As I progressed in any career as a Realtor I became very interested in Real Estate Exchanges – Exchanging one property or properties for another. If you are not familiar with this technique I will give you a brief explanation how it works. Section 1031 of the Internal Revenue code states that if you exchange a property that you hold for business or investment for another property that you intend to hold as a business or investment - then you do not have to pay taxes on your gain; your taxes are not forgiven, they are deferred. However, if in the exchange a party receives an “unlike property”, such as cash, mortgage relief, etc., then that “unlike property” is taxable. Cash received in an exchange, is like Kryptonite is to Superman.
Now, I am not a CPA or Tax Attorney so please don’t take any statements that I may make as gospel. I am not in any way, shape, or form giving tax or legal advice. What I want to do is relate to you an example of how exchanging can work as an investment tool. I am going to do this with the following story from my experiences.
At the time of this story I had a listing on a 40 acre, 200+ space Mobile Home Park in Southern Arizona for, as best I can recall, about 2 million dollars. You can tell this was a while back. The price today would probably be around 5 or 6 million. Taking my property information with me, I attended a Society of Exchange Counselors market session. These sessions happened 5 or 6 times a year and lasted usually 3 to 5 days. The average headcount at my session was probably around 50 exchangers. This group, which is still going strong, was made up of around 100 Realtors from all over the country. I was a member of this group for 15 years and during that time I met and learned from some of the brightest minds I have ever encountered in the Real Estate industry. The group has a website: http://www.societyofexchangecounselors.com/.
One humorous thing I remember about this group was a comment made by our secretary who, among many other things, was responsible to find a meeting place for the Marketing Sessions which were held at various cities around the country; from Hawaii to New York. Her comment was, “It’s difficult to find a room large enough to hold all these egos.”
Anyway, back to my story. At the same meeting was a very professional lady, Margaret, from Pasadena, California. Although these transactions actually formulated over several weeks, or maybe even a month or two, I will outline it to make it easier to follow:
1. Margaret had a doctor client in Pasadena who had invested in an Apartment Complex (I think 8 Units) some years earlier. He now had a cash offer to sell the Units at a huge profit. However, if he accepted the offer he would have to pay a large portion of his profits in Capital Gains tax. He really didn’t need or want the cash anyway. He really wanted a larger investment property. Margaret negotiated an agreement between the cash buyer and the doctor to sell the Units to the cash buyer only if she could find another investment for the doctor; wherein the doctor could receive a Tax deferred exchange under the provisions of IRS Code 1031.
2. Margaret then located a 40 Unit Apartment Complex in Riverside, California which the doctor liked and would accept with the proceeds from his 8 Units. The owner of the 40 nits would like to move is equity into a larger investment; however, he also did not want to take the cash for the same reasons as the doctor.
3. So now – along comes Jack, who has a client that doesn’t mind taking the cash at all. In fact, he preferred it, as he was trying to liquidate assets of a Family Trust to the beneficiaries of the Trust.
The end results were as follows:
1. The cash buyer got the 8 Units in Pasadena.
2. The doctor got the 40 Units in Riverside.
3. The Riverside investor got the 40 acre Mobile Home Park in Southern Arizona.
4. The Mobile Home Park owner got the cash plus a first Trust Deed carry-back on the park.
5. Margaret and Jack each received a nice commission – Well-Earned, I might add.
As a tag on the commission bit, it turned out when we were almost ready to close ALL these transactions, the Riverside investor needed $50,000 to close his end of the deal.
After a lot of haggling, I reluctantly agreed to use $50,000 of my commission in exchange for a 10% interest of the equity in the Mobile Home Park. In less than a year I sold my 10% interest for $90,000 to the investor’s brother. As you can tell, I like successful and unusual stories from professionals in Real Estate or Investors.
I would like to hear your story. Maybe we could publish it on my Blog, giving you credit as a guest writer. If interested, email me at jr1@RealEstateJack.net.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Wednesday, February 9, 2011
Thursday, February 3, 2011
The Easiest Deal I Ever Made or "The Holy Triplex"
A thousand years ago (more or less) I was a newly Licensed Real Estate Agent in Sierra Vista, Arizona. The only knowledge and “Skill” I possessed was what I had learned in the classes I took to get my License. This particular day I was doing floor duty. All you Realtors know what floor duty is, right? That’s what you do to get business - until you get your “Farm” built. If you would like some of my ideas on building your farm, please view my article post, “Real Estate’s Building Your Farm” in the Broker Corner of my Blog http://RealEstateJack.net.
