Apr 30, 2012
Time, Dollars and Equity - Learn All About Real Estate Investing
Taken from: www.biggerpockets.com
By completing the previous Key to Successful Real Estate Investing while Working Full Time you should have a good understanding of what is “Core” to your business and what is “Context”. Remember “Context” should be outsourced to other team members and “Core” are items you complete.
With this you now have some things to focus on and at the top of this list is Leverage.
Leverage Time, Dollars and Equity as you build and run your business.
Given that you work full time, leveraging your time both effectively and efficiently is Key as available time is a scarce resource. However, the real trick is to get good at leveraging other resources or team members’ time. If you can find multiple ways to leverage team members time you will see your business explode with positive growth.
Let me give you a couple of examples that work in our business:
As you know we are buy and hold investors in a California market. We pride ourselves in turning ugly and distressed properties into quality rentals. However, given we work crazy hours and travel all the time it is very hard to find these properties before they get bid up or scooped up by local investors who follow the same model.
That is exactly why we listened to Tony Alvarez (Our Mentor) and learned how to work with real estate agents in our market. We spend lots of time leveraging our relationships and helping those agents sell problem properties. By working with agents and getting them to trust us as closers of tough properties, we get the phone calls when other deals fall apart.
Lots of investors will pay more for properties as we don’t get in bidding wars; additionally, we close 100% of the deals we get in escrow. Thus, on occasion we get a call from an agent about a flaky buyer or problem property. By earning the trust of these agents we can pick up some nice properties because we will close if we get the deal in escrow; of course, closing is more important than a couple of extra bucks to many agents.
Leveraging your financial resources is also key, because we want our dollars working for us as hard as possible. If you simply spend your resources and then sit back and wait you will have a slow road.
I suggest a better approach is to investigate every avenue you have to leverage your dollars. Perhaps you can find away to recycle your hard earned capital. Perhaps you can find away to leverage past 401K’s by converting to Self-Directed IRA’s? Perhaps you can find a way to leverage dollars via VA foreclosures or other like-financing options.
The final area to get focused on, is leveraging equity as the market changes over the years. You may not get a chance to use this tip for a few years, but the ability to leverage equity will be key to accelerating your business.
In our business we leverage our equity in several ways. First we did cash out refinancing when it was possible before the crash. Second and more powerful for us was when single family homes made no business sense, we sold them and did 1031 Exchanges into small apartment buildings. This exchange allowed us to leverage our equity into a lot more cash flowing rental properties.
In addition we created a business model that allows us to buy distressed assets for cash, repair the asset and then via passive investors, extract a portion of our equity by offering a 10% interest-only note and first deed of trust on the now repaired and leased property. This model works very well for us in today’s market as intrest paid on savings is very low.
Search for homes in the area of Baltimore!!
Our passive investors love the return, the security, and the fact that they get a chance to participate in the Real Estate Market without taking the risks of active investing or having to invest all the time in learning the market.
Now I admit that cash out refinancing and selling properties via a 1031 Exchange today are not great options, but over time they will be, and you need to be ready for it. As the market changes and the press picks up on the fact we have hit the bottom in the market, real estate will come back in vogue and you need to be ready to leverage your equity.
Have you noticed lately that at least 75% of the press on real estate is positive the last 6-8 weeks? When the market changes from a buyers market to a sellers market we will be ready to exchange all of our houses for small apartment buildings again. It is a very profitable strategy.
In the end the fifth key is about getting good at leveraging Time, Dollars and Equity to insure maximum return to your business.
Apr 27, 2012
Opening an Escrow Account -Learn how It Works!!!
Taken From: www.realestate.yahoo.com
If you've ever made an informal bet with a friend, you may have asked a third person to hold the money until the wager was resolved. When you take out a mortgage to buy a home, you're doing something similar by opening an escrow account.
How it works
When you put money in escrow it is held by a neutral third party (called an escrow agent) who works for both the lender and the borrower. The agent's role is to carry out the instructions agreed upon by both parties. The money is released when all the terms of the agreement are met. Escrow can be involved in anything from multimillion-dollar building projects to purchases made on online auction sites.
When it's used
When your mortgage closes, your lender will usually require you to open an escrow account to cover property taxes and homeowner's insurance. You'll make an initial deposit, followed by payments to the account every month. (Usually these are added to your regular mortgage payment.) The escrow agent will then release these funds as your taxes and insurance premiums come due.
Its purpose
The idea is to protect the lender by ensuring that you pay your taxes and insurance on time. If you default on your property tax, for example, your municipality can put a lien on the house, which would make it difficult to sell. Or if your house burns down and you've neglected to pay the insurance, the lender would be left with no collateral.
How you benefit
Escrow can benefit borrowers by helping them spread insurance and tax expenses evenly over 12 payments. For example, assume your yearly property taxes are two payments of $1,000 each, and your insurance is $400 annually. If you paid these directly, it would mean three large payments a year; your escrow costs, however, would be a manageable $200 a month.
