Archive for April, 2009

Should You Do Real Estate Full–Time?

April 18, 2009 at 8:54 am · Filed under Real Estate a full time job? ·Tagged , , ,

Many self–acclaimed real estate gurus state that everyone should quit their jobs and immediately jump into full time real estate investing. They often claim incredible results from students with little experience. We would like to caution that life–changing decisions are not usually simple and that full time investing is not for everyone. Let’s discuss some pros and cons of full–time versus part–time investing.

The Full–Time Investor

Entering into the real estate profession on a full–time basis offers several advantages over a part–time commitment. Being successful requires you to develop knowledge in many aspects of real estate, and more time focused on real estate leads to greater knowledge. The more your learn, the more you earn, since you do not need to rely on as many professional services or partners for help. You also learn to recognize a deal (or a dud) faster, which gives you more time to do more business or spend with your family.
As a full–time investor, you work your own hours. When we say “full–time,” that may mean as little as twenty hours per week if you are good at finding deals. The rest of your time can be spent pursuing other vocations or hobbies. Or, if you are so inspired, you can work forty or more hours and use the extra cash flow to buy rental properties or diversify your holdings in the stock market. The point is that you need to satisfy your cash flow needs before you can start “investing” your money.
One final point you should consider is whether you want to be “self–employed.” If you have always worked for someone else, being your own boss sounds very attractive. In some, respects, this isn’t quite the truth. Being your own boss means being an accountant, bookkeeper, stock clerk, receptionist and office manager all–in–one. You have to do deal with tax returns, payroll, office supplies, customer service, bills and all the other hassles that come with a business. You don’t have friends to chat with at the water cooler. You don’t have paid health insurance, a company car and a 401(k). You take your problems home with you every night. Sound like fun? It is, once you learn how to master your time and run your business. Being the master of your own life and career is well worth the other hassles of dealing with your own business.

The Part–Time Investor

The part–time investor holds a “regular job.” This may be by choice or for the time being until his real estate ventures are bringing in enough cash to quit his job. If it is the latter reason, don’t quit your job because the real estate “guru” told you so. Quit your job when it is not worth the income that it brings you. In other words, if you are making more money per hour flipping properties on the side, you are at the point that where your regular job is costing you money. Only then, is it time to quit!
One of the advantages of starting out part–time is that you can maintain cash flow while learning the business. It may take weeks or possibly months to find your first deal. That same deal may take several months to turn around, especially if you decide to fix it and sell it retail. Think twice before telling your boss you’re leaving; you will have plenty of time to make the career switch once you have real estate experience. You may, on the other hand, like your occupation. If so, continue to work at it, and invest in real estate on the side.
The best case scenario, if you are married, is to have one spouse work a regular job. The other spouse work the real estate business for creating wealth, retirement income and a nice college fund for the children. Of course, in today’s market, you could be laid off due to unforeseen circumstances. If you earn additional income flipping houses and invest the proceeds into rental properties, you will be covered if your main income is lost. This is especially the case for married women that often forego a career and raise a family, only to find themselves divorced with no means of making a living. We don’t want to sound cynical about marriage, but with a fifty–percent divorce rate in America, it never hurts to have a system for making money.
Someone with a full time job tends to have little free time to focus on real estate. A part–timer should learn most of the same skills as a full timer. Thus, the key disadvantage to flipping properties on a part–time basis is that it takes sacrifice to learn the business. Something has to give; television, lazy weekends, meaningless hobbies and even some family activities must be compromised. As with any education, time spent learning about real estate will bring its own rewards, especially if the people in your life understand your goals and your plan to achieve those goals. If you are married, make sure your spouse reads this material with you and participates in the fun process of making money.

Treat Real Estate as a Business

People are lured to real estate because of the quick buck that it promises. Don’t hold your breath, you won’t get rich quick. An “overnight sensation” usually takes about five years. More than ninety percent of the people who take a real estate seminar quit after three months. Real estate investing should be treated with the seriousness of a career. It takes months, even years for a business to cultivate customers and have a life of its own. You need to treat it like any other business.

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Things to Beware of When Buying an Older Home

April 18, 2009 at 8:37 am · Filed under Buy a Property?, Buying Real Estate, buy sell home ·Tagged , ,

You’ve decided to not hassle with building and want to get an older home. There can be some major expenses associated with this, so be careful. Always get an inspector out to the property and make sure to have him check the following 3 things.

