Real Estate Investing Blog

We have all seen them, the late night infomercials that promise to make you a millionaire in a few short months by investing in real estate. Happy couples are thrilled to tell you in gushing terms how they turned their entire lives around in less than a year by following the secret formula that you can have for only $39.95, with a money-back guarantee! Require the secret formula without paying the $39.95? Read on.

The secret to making money in real estate is a technique called ‘flipping houses’. The principle is simple – buy a house that needs minor repairs for a low price, it up, & sell it for thousands of dollars profit. That is the meat of the secret – buy low, fix up, sell high. Require more particulars?

Getting Ready

* Know what you can afford. Before you ever look at a house, find a lender to pre-approve (not pre-qualify) a loan for you. Having your loan (or funds) in hand is a powerful bargaining chip when you are ready to buy.

Buying the Right House

* Shop the right places. Check the newspapers for foreclosure sales & the legal notices for tax foreclosure properties. Buy foreclosures, HUD, auctions directly from Governments & banks (Find the bargain homes here!). Shop around for a real estate agent that understands the kind of house you are looking for & establish a relationship with them.

* Pick the right house. Avoid houses that need over cosmetic repairs. You require a shabby house that is structurally sound with no major plumbing, structural or electrical concerns.

* Read the ads right. In real estate listings, look for words like ‘Handyman’s Special’ or ‘Fixer-upper’. Other tells that you’ll get a lovely bargain: ‘motivated buyer’, ‘Must Sell!’, ‘Quick Closing’ all mean that the buyer is anxious to sell, & will likely be happy with a lower price.

Doll It Up!

* Focus on the highest yield improvements. Kitchen & bath spruce-ups will give you back the most for your time & money. If you can only ‘do’ six room, make it the kitchen.
* Paint it, cover it, it up. Start with the basics: paint, paper & floors.
* Stick with neutrals. You require to generate a backdrop for the buyer’s imagination, & the more neutral the canvas, the easier it is for them to see their furniture against it.

Sellers’ Bargaining Chips

* Sell it yourself. Why pay a realtor’s commission fee now.
* Have all the receipts & materials warranties for any repairs & work that you did ready to hand over. Knowing that their home is ‘protected’ can help clinch a sale.
* Know your market & loan options. Lots of buyers won’t. If you can help steer them toward loan sources, it will help your sale.
* Be ready to close. Have your inspection & appraisal papers ready in order to keep away from delays.

Are not you glad that you didn’t pay for this “get-rich-quick” secret? Flipping houses is a viable way to invest & become profitable, on condition that you are truly willing to put time & hard work in to the technique.

Nowadays, real estate market always changes its supply and demand quickly. While some people want to sell their house in haste, the other is going to buy house immediately. To you, this is a good chance, because you can earn much money from the change. But the efficiency is low. If you want to ensure your high successful rate, you’d better make use of internet and learn how to flip houses online.

Step1
Evaluate your potential property. There are no guarantees in real estate. However, if your property meets certain requirements, you can make an educated guess about how investors will react. For example, a property needs to have a fair amount of equity in it for the investor to justify the sale. Also, if the property needs repairs, you will need to get estimates for these as well as comparable prices on other houses in the area. Once everything is factored in, the investors will still want to see a significant profit potential at the end. For example, a house that appraises for $100,000 and that needs $20,000 in repairs will not be a good candidate if the seller wants $70,000 for it, because that leaves the investor with only about 10 percent equity after he completes the repairs. Obviously, you should consult with a financial professional for help in determining if a property is viable.

Step2
Get the property under contract. If you determine that the property is worth trying to flip, get it under contract. Your contract needs to allow you to assign the contract to another investor as well as protect you in the event that the property does not flip so that you are not stuck with the house. You can find contracts for this type of thing online, or you can hire a lawyer to draw one up for you (see Resources below). You should never use a contract that has not been approved by your lawyer.

Step3
Build a page on your blog with the details about the property. Once you have the property under contract, build a blog page devoted to this property. It should include every single detail you know as well as address issues that the investors may have, such as why you do not keep the property for yourself if it is such a good deal. This particular issue is easily resolved by pointing out that you simply do not like to hold property, but prefer to flip because it is easier, even though a long-term investor makes much more money.

