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Stay in the Zone… Profiting from Real Estate Purchases…

2010 August 8
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Posted by Netbuc

Several diet books have been written on eating right to keep your metabolism in the ‘Zone’ – where you burn the most calories.   Today’s lesson isn’t about burning up calories, but it is about buying right in the right ZONE to mazimize your profits and exit strategies.

Only Buy Property with a Good Price/Rent Ratio

If your strategy is to mostly buy and rent or ‘rent to own’ out property until you can sell for a hefty profit, pay attention. In order to hold that property without it costing you monthly, you have to be able to rent it for enough money to pay your expenses.

Can you realistically do that? Can you find rental property that will cover all your expenses? In truth, it often can be difficult. However, it’s not impossible, particularly after taking into consideration tax benefits of ownership.

However, observing the rule that you should look before leaping, you must check the price/rent ratio on any property BEFORE buying it. That way you can avoid surprises. Some properties seem like they should be able to carry themselves, or close to it, but upon analysis reveal that they are instead alligators. If you buy without checking this ratio, you’re at risk.

The price/rent ratio is simply a rule of thumb that wise investors use to gauge the relationship between monthly rental income, monthly expenses, and the price of the property. It simply says that the monthly income from rents should be around 1 percent of the total purchase price. If the monthly rent is less than 1 percent, like it is here in Colorado (much below), unless the property is flippable, that property might be just too expensive. Here’s how to make the calculation:

RATIO =    PURCHASE PRICE/MONTHLY RENT

If your property has a value of $200,000 then 1 percent is simply $2,000. In some parts of the country this is pretty common.  In other areas (like Colorado), this is very unrealistic.  A quick survey or rents in your area will reveal this.

In my area, a $200,000 house would likely rent for $1200 a month, but might likely have $1400 or more in expenses.  You can’t make that up in volume!  Adding several properties like this will quickly put you out of business.  Using strategies like ‘rent to own’ allows you to increase your rents and cut some expenses within reason, but that must also fit into your long term plan.  What happens when the tenant buys?  You need to be able to quickly find another DEAL to replace this house or pay your taxes.  Things to consider!

TIP: The ratio is just a “rule of thumb” and depends heavily on the interest rate of your mortgage. If rates are down the price/rent ratio will be lower, if rates are higher, typically it goes the other way, north of 1%.

With a really bad ratio, you’re probably better off passing on the property, even if otherwise it seems like a good deal.

Know What Your Expenses Will Be

If knowing your true rental income is important, knowing your true rental expenses can be even more important. You can’t know whether the property will float until and unless you know both.

Typical Basic Rental Expenses:

* PITI (Principle, Interest, Taxes, Insurance)
* Mortgage payments (Principal and Interest)
* Taxes
* Insurance

Any real estate agent can give you a pretty good idea of how much your property taxes will be (if you can’t find it on your tax assessors website). And an insurance agent can very quickly give you a ballpark figure for your fire and liability insurance. (Yes, with rentals you definitely also will need liability insurance.)  NOTE: look for an insurance carrier who does not look at rentals as a higher risk. i.e. most homeowner policies cover the house and the contents – a landlord policy does not cover contents and should not cost as much.  If you agent gives you a quote higher than an owner occupant policy, shop around!

The remainder of your expenses are variable. By the way, “variable” does not mean that you may or may not incur them. It means that while they will definitely be there, the amounts will vary month-to-month and year-to-year.

Maintenance:

The biggest unknown factor is maintenance. You won’t know what’s going to break until it does. However, you can pretty much guess that the older the property, the more maintenance it will require. Here’s a rule of thumb for maintenance costs on rental property:

Age of Property     Maintenance as a Percentage of Monthly Income

0-10                   5%
10-25                  10%
25-older               15-20%

As you can see, the allowance for maintenance goes up with the age of the property.

TIP: Always try to buy newer properties. You’ll save a fortune on maintenance costs.

Vacancies:

Then there are vacancies. No property is rented all of the time. If you’re a good landlord and on top of things, however, it can be rented almost all of the time. A good rule of thumb for a good landlord to use is that the property will be vacant at least two to four weeks out of each year minimum.  More inexperienced landlords will have a much higher vacancy expense.

Till next time -

To Your Investing Success,

Udo Ginczek

http://www.netbuc.com

under → Assigning Deals, Cold Market, Real Estate Investing, Real Estate Wholesaling

Assigning Deals and Making Quick Cash…

2010 July 25
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Posted by Netbuc

I’ve been talking assigning deals and making quick cash from selling a really good deal to another investor.  Let’s now discuss how you can increase your profits by “doing more”.