If the house is 20 years or older, most likely the utilities are at the end of their lifecycle. You can probably bet the warranties on the water heater and air conditioning units have already expired as well. Will you be left making all the replacements? Most homeowners do not want to front the expenses associated with utility repairs or replacement and would rather move before that becomes an issue.

What condition is the roof in? Depending on what area of the country you live in, roof maintenance can come every 10-20 years. Is it ready to be replaced as well? If you’ve ever paid for a new roof, you know how expensive they can be. Check out the shingles to see what condition they are in. Make sure that is not another chunk of change you will have to fork over come a year or two.

Lastly, make sure you have the walls and siding thoroughly checked. Sadly, a lot of people will slap a new coat of paint over any suspicious cracks or water damage. You don’t want to get in a home just to find you have to replace all the sheetrock or the wood siding. If you are buying a home in a more humid climate, mold is a major issue. You don’t want to chance a member of your family getting sick down the road. Get particular and make sure you dig up all the home’s dirty secrets.

The most important rule of thumb is to speak up and make sure you know what you are getting into. Hiring a home inspector isn’t enough. Some of the state laws don’t require enough from the inspector. Do your own homework as the buyer and thoroughly question both the seller and the inspector. Then when you are ready to sign those closing papers, you can do so knowing exactly what you are getting into.

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Are You an Undercover Real Estate Investor?

April 17, 2009 at 8:08 am · Filed under Undercover Real Estate Investors ·Tagged , , ,

Is there anyone in your town that doesn’t know that you buy houses? If so, you aren’t doing as well at marketing as you should be. I hear investors saying all the time that they aren’t getting seller calls and subsequently aren’t getting the leads they need to find deals. I say step up the marketing and the sellers will call. Not only that but if you are shouting to the world that you buy problem properties, eventually you will be known for what you do and sellers will call you strictly on your reputation. THAT is cost effective marketing.

I was in Home Depot a few weeks ago and passed a couple of guys in an aisle. As I walked by, I overheard one say, “That is the house man”. Now I had never seen either of those guys and have no idea who they are but that experience lets me know that I must be doing my job at letting the world know my business is buying houses. There are many ways to let the world know what you do. Some ways are cheap and some are more expensive. You are going to have to try many things and get a feel for what produces for you best in your area. I have tried many kinds of marketing techniques and have come back to a few that constantly produce enough results for me to buy the 2 or 3 houses I want to buy every single month. They are as follows:
Classified Ads
The classified ad in the largest paper in the area is by far the largest producer of leads I have found. I know it is expensive and I know there are times it doesn’t generate calls but if you are going to stay in the biz just put it in there and leave it. Get used to it being part of the cost of doing business. I pay about $300.00 a month for my 4 line ad and that is the commercial rate. I run it 24/7, 365 days a year.

Over the past 3 years I have seen many “investor” ads come and go. Most folks put them in for a couple of weeks and then pull them or try just putting them in on the weekends. IT AIN’T GONNA WORK! Put it in the paper and leave it. It will more than pay for itself, believe me. If you are worried because there are several in there, don’t be. They are there because they are getting calls. Just be sure and actually answer your phone.

When a new ad pops up in my paper, I will always call. 9 times out of 10 I get a message. This is a big turn off to someone who needs a solution now. They want to talk to someone who can qualm their anxiety and tell them everything is going to be alright. Your answering machine won’t do that. As for what to put in the ad, you will have to work on this one. I have tried several and the one I have now hasn’t changed for over 2 years. I haven’t changed it because I get calls. My ad is:

CASH FOR HOUSES
In 48 Hours!
Any area, price or condition
Call xxx-xxx-xxxx

Now I have had other investors jockey for position and change their ad copy to be ahead of mine in the column but it hasn’t made any difference. Don’t worry about those things, just get the ad out there and leave it. It may take a few weeks to get going but sellers will call! Once you have your classified ad running than start working on your other ideas. If you only implement one idea a week, within a couple of months you will have a tremendously powerful real estate buying machine.
Ads in the “Freebie” Papers
I also run ads in the freebie papers here. These are the “Thrifty Nickel”, or the “Green Sheet” or whatever they are called in your area. I run both a column ad and a display in this paper and spend about $150.00 a month for these. They pull in seller leads fairly well and have always justified the costs. Remember that these guys are usually open to negotiating on your rates and you can probably get a better rate if you commit to a longer contract.
Bandit Signs
Bandit signs are great. They are some of the best lead generating tools around. I have yet to put out a bunch and not be bombarded with calls right after. I just don’t put them out that often. I might put out 5 or so a month and the ones that stay continue to pull in calls. At an average cost of less than $2.00 apiece, they are one of the best values around. Check the internet for sign companies for cheaper prices. I use 18 x 24 signs and place them at high traffic intersections around town. I also place one in the front yard immediately upon buying any house.