Anyway, back to my “Easiest Deal” story. This fellow, Mr. Smith, came into our office wanting to sell a property. He was directed to me wherein he explained that he had this Triplex he wanted to sell. The Triplex, he explained, had been converted from an old church building and was located in a small town some ten miles from Sierra Vista called Nicksville. So we signed-up a Listing Agreement, right then and there. At this time I don’t remember the price he wanted for the property. Also at that time I had not even seen the property and being on floor duty, I could not go do that until a later day.
So after exchanging a few pleasantries, the gentleman left. I would guess that this was probably in the late morning. After he let I got back to doing what Realtors do when on floor duty; answering random telephone calls and handling walkins – like the gentleman who wanted to sell his Triplex.
Sometime later, probably around mid-afternoon (this is the same day), Mr. Smith comes back into the office. Another gentleman, I’ll call him Mr. Allen, was with him. Mr. Smith explained to me that Mr. Allen wanted to buy the Triplex. Needless to say, I was ecstatic! Mr. Smith further stated that they had already been to the local bank and arranged for Mr. Allen to get a loan on the Triplex. I wondered later how they managed to get that loan; especially after I had seen the property, which was somewhat “rough”.
Anyway we drew up the Purchase Agreement with Mr. Allen agreeing to pay full price. At the time I just could not believe that this deal would ever close. There had to be something I couldn’t see or understand. However, my fears were unfounded. As soon as the title work was done, the deal closed. I received both the Listing AND Selling commissions. I came to find out later that all deals weren’t going to be this easy.
The rest of this story is that Mr. Allen became a regular and fruitful client of mine. I think that eventually I sold that same Triplex at least three times. So there you have it - my “Easiest Deal”.
I want to invite any and all of you readers to email me your “Easiest Deal in Real Estate” story. You don’t have to be a Realtor to do that. Who knows, I may publish your deal as an article on my Blog, with your permission, giving you credit. Email me at jr1@RealEstateJack.net
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Anyway, back to my “Easiest Deal” story. This fellow, Mr. Smith, came into our office wanting to sell a property. He was directed to me wherein he explained that he had this Triplex he wanted to sell. The Triplex, he explained, had been converted from an old church building and was located in a small town some ten miles from Sierra Vista called Nicksville. So we signed-up a Listing Agreement, right then and there. At this time I don’t remember the price he wanted for the property. Also at that time I had not even seen the property and being on floor duty, I could not go do that until a later day.
So after exchanging a few pleasantries, the gentleman left. I would guess that this was probably in the late morning. After he let I got back to doing what Realtors do when on floor duty; answering random telephone calls and handling walkins – like the gentleman who wanted to sell his Triplex.
Sometime later, probably around mid-afternoon (this is the same day), Mr. Smith comes back into the office. Another gentleman, I’ll call him Mr. Allen, was with him. Mr. Smith explained to me that Mr. Allen wanted to buy the Triplex. Needless to say, I was ecstatic! Mr. Smith further stated that they had already been to the local bank and arranged for Mr. Allen to get a loan on the Triplex. I wondered later how they managed to get that loan; especially after I had seen the property, which was somewhat “rough”.
Anyway we drew up the Purchase Agreement with Mr. Allen agreeing to pay full price. At the time I just could not believe that this deal would ever close. There had to be something I couldn’t see or understand. However, my fears were unfounded. As soon as the title work was done, the deal closed. I received both the Listing AND Selling commissions. I came to find out later that all deals weren’t going to be this easy.
The rest of this story is that Mr. Allen became a regular and fruitful client of mine. I think that eventually I sold that same Triplex at least three times. So there you have it - my “Easiest Deal”.