Step4
Notify your email list of investors that you have a property. Send your list of real estate investors an email that directs them to your blog page where they can learn all about this property opportunity. Let them know how to get in touch with you if they are interested in doing the deal. Do not give them contact information for the seller, or you may find yourself excluded from the deal.

Step5
Select the most promising investor and work with her to do the deal. You can do the due diligence work yourself or make that part of the investor’s responsibility. Before the contracts are signed, you should run everything by your lawyer again to make sure that everything is properly written up.

Step6
Take your cut and remove yourself from the transaction. Generally, you will receive your cut when the transaction closes. Remember, once you sign the papers, this is no longer your deal, so you do not need to field phone calls or help with due diligence unless your contract stipulates it.

Today I am still perplexed at how easily real estate flippers got away with false appraisals on overvalued land.

Step1
The banks loaned too much based on the true value of the underlying collateral and the seller’s walked with the excess cash (often repeating the process as buyer then seller in the next cycle).

Step2
In the simple case the lending bank has a strong interest in checking the accuracy of the appraisal (or hiring its own reliable appraiser) before loaning money on a land purchase and taking back a mortgage. Some argue that structured finance dilutes everyone’s incentive to check for fraud. The argument notes that the bank sells the paper to a special purpose vehicle (SPV) and the SPV sell securities to investors.

Step3
The risk of fraud is borne by the investors who do not or cannot check on the validity of any appraisals. The investors rely on rating agencies to rate the default risk and the rating agencies are operating under conflicts because they are paid by the SPV and get consulting fees from the SPV. The bank (and the originating broker) and the SPV no longer care because they take fees and pass on the risk.

Step4
The investors end up holding the bag. The argument seems overly simplistic. Most SPVs sell tranches and the lowest tranche, the so-called equity tranche, is not rated and very risky. Those who buy the equity, usually hedge funds, have an increased risk of loan defaults and should therefore have an increased incentive to monitor the quality of the loans.

Indeed, one could argue that the equity buyers and a stronger incentive than a bank that does not sell the paper to check on the default risk in the loans because the hedge funds took more risk with each default. There were long time rumors in the market of real estate flipping. Why did the hedge funds not check out the rumors, or at least price the equity to account for the rumors? Moreover, many of the same banks that passed on the risk to the SPV then bought SPV securities in their own hedge funds (and those funds are now in distress). Why did the banks not have the proper incentive, when purchasing back the paper, to make sure the paper that went to the SPVs they invested in was sound? In short, I continue to be baffled by stories of easy money (made even by gangs of thugs) on real estate flipping that overvalued land in the appraisals.

Many people like buying the turn-key homes, because everything of the houses is new, sparkly and fresh, including the appliances. If the price is in line with the comparable sales in the neighborhood, it doesn’t matter, really, how much the investor originally paid for the home. Here are the specific information from internet.

Hire Your Own Agent.

Hire a buyer’s broker to negotiate for you. Sellers generally pay your agent’s fee. A buyer’s broker will look out for your interests and represent you, not the seller.

Get a Home Inspection.

Ask the home inspector to thoroughly investigate the plumbing, heating, electrical and mechanical apparatus in the home, including structural. Take along a home inspection checklist to verify nothing was overlooked.

Hire Experts Recommended by the Home Inspector.

If the inspector suggests you obtain other reports such as a roof inspection, sewer inspection, HVAC report, chimney inspection, structural engineering report or pest inspection, follow the home inspector’s advice.

Carefully Inspect for Quality of Workmanship.

Look for signs that the flipper cut corners or tried to save money by using inferior products or materials. Note any defects you find and ask for repairs in the purchase contract.

Check with the County for Permits.

Not pulling a permit for work requiring a permit is common and not necessarily a deal killer. However, there is no guarantee that the work was performed according to code if the flipper didn’t obtain a permit.

Get a Home Warranty.

With a home warranty plan, buyers are covered for one year in the event a system failure, electrical malfunctions or plumbing leaks. Home warranty companies charge a service call fee, but the repairs are free.