Assigning is like a JOB and Retailing is like being the CEO.  Back when I used to spend my days withering away in a cubicle in some fairy tale land called corporate america, what I didn’t know at the time, or at least fully comprehend, was I was working for wholesale.  For every dollar I made, the company made 3.  I don’t care if you are flipping burgers or you’re at the top of the ladder, you are working for wholesale – UNLESS – you own the company.

Assigning is working – you are wholesaling a property for a bargain price to a bargain hunter and making a small percent of the profits.  (don’t get too upset here, my small percentage on assignments has ranged up to 32,000)  Usually it’s the investor who buys it, fixes and retails it is the one who makes big bucks.

So what are the extra risks?

Good question. If you buy it right, my way, nothing!  If you buy the house cheap enough, you can fund the purchase price, the renovation cost and the holding cost.  Now you list it with a top producing agent, priced right till you get a future homeowner who wants to call it home.  They get a loan and their new mortgage cashes you out and you deposit a huge check.

Before you start whining..

As I’m writing this the market isn’t exactly zinging along.  Inventory levels are high and financing is scarce.  How can I confidently say this will work?  Because if you do what my Platinum students do (you don’t watch BS cable TV shows for investing advice that tends to lend itself to best case scenario with no holding costs, no selling costs, no cost of funds, and I could go on and on), you adapt as the market adapts.  I have students right now following my simple retailing model, and still, despite a market every body is crying about, are selling houses retail and cashing big checks.

(First-timers should get an experienced mentor to help with retailing your first deal.  Once someone holds your hand through your first deal, you’ll be off to the races on the next one.)

In the next lesson, I’ll talk more about retailing.

To your investing success,

Udo Ginczek

http://www.netbuc.com

under → Assigning Deals, Real Estate Investing, Real Estate Wholesaling

The Secret of Flipping Real Estate Contracts

2010 June 10
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Posted by Netbuc

There’s an inherent problem in using an assignment to flip a property. Unfortunately, I’ve yet to see midnight gurus (some of those who promote it on late night television and elsewhere) explain this. So here goes.

Almost all sellers have a kind of personal relationship with their buyer. They want to know who’s buying their property. (This is even the case with banks, which almost always insist on knowing exactly with whom they’re dealing.) When you assign the purchase agreement, you break that bond. Most buyer and sellers, nevertheless, are willing to go along provided the deal concludes in a reasonable fashion. After all, they’re still getting a purchase or a sale out of it.

However, when they discover that you’re reselling the property at a substantial profit, some are very unhappy. After all, they conclude, what are you adding to the deal? They feel that your profit should go into their pocket.

As a result, you could have an angry seller (or buyer) on your hands who at the least refuses to sign off on the deal unless he or she gets more money, or at the worst, takes you to court. Thus, to oil the waters, many investors who flip in this manner just don’t tell the buyer or seller. What they don’t know won’t hurt them.

Therein lies the rub. There shouldn’t be anything illegal or even unethical in flipping property, as long as all parties involved are made aware of what’s happening. However, when one party doesn’t know what’s going on, there are all kinds of opportunity for things to go wrong.

If they’re being frank, any good investor will tell you that flipping works best in secret. If the seller doesn’t realize you’re making a $30,000 profit on the sale, he or she isn’t likely to complain. But, in the same breath that good investor will tell you to bite the bullet and let the seller know. It will save you all sorts of trouble later on.

Remember, it shouldn’t make any difference what you do with property after you and the seller agree on price and terms. If you can flip it to another buyer for a better price, so be it.

Will the Buyer Get Mad at Me?

Probably not, if you handle it wisely by letting the buyer know what you’re paying for the property (and getting confirmation on a signed statement from the buyer). On the other hand, if you conceal the information, the buyer may discover it later on and think you were trying to pull a fast one, and go after you.

TIP: Don’t get greedy.  Surprisingly, as long as you’re selling a good deal, most buyers won’t care in the least that you’re flipping or how much you’re making on the deal. As long as they’re assured they aren’t paying too much, chances are they’ll be happy.

Tip:  Work with Buyers you know.  Some lowlife investors may try to go around your back and deal directly with the seller and cut you out of the deal.  I teach my Platinum Mentoring students how to circumvent this problem before it happens, no matter who you are dealing with.

What’s the Right Way?