Escrow payments
Your escrow account will have a built-in cushion -- if you miss a payment, the lender must still be able to pay your accounts on time. However, federal law prohibits lenders from requiring more than two months. expenses in escrow. And because your tax and insurance costs will change slightly from year to year, the lender will review and adjust your escrow payments annually.
When escrow may be waived
In most states, the money you place in an escrow account earns no interest for you. For that reason, many borrowers prefer to pay their taxes and insurance directly. Lenders may agree to this if your down payment is more than 20 percent, although some will raise your interest rate slightly to compensate. Once you agree to putting funds into an escrow account, however, it is difficult to cancel it, so make sure you fully understand the arrangement before your mortgage closes.
Apr 26, 2012
Apr 25, 2012
'Severely' overburdened homeowners, renters
Taken from: weblogs.baltimoresun.com
How many people spend more than half their income on housing costs? More than you might think.
In the Baltimore area, one in five households with workers pulling down middle-income or lower-income wages fell into that pinched group in 2010, according to a new report by the Center for Housing Policy. That's nearly 85,000 households "severely burdened by their housing costs."
But it's not quite as bad as the nation overall, with nearly one in four of what the center dubs "working households" falling into that category.
The center, which looked at regions and states across the country, considered all renter and owner households with adults who made no more than 20 percent over their area's median income and worked at least 20 hours a week on average in 2010. That means retirees weren't part of the calculation -- and neither were those who were out of work or had their weekly hours cut below 20, a situation that plenty of Americans were stuck in that year.
"Had they been included, the number and share of low- and moderate-income households with severe housing cost burdens would have been higher: overall, 27 percent of low- and moderate income households in the United States — or 18.2 million of the more than 67 million households — had a severe housing cost burden in 2010, up from 25 percent in 2008," wrote the report's author, Laura Williams.
The share of severely burdened working households in the Baltimore area has fluctuated a bit the last few years. It was 19 percent in 2008 and 21 percent in 2009 before dipping to 20 percent in 2010.
The United States, by contrast, has steadily inched upward: 22 percent, 23 percent, 24 percent.
The report looked at both homeowners and renters, finding that tenants were hit with rising rents (up 4 percent) and declining income (down 4 percent) while homeowners' income fell faster than their housing costs (down 5 percent and 2 percent, respectively).
"Median housing costs for working homeowners declined modestly between 2008 and 2010," the center noted. "Meanwhile, the incomes of working homeowners declined even more, driven in large part by a decrease in the median number of hours worked per week."
Where do you stand?
Learn the Steps for Establishing Your Real Estate Investing Criteria
Taken from: www.biggerpockets.com
Assume you are following the series of successful tips to Real Estate Investing while working full time, you know that you need full and complete support from your significant other and you need to invest time doing “The Homework” in your market.
Once you have a handle on your market and a good understanding of a bad deal, average deal, good deal and great deal, you are ready for the next step. I suggest the next thing you do is sit down and review your homework and document your buying criteria.
Establishing Your Real Estate Investing Buying Criteria
Let me be clear, the more specific buying criteria the better. For Example:
- I want to get a good deal is a terrible buying criteria!
- I want to get a deal that returns 15%+ on my cash is a great buying criteria!
- I want to get something at a 20% discount.
This last one sounds like a good goal but who gets to decide the price or the discount level? I know lots of investors use this or similar criteria. I would argue that the criteria is too subjective and open for interpretation. Buying criteria like this can lead you to lie or mislead yourself into thinking you have found a good or great deal. Don’t let this happen to you.
Once you decide on your buying criteria I need you to do two things.
First, write it down and put the buying criteria in a couple of places. I suggest putting it near the computer you do your research on. I also recommend putting it in your wallet or purse to ensure it is always with you. It wouldn’t hurt to put it in your car as well.
By writing it down you can hold yourself accountable and remind yourself of what you are looking for.
Second, tell your significant other. Remember they are already on board with you, so share the buying criteria with her/him and tell them why you have decided on the criteria. I would also share the homework you did from key #2 to ensure they completely understand the buying criteria under the lenses of the effort you have already expended.
Sharing the buying criteria with your significant other ensures they understand and they can help you hold yourself accountable. I am a huge fan of teamwork and families working together in this business.
A quick caveat about buying criteria:
I have one additional filter I put all my deals through to ensure I don’t get too focused on the numbers. I use the following rule to insure I am not too numbers focused.
Would I be comfortable with my wife driving to the house during the day, getting out of her nice car and going into the house alone?
If the house or property doesn’t pass this test, I don’t care if it is the best deal on the planet. I won’t buy it.
I use this filter to avoid war zones. I love buying properties in older areas and showing how much we care by remodeling the property, but I won’t take a risk in areas where I am afraid to drive and review my property. It is just not worth it.
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