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Joint venturing is a great way to invest in real estate. In our situation, a private lender lends all the funds to purchase the property and all the renovation costs. Knowing the investors criteria, it is our responsibility to identify and contract real estate investments opportunities, deal with the contractors and exit the project. Once a property is identified and acquired, it is time for the renovation. This is where the joint venture can become a bit more complex.

The relationship in a joint venture is clear cut until it reaches renovation. This is where a project can go from being a 1-2 month renovation to a 3-4 month renovation. Keep in mind that the majority of the joint ventures you do as a veteran investor will be with newbie investors or investors who have never done real estate investing. However, they always tend to have opinions on how to run a project or what should go into a renovation. Once in a while you may joint venture with a seasoned real estate investor who no longer wants to be involved in the day to day operation but they usually will be. To avoid these issues here are 5 tips to keep the joint venture running smoothly. Read More→

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Money Now or Money Later

Posted on July 1, 2014 by

Lately, we have been able to contract properties at larger than normal discounts through our aggressive marketing campaigns. The other day we sat down with our bookkeeper, who is also a wholesaler, and she was surprised at some of the prices we contracted some properties. She went on to explain that she recently contracted a property and assigned the contract for $11,000 and felt a bit guilty. I asked if she spoke with the seller after closing or keeps in contact with him to see what he thought. She explained that he was excited to close and even sent her a thank you letter a few days later. I told her that if that was the case she has absolutely nothing to feel guilty about.

Every week my team and I receive calls concerning the sale of homes, lots, apartment complexes, unfinished developments, etc. Once we have an address and a good idea of the property’s condition/situation we make an offer in the form of a range. We never give a hard number until after we have personally visited the property and have done extensive due diligence. If the seller can work with the range we schedule a meeting with the seller or his/her representative at the property. This is where I believe deals and relationships are forged. I get the opportunity to separate myself from all the other “buyers” that may be offering on this property as my competition. Before or while walking through the property I get to know the seller on a personal level. I ask what the reason is for them selling the property. If that question does not answer this question, I next ask what their goals are in selling the property. Try to build some rapport before asking the second question as it may be personal or they may think you are getting too nosey. These two questions tell me how serious and/or motivated they are in selling. I also do this for another reason that many investors may not expect. I do this to see if I can actually advise/help them to stay in their home, if they mention that would be something they wish they could do. Yes, if I am successful in assisting them in staying in their home I do not make money or not as much as I would make flipping the property. However, I make plenty on all the referrals. Read More→

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True Cost of Money

Posted on May 31, 2014 by

If you invest in real estate you have been told time and time again that the key to success and longevity as an investor is OPM, other people’s money. Whether you are borrowing the entire investment amount or just leveraging your own money you need to know the true cost of money. Some costs are obvious and known up front such as the points, interest, late fees, penalties, etc. but there are other costs that borrowers need to take into consideration.

When borrowing money to invest in real estate most investors first turn to hard money. If you are familiar with hard money you know it is expensive. Most hard money lenders charge 4+points or more and about 11%+ interest.  If you do the math this is an expensive way to go but it is a great place to start until you find better terms once you have experience. You should also keep in mind that most hard money lender’s terms are usually 6-12 months which should be much more than you will need if you have a plan and execute it, at the same time it does add some pressure. With these lenders you know what you are getting for the most part but what about the cost that you are told about but may not have considered, especially if it is your first time using this type of loan. When using hard money you are REQUIRED to purchase one or more of the following: survey, inspection, subject-to appraisal and/or termite inspection. These are great to have but the cost for each of these can get expensive if you did not plan for them. Many hard money loans if not all of them are also now requiring borrowers to pay/escrow at least 3-6 months of property taxes. Others have begun to charge loan servicing fees as well. Another cost to consider is the cost of each inspection done every time a draw is made from the repair escrow. I have seen an inspection repair draw cost anywhere from $150- $400 per inspection.  These inspection costs are done only when you request a draw from your repair escrow so it is in your interest not to request too many draws. Wait, there is more. Many people do not like to think about this but what if the term of your loan ends but you are still holding the property? Is there a fee to extend the loan? In most cases the answer is yes. Once you begin to add these costs and multiply them by the number of deals you want to do per year you will see the amount of potential profit that is spent on a few necessities and the rest wasted on garbage fees. Read More→

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Expansion

Posted on May 2, 2014 by

When one decides to invest, in most cases, he/she starts out by themselves or with a partner or two. The over-head expenses are minimal and only a few systems are put into place. However, over time as the amount of contracts increase and the number of projects grow expansion is required. The question is, how do you know how big to expand or if expansion may be too soon. This has been asked and will continue to be asked by all wholesalers, investors and all other entrepreneurs.