We all like good tips. A waitress or a waiter likes good tips because that means more money in their pocket. If you want more money in your pocket, you might want to take this “tip”…buy cheap and “flip”. We are not talking about pancakes, either. How about the Real Estate market? Now that might seem ridiculous given the economic crisis in our country, but there are signs pointing to better days ahead. They may not be big signs, but there is a glimmer of hope. For instance, mortgage rates have dropped. According to the Mortgage Bankers Association, the rates on a thirty year fixed loan dropped below five percent yesterday. That is unheard of for a fixed loan.

The other flashing light that has a glimmer of green, meaning GO, for those considering Real Estate investment, is prices on property have dropped extremely low. Now is the time to consider buying property and “flipping’ it quickly for a profit. Even if the profit margin is low, you can use the profits from your sale to buy, rehabilitate, and flip another property of a greater value, that is determined will bring a greater profit margin. You can talk to a real estate agent in that area to see what they determine the property will sell for after your intended repairs.

Some people flip houses for fun or for a hobby, but flipping houses can be a business, a serious business that can change your financial future. With the state of America’s economy, it has impacted, in one form or fashion, every home and every business. You have to get creative with your investments. If your home has been impacted by the economic crisis and you find your credit scores dropping, despite the lower mortgage rates, a conventional loan may not be an option for you. If you have done your research and you know the property you are pursuing will bring a profit private money may be an option for you. The idea of a “flip” is to buy, rehab, and get rid of the property quickly.

Private loans or private money have a higher interest rate, but the idea is not to have the property more than a few months. Private loans are not concerned with your credit score, because they use the property you are purchasing as collateral. If the lender determines that the property you are purchasing will bring in enough profit to pay off the loan and their interest, that is their main criteria. So just a “tip” in this time of economic crisis, maybe try and “flip” some property. It might change the economy of your home.

Having worked with hundreds of investors and speaking with thousands of them, we have seen many reasons why investors fail. In fact, these are the same reasons that businesses in general fail, period.

Make no mistake: you’re running a business, not a hobby: if you treat this as a hobby, then stop reading now because dabbling in real estate can be hazardous to your financial health: you have to commit to treating real estate investing as a business or you will fail.

You can invest part-time, but you must treat it as a business.

Here are the key reasons why investors fail and what you must to you avoid these common mistakes:

• Take on something that has too steep a learning curve
• Trying to do everything themselves
• Buying properties without having a clear exit strategy
• Not enough buyer and seller leads
• Excessive holding costs
• Runaway rehab costs
• Lack of systems
• Taking on deals that take too long to get paid

All of this leads to a lack of cash flow, the #1 reason why all businesses ultimately fail!

So what should you do if you’re planning on investing in real estate? For the remainder of this article we’ll cover how to avoid these common mistakes.

Too steep of a learning curve
Keep it simple! That needs’ to be your first rule of thumb. Complicated deals may make you feel clever – but they won’t help you earn any money and in fact will probably end up costing you. It’s basically a simple process – why make it difficult?

Trying to do everything yourself
Many young investors feel they will save lots of money if they do everything themselves. While this may mean less out of pocket expense, are you really the most qualified person to do all of the tasks necessary? Probably not – it is almost always best to focus on what you do best and outsource the rest.

Buying properties without having a clear exit strategy
You are buying the property for the purpose of making a profit – period! Don’t “fall in love” with the property after the fact then waffle on what you’re going to do with it. Make a plan and stick to it.

Not enough Buyer and Seller Leads
This is where systems come into play. You need to have a steady flow of fresh leads of both buyers and sellers. Leveraging the internet is a great way to do this.

Excessive Holding Costs
You can’t put yourself in a position where you are going to be responsible for holding costs if the property doesn’t sell immediately. All of your deals need to be structured in such a way that if you are unable to sell the property in a reasonable amount of time, you can simply walk away.

Runaway rehab costs
The TV shows make this look so simple. You buy a property, do some demolition, then put in a new bathroom and kitchen and sell the property for a big profit. In reality this is one of the riskiest investment paths in real estate. Avoid any property that needs to be refurbished, unless you really know what you are doing.

Lack of Systems
Systems take the guess work out of things. With good systems for everything from buying properties to selling them (and everything in between) you can turn your business into a scalable operation that can grow as big as you want it to. Without systems, you’ll always be stuck trying to figure out what you next move should be.

Taking on deals that take too long to get paid
You want to get in and out as quickly as possible, time is money after all. Don’t even consider a property where you know going in that you’ll have to carry it for months. Who needs that kind of stress?