The right way to handle a flip is to be sure that all parties know what you’re doing (and get it in writing in case someone should later have an attack of memory failure). Quite often when they learn of it, they’ll admire you for it. After all, remember that you’re providing a sale for a seller who wants to get out. And you’re providing a deal on a house for a buyer who wants to get in. Why shouldn’t you be entitled to a profit for that? It’s a win, win, win situation! (First-timers should get an experienced mentor to help with an assignment.  Once someone holds your hand through your first deal, you’ll be off to the races on the next one.)


To your investing success,

Udo Ginczek

http://www.netbuc.com

under → Real Estate Investing, Real Estate Wholesaling

Assignment Of Purchase Really Works

2010 May 10
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Posted by Netbuc

Does an Assignment Really Work?

Certainly it does.  However, you need to include at least one escape clause in the purchase and sale contract in case you can’t find a buyer in the short amount of time that you have, or in case that buyer for some reason can’t complete the purchase.

Escape clause? What’s that?

It’s very commonly used in most real estate sales transactions. It’s a clause that says the sale/purchase is “subject to” or “contingent upon” something.  If that something happens, you can gracefully (without financial harm) back out of the deal.  In modern transactions there are three widely accepted escape clauses that most sellers will agree to without blinking (and that won’t weaken the transaction).  These are considered below.

1.    Finance contingency–You have written into the contract that the deal is contingent upon your getting financing. No financing, no deal and you’re out without penalty. This usually runs for 30 days, but you must reasonably look for financing.

2.    Disclosure contingency–You must approve the seller’s disclosures. If you don’t approve them, there’s no deal. But the time limit here is usually very short.

3.    Professional inspection–You must approve a professional inspector’s report. If you don’t approve it, there’s no deal. Usually you have 14 days to get the report and then either approve or disapprove it.

The problem with these contingencies is that they probably don’t offer you enough protection if you’re doing an assignment. For example, in order to get the deal at a rock bottom price, you may have to offer the seller cash. In a cash sale, you don’t have the protection of a finance contingency.

You might rely on the disclosure and professional inspection contingency, but those usually run out after 14 days max. At that time you either agree to move forward without their protection, or back out of the deal. If you agree to move forward, and something adverse happens (for example, your buyer flakes out), you’re stuck for the house!

What About Other Contingencies?

As a result, most investors who are flipping using an assignment want to add other contingencies. These are easy to add, but not easy to get accepted.

You can make the sale contingent on anything: your uncle dying and giving you an inheritance, your great aunt coming from Australia to approve the deal, sun spots, anything at all. However, any contingency you add that’s not reasonable is likely to be considered frivolous by the seller and a reason not to sell to you. Thus, the more escape clauses to protect yourself that you include, the less likely you are to get the seller to sign. And the fewer escape clauses you include, the greater your risk in case you can’t get a buyer to close the deal.

Isn’t There Some Way To Limit My Liability Here?

There may be a way to limit your liability in case you can’t make the deal. Most modern purchase agreements include a “liquidated damages” clause. If you sign this (and the seller does, too), then the total amount of damages that you are likely to have to pay in the event you don’t (or can’t) make the deal, is limited to your deposit. If you only put up a $1,000 deposit, you don’t have a great deal at risk.  There are ways around this too, though.

Some readers, I’m sure, are asking why are all these cautions necessary for an assignment.

The reason is that assigned purchase agreements can be iffy. There’s a lot that can go astray between signing them and actually concluding a sale between seller and new buyer. If the sale can’t be concluded, the seller is, of course, likely to get angry. And you want some good cover when that happens.

At our local monthly mentoring meetings we discuss things like a ‘catch all’ escape clause that is easy to get past a seller, ways to avoid giving a check for earnest money deposits, and much, much more to protect yourself and to ensure you get paid.  If you haven’t checked out one of our meetings, you should stop by and see what your competition is learning!

To your investing success,

Udo Ginczek

http://www.diversityhomes.com

under → Real Estate Investing, Real Estate Wholesaling

Can You Flip in a Cold Market?

2010 April 7
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Posted by Netbuc

 When the market slows down, is it’s harder to flip? Yes and no. You can it’s just the numbers change. Sometimes drastically. The percent of value changes from the really hot market – where you might buy at 85% and flip at 90% – to a normal market where, here in Colorado Springs, you might buy at 70% and flip at 80% to the down market where you have to buy at 40-60% and flip at 65-75% of value.Udo Ginczek

 

It may be harder, but n the one hand, it’s much easier to find bargain properties. However, on the other it’s harder to find buyers (the next buyers who purchase through you) who are willing to move quickly. The reason is that when the market slows down, buyers become more cautious. They want to see that they are getting a bargain. Therefore, in order to flip, you have to reduce your profit and give the buyer a good reason to purchase quickly … or wait until the market heats up again.