When one mentions expansion in relation to real estate, it may mean a number of different things. It could mean taking on more renovation projects, taking on employees instead of only commission workers, getting an office space or bigger space, a more sophisticated CRM system, hiring a project manager to supervise the projects, etc. First, check your current “structure” and make sure that everything that is currently in place is scalable. As a small to mid-size operation the system you have in place now may not work on a larger scale. You want to streamline your operation now and find out if it is truly ready to be taken to the next level. Real estate, specifically investment real estate, is not the easiest business to streamline unless you pick a niche and only focus on that niche. As an investor you know there are tons of ways to put a deal together. Every month even the REIA puts together a meeting focusing on different ways one can invest in real estate. Most real estate investment companies I have met focus and structure their company behind one niche, such as flipping houses, but still continue to do other things when the opportunity presents itself. For example, if a person focuses his/her business on buying, fixing and flipping properties he/she will still wholesale, subject-to, rent, owner finance, etc. a property if the opportunity was presented and it made sense. Read More→

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Joint Venturing

Posted on April 4, 2014 by

Recently I wrote about private lending and how you can work with other investors to profit together. However, the same can be accomplished with investors that might not have ever considered real estate. In fact, they may be someone you never even knew had the funds to invest in real estate in the first place. The more you let others know about what you are doing as a real estate investor the more opportunities may present themselves. Real estate investing is a sales position and the number one rule of sales is ABC, “always be closing!!”

Everyone always says to have your elevator pitch ready and I have to agree. No matter where you are or what you are doing you should always try to bring up what you do. I have learned that most people are intrigued with investment real estate, especially when they see tons of reality television shows about it nowadays. Usually bringing it up is effortless because most people who do not know each other ask the other what they do for a living. Be ready to answer all the questions and have business cards ready. As you tell the group what you do you will see some of the people’s interest increase as you speak. Make sure to give everyone a card but when you get a moment take the people that showed the most interest aside and set up a meeting. Your chances of finding more investors, whether they are buyers or lenders, will increase the more you do this. Read More→

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Private Funding

Posted on February 28, 2014 by

If you are a full time investor or just getting started, you may have noticed that inventory is not what it once was. Many real estate investors see this as an issue but as always by finding a win-win situation I found a resolution to their issue. In the last two years my focus has been in buying houses to renovate and resell. Occasionally, I end up having to wholesale due to having more deals than we can purchase. On the other hand, there are investors that have difficulty finding a good deal. As a result, their money is not working for them. It only made sense to find a way to work together.

There has always been a demand for investment real estate properties on classified sites like Craigslist. Everyone has seen the “I Buy Houses Cash” ad but recently there have been ads like “I have plenty of cash for real estate and not enough deals.” I know what you’re thinking, “It’s the same ad but worded differently.” Well, I thought the same thing at first and ignored it. I also thought they were placed by a company/ hard money lender disguised as a private lender. After seeing a few different ads similar to this I decided it was time to do some investigating. A few of the ads were hard money lenders, companies, wholesalers, etc. However, a few were legitimate investors looking for more inventory and they were willing to work together. Of course they preferred to purchase the property and be on their way but I presented an alternative. Read More→

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Due Diligence

Posted on January 24, 2014 by

In real estate investing the one thing that should always be done is due diligence. Due diligence means investigating any and everything that has to do with the property you are purchasing, selling, assigning, wholesaling, and any other type of transaction. This includes looking into the projected after repair value, repair cost, title, ownership, address, legal description, property boundaries, liens, mortgages, etc.  The last thing you want is be involved in a fraudulent transaction that could ruin your reputation and even worse, cause someone to lose money. So how is this done?

Well, there are a few things to look into when considering buying a home. In this example we will examine a purchase from a wholesaler that contracted the property from an REO agent. I chose this as an example because this is what many investors are accustomed to seeing and what has been used to defraud many investors as well. When purchasing a property in this manner you want to see the original contract going from the current owner to the wholesaler. Even if the wholesaler is double closing the property, you want to see this contract to make sure they have the right sell or assign it. Once you confirm that the wholesaler indeed has the property under contract you want to see the title commitment that the title company will provide the wholesaler. Assuming you are using your own go-to title company, which is different than the one the wholesaler is using, you can use your title commitment to make sure it matches up with the wholesaler’s title commitment. Keep in mind that title companies are human and can also make mistakes. Yes, they do insure their mistakes but double checking them to prevent these mistakes can save you tons of time and money. Read More→

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True Cost

Posted on December 30, 2013 by

When you begin to learn about real estate investing you normally hear about the big picture of how to find and sell real estate. Obviously, this is important because without a piece of real estate to buy or sell there are no profits. However, let’s assume you have the acquisition and disposition of real estate down to a science. Now it’s time to pay more attention to the details because as the saying goes, “the devil is in the details.” I like to say, “Profit is in the details.” In this case I am referring to fully understanding the true cost of closing a property.