I have bought several homes in the same neighborhoods as a result of this. You can either use contractor stakes or the wire stakes with your signs. I like the contractor stakes because they don’t bend like the wire ones, in addition, they are cheaper. Just nail the sign to it with the roofing nails with the orange or green plastic tops or you can use screws. There are many variations on what your wording on the sign can say. Keep in mind that traffic will be moving so you want to keep your message short and sweet so it can be read. My signs say:

I BUY HOUSES
Cash in 48 Hours!
Any area, price, condition
xxx-xxx-xxx

Notice that it is the same as my newspaper ad? I like to brand my advertising because I think that helps with recognition. My signs are white with dark blue letters. Some folks swear by black on yellow or black on orange. Again, I say it’s not what or how you say it but the fact that you DO say it that counts. When dealing with bandit signs, be sure that your local code enforcement laws are tolerant of them. In my area, the City of Macon is very lax on them but a few miles down the road in Warner Robins they are super strict and will fine you in a minute.
Flyers
Flyers are another inexpensive way to get the word out that you buy houses. Just create a flyer telling people what you do and how to get in contact with you. Make copies for $.05 cents apiece and you have some really inexpensive advertising. It really is that simple. Then place these flyers on every bulletin board in your town. I also place some of them in those plastic sheet protectors so the rain won’t destroy them and put them up on telephone poles around neighborhoods I like to buy in. While not as large as the bandit signs, on poles actually IN the neighborhood they still attract calls. I carry a file with me in my truck and place them up whenever I stop at a grocery store or Wal-Mart. Some other places to put them are:

  • Laundromats
  • Taped to the inside of Pay phones
  • On the counter of any business that will allow you
  • Bulletin boards at Wal-Mart or K-Mart
  • Grocery store bulletin boards
  • Fax to Mortgage Brokers
  • Fax to Real Estate Agents
  • Take them Door to Door in target neighborhoods
  • Employment Center Bulletin board
  • County Courthouse Bulletin board

These are just a few examples. Any place that will allow you to put one is a good place. You can never let too many people know that you buy houses!
Promotional Items
These are some of my favorites and most fun. While they are not the top producers of leads or the least expensive, they will sure set you apart from the average investor.

Pen Knives – These tiny Swiss army knives are the coolest. They are actually key chains engraved with your message, mine being: WE BUY HOUSES- All cash or take over payments within 48 hours! Xxx-xxx-xxx I guarantee if you give one of these to someone they will keep it and if they think of selling, they will think of you. They are about $1.50 apiece.

Key Chains – I give these to all my buyers with the keys to their new house on them and leave them all over the place. They come in the shape of a house or #1 or whatever style you like and have your message on them. You can guess what mine says. Cost – about $. 25 cents apiece.

Pens – I use these all the time. Whenever I sign a sales receipt or anything I leave my pen. I can’t tell you how many calls I have gotten off of these things and since I always need one, I always have one to give away. My attorney even has a supply on his closing table. Mine are the “click” type and have my message repeating around the barrel. I have two types printed. One for sellers says “We Buy Houses!” and one for buyers says “Everyone Qualifies”. Cost – about $.21 cents apiece.

Coin Holders – These you hardly find anymore so everyone is surprised when I have them. I leave these things everywhere. Mine are bright yellow with blue letters and my message. Cost – about $.30 cents apiece.