I want to invite any and all of you readers to email me your “Easiest Deal in Real Estate” story. You don’t have to be a Realtor to do that. Who knows, I may publish your deal as an article on my Blog, with your permission, giving you credit. Email me at jr1@RealEstateJack.net
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Friday, January 28, 2011
Building Cash Flow Without Cash - Formula 5.5 Flipping Paper Continued
When we ended Part One of this formula, we had figured out how to find paper to buy so that we can “Flip” it and get some of that Cash Flow. Just as we discovered how to find and buy Real Estate paper, which we will refer to as “Notes”, we will more or less use the same tactics to find someone that we can flip these notes to, for a profit. Good sources are Realtors, Real Estate Attorneys, CPAs, Financial Planners, Stock Brokers, Loan Officers, etc. However, the best probable way is the old “Ad in the Newspaper” formula. You could advertise with words like “Real Estate Note For Sale” or “Investor Needed To Purchase Real Estate Notes”. Check the newspapers and Yellow Pages for ads like “We Buy Notes” and/or “Top Dollar For Your Notes”. In other words, look for the same ads we saw and used to find Notes to buy & flip.
When you find an Investor or Note Buyer, you need to determine the requirements and perimeters of the Note Buyer, such as:
What kinds of properties will they accept as security for the note? For example, Single Family houses, Land or Lots, Apartments, Commercial Property, or Mobile Homes with or without Land.
What kinds of minimum yields do they want from the notes they buy? This will vary based on many factors, such as security for the note.
Investors will want greater yields on higher risk notes. For example, a note secured by a Single Family, Owner-Occupied (with excellent pay history) would probably require the lowest yield, let’s say 12% return on the investment. On the other end of the scale might be Raw Land, wherein an investor may require 18% or 20%. In this article I’m not going to get into how to calculate yield. I will, however, recommend that anyone interested in these types of deals purchase a good financial calculator or software.
Examples of other things an investor may require are Title Insurance, Appraisals, Credit Reports, Casualty Insurance, etc. These things discussed above need to fit the investor which you may be dealing with.
OK, so now we have found a note to buy on a Single Family house. The face amount of the note is $80,000 with 10% interest payable monthly over 20 years. You know that the “Going” investor yield requirement for this type of note is 12%, which you could sell this note for $70,115. So for you to make a profit of , say $4,000, you offer and get accepted a bid of $66,115. You should actually get a written contract to buy the note from the owner, preferably an “Option To Purchase”. You have to keep in mind who is going to pay things like Title Insurance, Closing Costs, etc. If you are going to pay for these costs, you better subtract the amount of these costs from your offer to the owner of the note. Investors do not normally pay these costs.
What you are going to do is have a “Double” or almost simultaneous closing wherein you will close with the owner of the note first. Then a few minutes later you close with your investor who is buying the note. The closer(s) will then disburse the funds; $4,000 to you, and $66,115 (less Title Insurance fees & Closing costs) to the note seller. Actually, I found it works better if I paid these costs and bought the note at a lesser price, say $64,500. Sometimes when people go to a closing they become unhappy when they realize they’re receiving less money that they thought they were going to.
I know I’ve covered a lot here that seems complicated, and it is – a little; however, once you’ve done a few deals it becomes routine. I remember when I first started trying this. I became discouraged and it took me a few months to close my first deal; however, since that time I would estimate that I’ve bought and sold over 6,000 notes – And most of those, one at a time. Of course once my volume increased I hired people to help me.
The note business is a great and very interesting career; Something new or different all the time. One thing I want to stress is that it is very important to have that double closing so that you actually own the note, even if only for a few minutes, before you sell it to your investor.
I will be publishing a book in the future, showing in detail how to thrive in this great business. I will be selling the book for a nominal price, which at this time I haven’t determined. It will depend on how much time I put into it; however, I want it to be as complete as I can make it. I’ll tell you this, if a person enthusiastically gets into this business, the business will always be there with excellent financial returns.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
When you find an Investor or Note Buyer, you need to determine the requirements and perimeters of the Note Buyer, such as:
What kinds of properties will they accept as security for the note? For example, Single Family houses, Land or Lots, Apartments, Commercial Property, or Mobile Homes with or without Land.
What kinds of minimum yields do they want from the notes they buy? This will vary based on many factors, such as security for the note.
Investors will want greater yields on higher risk notes. For example, a note secured by a Single Family, Owner-Occupied (with excellent pay history) would probably require the lowest yield, let’s say 12% return on the investment. On the other end of the scale might be Raw Land, wherein an investor may require 18% or 20%. In this article I’m not going to get into how to calculate yield. I will, however, recommend that anyone interested in these types of deals purchase a good financial calculator or software.
