotiating, where so many decisions are made solely on emotional, and non-data-driven bases.

Over time, we can expect Zillow, or competing sites with the same goals, to continue to refine their algorithms and improve their accuracy as more of a track record is established. It’s a powerful trend to watch, and another threat to the hegemony of real estate agents over the buying and selling process.

By Steven Gillman

Large profits can be made quickly when you buy low and sell high. However, it is easy to make mistakes valuing a property, and transaction costs can eat up your profits if you are a little bit off in your assumptions.

This is the most obvious way to make money with anything, right? Of course selling high is the more problematic part of the formula. But then again, if you buy low enough, you can even sell low and still make money. So the big question then, is how to buy for less.

There are many ways to pay less. What is the simplest way? Offer less. This is the oldest and simplest negotiating ploy of real estate investing. Everybody knows this technique, at least in it’s crudest versions, but most are afraid to use it. Why? Well, it can be embarrassing, and it can be a waste of time if you don’t do it right. On the other hand, do you really mind being a bit embarrassed if it saves you $20,000?

The first piece of real estate I ever bought was a small lot for which the seller was asking $4,500 (now that’s cheap real estate). Fortunately for me, in my ignorance, I didn’t know then that offering 22% less than the asking price was considered insulting. Looking back on it, I now understand why the realtor didn’t want to present the offer. In any case, the seller accepted my offer of $3,500, because he was anxious to sell his last property before moving.

A friend bought a home on a lake for perhaps $40,000 less than it was worth. How? He made the offer. He was always making low offers as he shopped for a home, and of course this meant he had most of his offers rejected. I might have even hinted to him that he was wasting his time. Good thing he didn’t listen. Would you be willing to have a dozen offers rejected if it meant buying a home for a savings of $40,000?

Then there is the investor from California who routinely made dozens of offers at a time on houses - without even look at them. He wrote the offers for 25% less than the asking price, and included an inspection contingency and other clauses to protect himself. Most sellers said no, of course. Most did, but not all. He occasionally got some very cheap real estate this way.

Cheap Real Estate - Lowering Expectations

During a seminar, a real estate investor once told me,”If you aren’t embarrassed by your offer, it isn’t low enough.” Considering that he’s made millions in real estate, he may be worth listening to. You need to understand, however, that a truly low offer will almost never be accepted. Is it a waste of time then? Not at all, because there will often be counter-offers, and a low initial offer is just a way to alter expectations.

Let’s suppose you think your home is worth $300,000. You mention to a friend that you are considering selling it, and he says, “You should be able to get $250,000, right?” You ask another friend what he thinks the home is worth, and he tells you $260,000. How confident would you be about your $300,000 estimate of value now? You might lower your expectations, right?

This is one of the primary functions of a low offer; to alter expectations. When a seller is asking $300,000, and you offer $250,000, will he accept your offer? Probably not. He’ll almost certainly reject it. Getting cheap real estate isn’t going to be that easy. He may counter-offer, however. Suppose you go back and forth, and finally agree to $182,000. He might not have considered selling this low before, but maybe now it even seems like victory to him after starting at $160,000.

You’ll lose a lot of potential properties this way. Sellers sometimes won’t even take subsequent offers seriously once you have offended them with your extreme offer. You might avoid this by assuring the seller that his property may indeed be worth what he is asking, but that it only works for your purposes at a lower price. On the other hand, so what if you have a lot of rejected offers. Isn’t a bit of rejection worth it to get really cheap real estate?

Note: remember that if your plan is to simply buy for a low price and immediately sell the property, you should carefully consider the transaction costs and holding costs. Transaction costs include all the costs of buying the property, as well as all the costs of selling it, and can easily top 10% of the sales price if you pay a full sales commission.

The holding costs include property taxes, insurance, utilities, and any other ongoing costs while you own the property. Estimate the monthly costs of these and multiply that figure by an estimate of how many months it will take to sell the property to arrive at your total holding costs. Leave lots of margin for error if you want a safe investment.

Copyright Steve Gillman. For a Free Real Estate Investing Course, and to see a photo of the home we bought for $17,500, visit: http://www.HousesUnderFiftyThousand.com

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By James Orr

The number of deals that you will need to analyze before you find a great deal varies on several factors including: your particular real estate market, the time of year, how you are finding your deals and your ability to sell and negotiate.

First, let’s look at your real estate market. If you are in a hot real estate market, then houses are selling quickly and there will be fewer motivated sellers. Deals will be harder to come by, but they are there. You may spend more on marketing to get fewer phone calls or you may look at a lot more houses for sale trying to find motivation.