Beginning with the contract, it must specify and make it clear who is responsible for each and every penny at the closing table. When you send over a HUD to the buyer/seller there should be no misunderstanding of who should be paying what. After nearly a decade of investing in real estate, I continue to see investors and wholesalers run into this problem time and time again. A few costs that are usually debated over are the title services and settlement costs, document prep fee, courier fee, tax certificate fee, government recording fee, HOA transfer fee, title policy, and even though its only $2, the state guaranty fee.  Individually all these fees are relatively small compared to overall purchase price but together can add up to be a few thousand dollars. Now imagine if you close multiple deals per month, these small costs can really impact your bottom line. So how do you overcome having to pay these fees? Read More→

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The Contractor

Posted on November 26, 2013 by

With the holidays here everyone begins to think about everything they are thankful for having in their lives. I did the same and came up with the same things everyone else thinks about like family, friends, having a roof over my head, a career I love, etc.  Then I began to think about what I was thankful for having in my work life. When I was done with this list I noticed I forgot the contractor. Without a great dependable contractor, investing in real estate is difficult. Think about how much more work load you would have if your contractor was not dependable. You would have to drive to all your projects every day, you would need to supervise numerous tradesmen daily, order materials, shop around for the best labor and material prices, put up with all the laborers excuses, etc. I am not saying contractors are perfect but they can be trained to work perfectly for you as an investor.

First of all, the best way to know if you have a great deal is to have a contractor validate your estimated repair cost with a scope of work sheet along with the cost. Keep in mind that no one can see behind walls so make sure to have a reasonable cushion. The benefit about having a contractor you continuously work with is that he/she can adjust their numbers if need be to make your project a deal. They do this because they know you will have another project coming soon. I have had many tight deals become very profitable due to having the right contactor. I know what all the wholesalers are thinking, “How can I get a contractor to do this for me if I am still not buying houses and investing myself?” To accomplish this, start by teaming up with a contractor that has shown you his work and you have verified he/she is dependable. When you contract a property have him/her give you a written bid and include it in your marketing packet. If an investor purchases the home, uses the contract and the contractor performs, you are now the go to guy/gal with the right connections. Best of all, when it comes time for you to do your first investment you will have your go-to contractor ready to give you, the guy that gave them plenty of business in the past, a great price. This is the ultimate win-win situation if executed properly. Read More→

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The Right Title Company

Posted on October 30, 2013 by

When discussing investment real estate everyone focuses on finding deals, locating financing, remodeling, selling, etc. Few people speak about the importance of a title company. Not only do you need a title company that closes real estate transactions but that closes investment real estate transactions. Most people believe that any title company will close any transaction but that is not true. Title companies will usually only close transactions that they are comfortable insuring. They are also able to only close transactions that their underwriters will approve.

Opening escrow at the wrong title company can cost you a deal. When interviewing a title company you want to know if they close investment real estate transactions. Also, make sure they will close an assignment contract, double assignment contract, a double close, a wrap, a subject –to, etc. Surprisingly, title companies that do not deal with real estate investment type transactions may not be aware of what some of these are or how to close them. All the transactions mentioned here are fairly similar with settle differences that can allow one title company to close and another title company to not close. Of course, you have to do your part and make sure the contracts are in order.  Read More→

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Changing with the Times

Posted on October 5, 2013 by

At the beginning of the year most people only considered a deal if it was at 65% loan to value (LTV) including repairs. As the year continued 70% LTV was acceptable and then 75% LTV. Today, there are investors buying properties as high as 80% LTV. The real estate market has changed and will continue to do so. In some neighborhoods new sales are driving ARV up daily. Do not get left behind using old numbers. If you have not changed, now is the time.

If you are still shopping for deals at 65% LTV or even 70% LTV in some places, it is safe to say you may not be doing as many deals as you once did. Most deals that are still at these numbers are in less desirable areas. Investors and wholesalers that run across a deal at these percentages usually contracted the property directly with the owner and had no competition. How do I know this? I lost a few deals to the competition before realizing it was time for a change. Others were already offering at the 75%-80% LTV as I was still at 70%. If you run the numbers, the 5% difference is not that much but to a homeowner it can make a huge difference. It is true, there will always be an investor/wholesaler willing to accept a smaller return, come up with an aggressive ARV and/or cut corners on the rehab budget to get a deal done but at the end of the day at least the percentages are on par. In my opinion, if they have to manipulate the numbers to call it a “deal” they can have it. Chances are you will be able to contract and perform on your contract after the original buyer did not. Read More→

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Terminating Contracts

Posted on September 2, 2013 by

As investors, we all hope and wish that all of our contracts go smoothly. As much as we hate to admit it, the truth is that some things are out of our control. Appraisals, hidden renovation cost, weather and financing are just a few examples of what we have little to no control over. How one handles these obstacles is going to be what differentiates you from all the other real estate investors.

Last month I terminated my first contract of 2013. I contracted this property with the intent of purchasing it to remodel and sell. At first look it was a no brainer. The home was a newer property located in a popular suburb. It was in need of some cosmetic updating and stainless steel appliances but the market changed overnight. As usual, I did my due diligence, pulled comps within the last few months, calculated the renovation cost needed to match the comps, and offered accordingly. A week before closing I reviewed the market and it turned out the builder had sold two new construction properties and listed the homes directly to pending. These homes KILLED the deal. The after repair value I had in mind was for the same amount as the new construction properties. Obviously, a remodeled home cannot be priced the same as a new construction. At this point many others would have terminated and moved on but not me, and you shouldn’t either. Read More→

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