I leave all of these promotional items everywhere, on the top of gas pumps, on end-cap displays in grocery stores and in department stores. I look at it this way, if I give away 100 pens, 50 knives and 50 coin holders a month, that is only a little over $100 bucks a month. That is still cheap advertising. You can get any of these promotional advertising products at National Pen. Their website address is www.pens.com or you can call my rep “Madison” directly at 1-888-672-9810. Always ask for her specials and tell her William sent you.
Business Cards
I order business cards by the 1000’s and you should as well. They are cheap, mine are about $50.00 for 2000, and I pass them out everywhere. I leave my cards everywhere, in pay phones, on restaurant tables, my kids even have their own supply to pass out. Try to get a box a week out. The card doesn’t have to be fancy, in fact the simpler the better. My card is bright yellow with blue letters and says:

WE BUY HOUSES
Foreclosure? Need Repairs? Bad Tenants? Divorce?
CASH IN 48 HOURS!
OFFERS MADE ON ALL CALLS!
XXX-XXX-XXXX
Car Magnetics
Magnetics are one of those things where you spend once and get use for a long time. Mine cost about $75.00 and are yellow with blue letters. They say:

WE BUY HOUSES!
FA$T CA$H
XXX-XXX-XXXX

I have gotten several deals from these signs. Remember to order a smaller set for the back of your car/truck. People have more of a chance to read the message when they are riding behind you.
Clothing
I like golf shirts and oxford dress shirts with my logo on them. There’s plenty of advertsing houses that will help you design a logo if you don’t have one or use the one you already have. There is no charge for set up and all items ordered include your embroidered logo free. They also have cool baseball caps and other stuff there as well. They have specials for new customers at great prices.
I pass my hats out to everyone I know who wears one and have given away many shirts as well. They really look nice and present a nice image for your business.
Other Advertising Tools
There are many other forms of advertising, some I have tried in the past such as billboards, door hangers, yellow pages, television and radio advertising. I even have a traveling billboard, an old SUV painted bright yellow with blue WE BUY HOUSES! and my phone number that I drive around and park overnight at different places. It gets the calls! Get the marketing going and let the world know who to call when they have a house to sell. If that phone isn’t ringing, you aren’t making money!

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Types of listings for selling a home as is

April 17, 2009 at 8:03 am · Filed under Selling a home as is ·Tagged , , ,

While selling a home as is, it is important that your home is marketed well for attracting buyers who are willing to pay top dollars. Listing your home for sale is a good way of promoting your home and will certainly help in attracting the most suitable buyers. However, the type of listing you select will depend on your ability and willingness to carry out the home selling duties and the existing real estate market conditions.
While selling a home as is, it is important that your home is marketed well for attracting buyers who are willing to pay top dollars. Listing your home for sale is a good way of promoting your home and will certainly help in attracting the most suitable buyers. However, the type of listing you select will depend on your ability and willingness to carry out the home selling duties and the existing real estate market conditions.

An �open listing’ is a non-exclusive agreement wherein you are allowed to execute open listings with as many real estate brokers as you like. Brokerage is paid only to the broker through whom you eventually sell your home. The amount you pay is usually a selling broker commission, equivalent to one half of what is paid in other type of listings. The broker is paid for representing the buyer and not for representing the owner. Although many full service real estate agents shy away from open listings, these can be beneficial as you will not have to pay any commission if you find a buyer on your own.

Another type of listing is commonly referred to as �exclusive agency listing’, which is similar to open listing. The only one major difference is that the broker is paid for representing the owner. Here also, you are allowed to sell your home on your own. The broker is free to contact other brokers and the amount paid as listing commission to the broker is shared with the second broker, if eventually the home is sold through him.

The most commonly utilized instrument is probably the �exclusive right-to-sell’ listing, wherein the broker has exclusive rights to earn a commission by representing the owner and getting the right buyer either directly or through another broker. In this type of listing, the owner pays both the selling as well as the listing commission. The owner can sell the home on his own but only after paying the requisite amount of commission to the broker.

The amount paid as commission varies depending on the existing demand and supply scenario. For example, when the markets are full with listings and buyers are relatively fewer, you may decide to pay more to the selling office for generating more traffic. If the listing broker wants to offer 2.5 percent to the selling office out of the total commission of 6 percent, you may insist on paying 3 percent instead.