By avoiding the common mistakes above you are giving your business a much better chance of succeeding. Remember, you are looking for a long term sustainable income. Treat your real estate flipping business as such.

Financing

Whether this is for your first home, or a flip, buying a home should be a pleasant experience. I honestly believe that mortgage people try very hard to make it pleasant, and in many cases it is. Other times you want to find and hurt the underwriter. Believe me, I’ve been there. It’s not the underwriters fault! They are just doing the job they are paid to do, and that is protecting the company they work for. They will, however, have you jumping through hoops a lot of the time to get your loan. Don’t get discouraged, and don’t get upset. There are LOTS of different loans out there, for first time buyers, HUD, FHA, 100% loans, (no money down), 95%, and so forth. There are also “No Doc” loans, (for those who are self employed, and with very good credit scores), “Low Doc”, and then there are “Stated Income” loans. Your lender will find you a loan that will fit darn near any circumstance.

I am not a loan expert, but I know people who are, and that is why I put my trust in them to find me the perfect loan for my circumstance. It is mind boggling what these people have to know.

We have used MANY different companies to secure our loans. Some have been great, others not so great. It would be wrong for me to single out companies so I won’t do it. What I will do is tell you that if you have a good relationship with your bank, that could be a good place to start. There are direct lenders, such as Countrywide, that have been good to me. There are also mortgage brokers, who represent many companies, and will shop around for the best loan to fit your needs. There is a loan out there for just about everyone, so don’t give up.

Whatever way you choose to go, please find out what the loan is going to cost you BEFORE you make a decision. There are fees connected to certain loans, so make sure they are something you can live with.

100% loans are not really what they sound like. They are made up of 2 loans, such as an 80-20 loan. The 80% is your first mortgage, and usually has a competitive rate. The 20% loan, is a second mortgage, sometimes called a home equity loan, with normally a substantially higher rate. If you can scrape up enough for a small down payment, say 5% of the purchase price, you will be in a much better place.

There may be a pre-payment clause for any loan you may end up with. You really need to be aware of what you are signing so there are no surprises. Read any contract carefully before you sign it. Do not assume anything. You always have the option to say no.

Landscaping

Landscaping should never be discounted. It should be a real part of your budget, as opposed to what you have left over from the rest of your budget. I have said this before, but I will reiterate, you may have an incredibly beautiful house on the inside, but if it doesn’t have curb appeal, you won’t even get people to stop and look at the home in a lot of cases. It HAS to be pleasing and inviting on the outside, to get people to want to look on the inside! I can’t stress this enough. In my opinion, you should set aside 5 to 7% of your total budget to landscaping.

While you are looking at homes, you may find one that is so ugly, that even you will think twice about going inside to look. People that flip houses look at a home like what it could be, as opposed to what it is. A buyer normally will not do this. They either have no foresight in this area, or they don’t want to be bothered with the work or the expense. It is up to you to make that property look appealing. You only have one chance to make a great first impression, and if you blow that chance, you are losing sales.

Your landscape should compliment your house, not compete with it. If there are bushes covering the front of your house, trim them back or get rid of them all together. The same thing would go for a tree in the front yard. As much as I love trees, there are times when they need to be removed. If you have problems deciding what to do with your landscape, hire a landscape architect to come in and give you some ideas. If you will tell them how much money you have for your project, they will design a landscape that will fit into your budget. A sprinkler system is a great selling point, so try and get that to work into your budget as well. Dead grass is a major turnoff to a would-be buyer. Make sure that by the time you are ready to list your property, that you have a beautiful lawn that is well manicured.

There are little extras that may help you in the sale of your house that you may have not thought about. A nice swing-set in the back yard may be appropriate, and/or a sandbox. Flowers and hummingbird feeders, as well as a small water feature. These things don’t cost much, but can go a long way to give a homey
feeling to potential buyers. Believe it or not, even a cute mailbox can go a long way. Yes I did, I said cute.

Anything that you can do in the yard to make it the best one on the block will set the tone for a successful sale.

A popular real estate transaction, known as a flip sale, is when a buyer owns a recently purchased property for a short period of time and quickly sells to turn a profit. The aim is to purchase at a cost that will allow the buyer to sell that same property for a much higher price than was originally paid.