TIP: Remember, in any market, you must buy a property below market value in order to flip. If you buy at market, you will have to hold onto the property until it goes up before you can resell. Beware of trying to sell for more than market value. You won’t succeed, except when the market’s red hot and there are multiple offers on every property.

How Do I Actually Flip a Property?

The mechanics of the deal are fairly straightforward. Once you locate a property that’s below market, you present your offer. If the seller accepts, you have a period of time in which to resell – the date you sign the agreement to the date you are supposed to close on the house. Depending on how that offer was structured, your time period can be anywhere from a minimum of a few days to a maximum of several months.

You then bring in a buyer (one who actually purchases the property) who concludes the sale with the original seller – this is what I call assigning my contract. The buyer pays you to assign the contract so they can purchase in your position.

The buyer, in essence, agrees to buy my right to buy the subject property under the price and terms of the agreement I structured with the seller. The cash transfer is done in escrow. The new buyer gets a mortgage and puts up a cash down payment in the usual fashion or more typically with a flip to another investor, the investor is bring in cash or hard money financing which will fund your assignment fee and the purchase price. A portion of the purchase price goes to cash out the original seller. And you get the remainder, the assignment fee is paid to you.

A few e-mails ago, I mentioned my first real assignment deal where I pocketed $24,785 in cash for assigning my contract. My total time, including travel to and from the house, making the offer, getting the paperwork to the title company, selling to my buyer and showing up at closing for my profit totaled less than 3 hours. Flipping houses beats flipping burgers.

It gets a little trickier when your buyer is getting a mortgage to fund the purchase. Many lenders will not fund an assignment fee in with the purchase of the home, so your buyer will likely have to fund this outside of the mortgage. In many cases where an assignment is less in the $5,000 to $10,000 range it’s not unheard of for the buyer to just write a check. But in my deal above, writing a check for $24,000+ in addition to a down payment required by a mortgage company – you might expel resources of many potential buyers.

My buyer used hard money financing, which I helped him obtain, merely by putting him in contact with the right person who I knew would fund the deal (which meant, I knew I would get paid). The lender funded 100% of the purchase price, escrowed money for some of the repairs and funded my assignment fee. So my buyer also walked out of the closing with money to do the repairs. Nice!

In future a future e-mail, I’ll talk about how to sidestep the need for your buyer to have to fund the assignment fee and keep your profit a secret to your buyer.

To your investing success,

Udo Ginczek 

http://www.diversityhomes.com

under → Cold Market, Network Business Community, Real Estate Investing, Real Estate Wholesaling

Follow Market-Trends in Real Estate

2010 March 9
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Posted by Netbuc

Markets go up, markets go down and sometimes they just lay there flat like a runny pancake. Either way, savvy investors can create huge profits and bail out sellers that can’t get out of their own problems.

In a hot market, a nice house may sell within a week at or above the asking price. Even in hot markets though, there are sellers who need to sell quickly and can’t afford to fix up a house to get it ready to sell. Most buyers want a house ready to move into and for a seller whose house needs some work, they may not get an offer in the time they need before risking getting behind on payments.In this market we can pay a little more for a house, because we know if renovated property, the house will get at or above full market price and will likely sell quickly.

In a soft market the rules are different. Even in pristine condition, a seller may need to wait 6 months or more for a real buyer. If someone needs to sell quickly, they may not be able to wait and would take a hit on the price for a quick sale. In this case the investor can buy it better – farther below market, do the renvoation if needed or just clean it up in some cases and market at a “30 day price”. Often this is less than market value.

You see in either case, knowing what the market will pay and how quick they will pay it is all that matters. In the hot market a gorgeous 200k house may get 210k if is the nicest one on the block, staged property with every little minor ‘fix it’ item previously addressed. And it might go in less than a week.

　

Udo Ginczek

http://www.netbuc.com

 

under → Network Business Community, Real Estate Investing, Real Estate Wholesaling

TOP 10 Reasons to Wholesale Real Estate Contracts

2010 February 21
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Posted by Netbuc

#1.) You Need NO MONEY To Get Started! (Favorite Reason!)

#2.) You Do Not need good CREDIT to get Started! BAD CREDIT does not effect your ability to start Wholesaling real estate, Anyone can get Started TODAY!

#3.) You usually never take ownership of the properties that you are Wholesaling! NO OWNERSHIP HASSLES to deal with!

#4.) No Destructive tenants to deal with…EVER!! Tenants SUCK!