The duration of listing is usually negotiable and can extend for a period of 30 days, 90 days, six months, one year or more. Conditions regarding cancellation of the listing agreement need to be set beforehand, so that you can cancel the contract if you feel dissatisfied with the services offered at anytime during the contract period. Any broker who allows you to cancel a contract is actually giving you a guarantee and in such cases, the duration of contract does not matter. In cases where the listing agreement expires without mutual renewal, the listing broker may still provide the owner with a list of names of prospective buyers. If the home is sold to any of these buyers within the specified time period given in the agreement, the owner is required to pay the requisite amount of commission to the broker.An �open listing’ is a non-exclusive agreement wherein you are allowed to execute open listings with as many real estate brokers as you like. Brokerage is paid only to the broker through whom you eventually sell your home. The amount you pay is usually a selling broker commission, equivalent to one half of what is paid in other type of listings. The broker is paid for representing the buyer and not for representing the owner. Although many full service real estate agents shy away from open listings, these can be beneficial as you will not have to pay any commission if you find a buyer on your own.
Another type of listing is commonly referred to as �exclusive agency listing’, which is similar to open listing. The only one major difference is that the broker is paid for representing the owner. Here also, you are allowed to sell your home on your own. The broker is free to contact other brokers and the amount paid as listing commission to the broker is shared with the second broker, if eventually the home is sold through him.
The most commonly utilized instrument is probably the �exclusive right-to-sell’ listing, wherein the broker has exclusive rights to earn a commission by representing the owner and getting the right buyer either directly or through another broker. In this type of listing, the owner pays both the selling as well as the listing commission. The owner can sell the home on his own but only after paying the requisite amount of commission to the broker.
The amount paid as commission varies depending on the existing demand and supply scenario. For example, when the markets are full with listings and buyers are relatively fewer, you may decide to pay more to the selling office for generating more traffic. If the listing broker wants to offer 2.5 percent to the selling office out of the total commission of 6 percent, you may insist on paying 3 percent instead.
The duration of listing is usually negotiable and can extend for a period of 30 days, 90 days, six months, one year or more. Conditions regarding cancellation of the listing agreement need to be set beforehand, so that you can cancel the contract if you feel dissatisfied with the services offered at anytime during the contract period. Any broker who allows you to cancel a contract is actually giving you a guarantee and in such cases, the duration of contract does not matter. In cases where the listing agreement expires without mutual renewal, the listing broker may still provide the owner with a list of names of prospective buyers. If the home is sold to any of these buyers within the specified time period given in the agreement, the owner is required to pay the requisite amount of commission to the broker.

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Cutting Your Losses Early

April 16, 2009 at 8:53 am · Filed under Cutting Your Losses

When your primary plan of action doesn’t work, you need to have a backup strategy. This may involve switching gears from a retail sale to a rental or rent-to-own deal. It may also involve dropping your price, dropping your rent, or, if you are lucky enough to realize your mistake early, walking away from an earnest money deposit instead of closing on a bad deal.

If you already closed and your exit plan didn’t work out, sometimes the only option is to bail out and cut your losses. It takes a big person to look in the mirror and say, “I made a mistake.” Too many investors let their ego get in the way and hold on longer than they should and the bleeding never stops. If it’s a retail deal, then drop your price, even if it means losing money. If it’s a rental, drop your rent low enough to attract a solid tenant. If your monthly carrying cost is $1,000 on a unit, it makes sense to drop your rent by $80 a month rather than have a vacancy. In fact, if you’re offering the property on a lease with option to purchase, you may consider dropping the rent below market and taking a monthly loss to make it up on the backend, assuming there’s enough equity to justify the monthly loss.

For example, suppose you buy a house for $150,000 and it’s worth $200,000, but because of a poor financing choice, your monthly payment is $1,300 a month. Even if market rents are $1,100 a month, that doesn’t mean you must hold out for $1,300 a month. Too many investors think they need to hold out for the $1,300 monthly rent because their payment is $1,300. Wrong – the market will dictate what you collect for rent, not your monthly mortgage payment. If you have a high payment but sufficient equity, it makes more sense to rent it for $1,100 or even $1,000 to get a qualified tenant who can eventually buy it for $200,000 in two years. A loss of $300 for 24 months is only $6,800, which is justified when you make $50,000 profit on the backend. A word of caution, though: Never compromise your rental standards because it will cost you more in the long run for evictions and repairs.

Over the past few years, many novice investors got into preconstruction deals, anticipating a huge increase in prices by the time the development finished. Instead, the values had flattened or dropped. Rather than walk away from their deposits, many insisted on completing their purchases, hoping the market would come back. They are often wrong, and end up selling the property for less than they bought it for. If they stay in the game long term or have a viable alternative exit strategy (such as renting in the meantime), they may come out on top. But more often than not, the best course of action may be to cut your losses early.

Like the old song goes…

“You got to know when to hold ‘em, know when to fold ‘em,
Know when to walk away and know when to run.”

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