Traditionally, it is easier to find better deals when it is harder for sellers to sell their house. In colder climates especially this is the winter time. It is typically easiest to sell houses in the spring and summer while kids are out of school or are about to be out of school. So, you will tend to find more and better deals in the slower times of year.

How you are actually finding your deals significantly affects the number of deals that you need to analyze before finding a great one. If you are looking in the Multiple Listing Service (MLS) at houses that are listed by real estate agents whose job, according to the seller, is to get the seller the highest possible price on their house as quickly as possible. As an aside, the real estate agent’s job definition may not match what the seller thinks it is, but that is a topic for another day. So, if seller’s who hire real estate agents to get them the best price are all listing in the MLS, how many great deals are you going to find there? Fewer than when you market to find motivated sellers yourself.

Dr. Dolf De Roos, author of “Real Estate Riches”, part of the Rich Dad, Poor Dad advisor series, has what he refers to as the 100:10:3:1 rule. I have found this to be true in my experience and other real estate gurus have similar rules.

What it basically says is that you need to look at 100 houses, to find 10 worth putting offers in on to have 3 offers accepted to actually get financing and close on 1. This is what you can expect if you are looking at properties in the MLS or For Sale By Owner (FSBO).

If you are marketing to find deals, the numbers change dramatically. In a normal market, you may need to look at about 10 to 15 deals to find one or two that you buy.

Finally, the number of deals you need to analyze is also significantly impacted by your salesmanship and your ability to negotiate. You’ll find far fewer deals if your only offer is full price and all cash. Learning how to negotiate a discount for cash and/or getting terms when buying will make non-deals, potentially deals.

James Orr is a professional real estate investor and marketing expert.

You can subscribe to his real estate e-newsletter and access audio downloads, articles, marketing materials and educational real estate videos at his Real Estate Investing blog.

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You’ve been on the hunt for an investment property, and have finally found the right now. It looks right, and the deal ’smells’ right to you. The location seems like a sure bet.

So why bother spending all that time crunching the numbers? There are a few reasons, actually:

1. The analysis process forces you to think things through, and reduces the risks that you’ll overlook some key factors. It forces you to remove yourself from the emotional ‘heat of the deal,’ where you just might rush into something that ’seemed like a good idea at the time.’
2. Discount cash flow analysis gives you a number projecting how much you can expect to pull out of an investment. You can quantify ‘great deal’ in dollars and cents.
3. Detailed financial projections are the hallmark of a professional, and my aid you in attracting loans and financing for your deal.
4. Forcing yourself to generate best- and worst-case scenarios will create a range of projected results. The one thing that you know for sure is– you can’t foresee the future. However, you can attempt to determine the maximum and minimum amounts you stand to gain or lose, as well as the most-likely amounts. This is critical, since you should never pursue an investment where you aren’t comfortable with the risks. Nor should you pursue investments where the best-case scenario doesn’t meet your minimum return.

Best of all, financial analysis doesn’t even need to take up much of your time. The Real Estate Genius investment property calculator runs the numbers instantly– you just need to gather the facts, and plug in your assumptions.

Don’t leap before you look. Run the numbers and be prepared.

By Eric Medemar

One of the problems faced by many newbies (new investors) in the real estate business is lack of confidence. Confidence cannot be built without doing the activity that you are trying to build confidence in. This presents a problem with most people because real estate is not something that you can just practice, you cannot practice buying a house, or practice selling it. You could pretend to buy houses I guess, or pretend to sell houses, but pretending is for kids. This is where real estate bird-dogging comes into play. It gives you a reason to practice, you get paid. Now if money won’t make you practice then nothing will.

Instead of not getting paid for all those hours spent learning the market, you could be making thousands. I cannot think of a better way to learn real estate than getting out and looking for good deals, then finding good deals and showing them to buyers, who pay you for your services. Then after the buyers close you can follow the progress of the home and see if you made a good decision or not. The best part is that during your practice, even if you made a not so great decision you still get paid, and you do not lose a penny.

I started out my investment career as a Realtor. I built my confidence through selling investment properties to other people and watching them make money. After selling 9 homes to other investors and seeing them profit tremendously, I knew it was time for me to start making myself some money.

Eric Medemar is a realtor and real estate investor with 30+properties. He specializes in wholesaling, assigning, and flipping real estate. In 2007 He has already made close to $100,000 flipping properties. His goal is to help at least 170 people skyrocket their investment careers in 2007. http://www.BirdDogBiz.com http://www.TheMillionairesBlog.com

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