#5.) No Holding Costs to suck Your wallet dry while You’re hoping and praying to sell a property for a profit!

#6.) No Fixing or Repairing Property….. EVER!

#.7) No Contractors to deal with! I CRINGE when I think about dealing with the extremely dangerous “Contractor Factor” side of Buying-Fixing and Selling Real Estate and hoping to make a profit!

#8.) Your Deal PROFIT is ALWAYS “locked-in” and Guaranteed at every closing! I average $ 5,000.00 to $ 7,500.00 every time a deal is closed!

#9.) You can do multiple deals at ONE TIME! And, it never effects Your debt to income ratio because YOU NEVER borrow any money to wholesale houses!

#10.) It’s the ONLY style of real estate investing where you can do 10-25-50-100 deals in a years time, and at years end, own ZERO properties! And owning ZERO Properties means ZERO HEADACHES in my book!!

Well there you have it people! My Top 10 Favorite reasons for Loving Real Estate Wholesaling! 10 GOOD reasons if I do say so myself!

Udo Ginczek
http://www.netbuc.com

under → Uncategorized

Real Estate Investor

2009 December 13
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Posted by Netbuc

The real estate market brings in millions and billions of dollars every year for eager and soon-to-be wealthy investors. Why not get into real estate investment with fixer upper houses while you can to bring in extra income for life?

All over the country the economy has become rather shaky. Corporations and large businesses aren’t living up to the expectations of our elders. No longer is anyone able to get a job with a good company and expect to stay with that company until they retire. The average worker can’t live off their pensions anymore. Social Security was never meant to be a long term retirement solution either so don’t depend on that check for your old age. The only real ways to make sure you are taken care of not only in the here and now, but in the future is by taking care of yourself first. That means setting aside your own money and growing your own capital. One excellent way to increase your savings is through investment in handyman special homes.

Real estate investment is a proven method for growing your capital and even set money aside where you had none before. Real estate rehabbing in particular is an easy area of real estate to get into.

- There are very few special tricks to learn about buying handyman special homes.
- You don’t need to learn about special contract negotiations with the banks or mortgage holders.
- The property looks so good when you put it on the market that it’s not hard to sell.

New real estate investors can start off slow with small rehabbing projects that only need cosmetic work before delving further into the realm of fixer upper houses. There are a plethora of older homes in need of some tender loving care for new investors to get started in.

Plus, it’s not hard to make the purchase from a homebuyer. Most investors simply approach the deal as if they were buying a traditional home. That is, after a little of their own research to ensure that they can stay on budget with the property and make a profit on its resale. This process is even simple too. All it takes is knowledge on estimating remodeling costs and the full selling price of other nice looking homes in the area.

When you begin investment in fixer-upper houses, take some time to research the process from beginning to end. You’ll quickly learn how easy it really is to buy handyman special homes, fix them up and sell on the traditional home market. The pitfalls are there, but they only catch the unprepared investor. Many investors do get over eager in their desire to start off in the real estate investment world. They don’t learn the process and make many mistakes along the way. Real estate investors can tell you that these are the most common pitfalls of investing in fixer-upper houses.

- Paying too much for the fixer upper house.
- Not taking the potential buyer into account when remodeling.
- Asking too much for a house.
- Picking a bad contractor.
- Not securing permits.
- Not enough money/loans to complete project.
- Making mistakes and getting off schedule.

Each of these pitfalls is avoidable and fixable. It’s the poorly prepared investor that makes them and doesn’t get the help or knowledge to fix them. Plus, few of these pitfalls will prevent your handyman special homes from selling in the long run. The worst case scenario is losing some money in your investment. The best case scenario is earning more money and growing your investment at a rate of at least 10% per year.

While you can lose money in real estate, it is unlikely to happen with the proper research, determination and most of all a good purchase price. A rehabber’s profits are usually earned in the purchase price. If you get a really good price on those fixer upper houses, then you’ll usually be able to make a profit even if your remodeling costs are double what you thought.

A minimum 10% increase in investment is well worth the risk of investing in handyman special homes. Plus, many investors make more than that on their investments. It all depends on your experience, locale and that purchase price.

 

To Your Success,

Udo Ginczek

http://www.netbuc.com

under → Uncategorized

Get GMore for Google

2009 November 25
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Posted by Netbuc

Add GMore to your Google to find what you need faster! http://www.sitevacuum.com/publisher/netbuc.com/

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Great Opportunity

2009 October 28
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Posted by Netbuc

Come and visite me in my NEW Group at

http://groups.google.com/group/netbuc    and

http://netbuc1.multiply.com

under → Network Business Community

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