The process of a flip sale has become popular because in today’s real estate market prices are growing quickly. As a result it is safer to move properties quickly from ownership rather than sit on it and lose the initial investment.

There are several ways to do a flip sale that can be extremely advantageous such as securing interest only loans, no money or minimal money down as well as actually using equity from existing properties. There is also the potential partner to consider working with so that monies can be turned over even faster.

For beginners who are not familiar with this practice, it can be a tricky proposition. There are many factors to consider that can be overlooked for lack of knowledge and experience of the ins and outs of real estate transactions. There are things to look for like pre-construction sales as well as paying attention to how the market is doing on a daily basis as prices can rise very quickly.

Another good thing to pay close attention to is the actual contract. Refer to it regularly and watch as things progress making certain that the time line in completion of all components are being met. Keeping an eye on all involved will insure a successful flip sale that can create profit quickly and avoid being stuck with a property that must be sold just to get out from under the financial burden that can happen fast if one is not paying attention.

“2010 home sales will pick up! It’s the last chance for Obama money!” (Optimistic Charlotte Realtor)

“The world is ruled by facts. People are ruled by ideas.” (Anonymous)

It might be too late to still be giving out 2009 “Best of” and “Worst of” awards, but please humor me.

“Can’t Believe You Still Have a Job” Award of 2009: Obama’s “Cash for Clunkers” sales forecasting team. As they projected a total 7-week program amount of $1B, they ran out of money before the first week was out and had to go begging Congress for $2B more.

If “prognosticatin’” is your game, and you’re off by that much, you probably need to find a new job- you just ain’t that good at it. I’m not even sure that you can qualify for horseshoes or hand grenades (where being close counts for something). However, the very next prediction you made after the sales results came in was probably spot on; you knew you were definitely getting fired. And you couldn’t argue.

But alas, you work for the federal government where the bar for dismissal is pretty high; you have to make more than a concerted effort to get a pink slip. Michael Brown, of FEMA-Katrina fame, almost made it through. Reality show wanna-be’s getting by Secret Service and hanging with the President at a private party, no problem for the security folks. So I wasn’t overly surprised when I didn’t hear anyone having to fall on the sword for the “Clunkers” miscalculation. Then I started thinking- maybe this wasn’t a mistake. And I’m not going all “government conspiracy X-Files” all of a sudden. Stay with me here.

When the news came out the “Clunkers” program was bankrupt after the first weekend, the response from the public not interested in buying a car was something to the effect of, “what a bunch of government idiots.” However, the response from the public in the market for a new car was to hop in their clunker and floor it (top speed: 35-40 mph) directly to a dealership.

My next award: “Best Public Relations Move in 2009″- won by the Clunkers forecasting team

They ensured the dealerships would be jumping for the life of the program because you never really knew when the clunkers cash well would finally run dry. Heck, it was almost over the first weekend! Human nature responds predictably to scarcity. All you have to do is check the food stores when there is even a slight threat of snow. No milk, bread, or batteries to be found. Did you ever think that it might be in Wonder Bread’s best interest to pay off some meteorologists?

What happened after 8/24/09 when Clunkers was over? Sales went down for the next four months. Edmunds.com forecasted that only 18% of the new car sales were actually new; this means that 82% would have happened anyway! They just happened faster because of the incentives.

Let’s fast forward to the $8K (or $6,500) tax credit that’s now set to expire on 4/30/10. It was first set to expire on 11/30/09 and some people (like me) were duped into thinking that it was going to be over. Everyone who was somewhat interested in buying a house rushed to their local Realtor. National home sales went up in November and December (due to the actual house closings going past the 11/30/09 deadline).

But, what happened in 1/10? Home sales were down considerably. The home buyers were just like the car buyers, rushing to get their sale in before the deadline. February’s numbers are not out yet, but if the Clunkers program is any indication of consumer behavior, the following will take place:

2/10- dead

3/10- dead

4/10- a little better

5/10- much better

6/10- big decline

7/10- awful

8/10- awful

9/10*- awful

10/10*- awful

11/10- possible slight uptick

12/10- dead

* Mix in some bad sales seasonality as the kids go back to school and families vacation at the end of the summer

Here’s hoping I’m wrong!