Examples of other things an investor may require are Title Insurance, Appraisals, Credit Reports, Casualty Insurance, etc. These things discussed above need to fit the investor which you may be dealing with.
OK, so now we have found a note to buy on a Single Family house. The face amount of the note is $80,000 with 10% interest payable monthly over 20 years. You know that the “Going” investor yield requirement for this type of note is 12%, which you could sell this note for $70,115. So for you to make a profit of , say $4,000, you offer and get accepted a bid of $66,115. You should actually get a written contract to buy the note from the owner, preferably an “Option To Purchase”. You have to keep in mind who is going to pay things like Title Insurance, Closing Costs, etc. If you are going to pay for these costs, you better subtract the amount of these costs from your offer to the owner of the note. Investors do not normally pay these costs.
What you are going to do is have a “Double” or almost simultaneous closing wherein you will close with the owner of the note first. Then a few minutes later you close with your investor who is buying the note. The closer(s) will then disburse the funds; $4,000 to you, and $66,115 (less Title Insurance fees & Closing costs) to the note seller. Actually, I found it works better if I paid these costs and bought the note at a lesser price, say $64,500. Sometimes when people go to a closing they become unhappy when they realize they’re receiving less money that they thought they were going to.
I know I’ve covered a lot here that seems complicated, and it is – a little; however, once you’ve done a few deals it becomes routine. I remember when I first started trying this. I became discouraged and it took me a few months to close my first deal; however, since that time I would estimate that I’ve bought and sold over 6,000 notes – And most of those, one at a time. Of course once my volume increased I hired people to help me.
The note business is a great and very interesting career; Something new or different all the time. One thing I want to stress is that it is very important to have that double closing so that you actually own the note, even if only for a few minutes, before you sell it to your investor.
I will be publishing a book in the future, showing in detail how to thrive in this great business. I will be selling the book for a nominal price, which at this time I haven’t determined. It will depend on how much time I put into it; however, I want it to be as complete as I can make it. I’ll tell you this, if a person enthusiastically gets into this business, the business will always be there with excellent financial returns.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Thursday, January 27, 2011
Building Cash Flow Without Cash - Formula #5 "Flipping Paper"
You’ve heard of flipping houses, haven’t you? This has become well known over the past years, mainly because of many Real Estate “Gurus” teaching seminars, writing books, selling tapes, etc. There’s even been some bad connotations from various forms of government; primarily because they don’t understand it, instead they believe & do whatever the Banking Industry tells them to do. I don’t mean to get off on a political soapbox; however, the kind of house flipping I know about and have written about is perfectly legal and if done right, benefits all parties.
So what about this “Flipping Paper” thing? Well, it’s a lot like flipping houses. It is also quite similar to being a Bird Dog for house-buyers, as I discussed with you in one of last week’s articles. What I’m going to discuss with you now is exactly what I did when I first got in the paper business. I took a seminar taught by Mike Meeker, a well known and excellent teacher, who I believe is now retired from teaching. I also believe he is living in Florida, or was when I last had contact with him.
Anyway, back to our story. This was back in the late 1980′s and I had no money available for investing. Here is the concept: You want to find Real Estate “paper” (Land Contracts, Trust Deeds, Mortgages, Notes) that is “For Sale” or will become for “For Sale”. To make it simple, let’s just call all these different types of paper, “Notes”. You are looking for Notes that were created in an Owner-Financed sale of Real Estate. Because of today’s market, these types of notes are plentiful; however, in any kind of market there will always be these “Private” Notes available because many buyers can’t qualify for Bank Financing and many properties won’t qualify for Bank Financing. To give you an idea of today’s market, just take a look at any major newspaper’s “Real Estate For Sale” section, and look for those ads that state “Owner Financing”, “No Bank Qualifying”, “Special Financing”, etc.
Trust me on this point; there will ALWAYS be Private Notes available and many of the owners of these notes would rather have a large chunk of cash NOW rather than monthly payments over X number of years. Also, there are and always will be Private Investors (and sometimes big company investors) who buy these notes. Why? Because almost ALL Private Notes can be bought at a substantial discount. Why? Because of the greater risk involved in these non-qualifying buyers and/or properties. In fact, I have never seen or heard of anyone who would pay 100% on the dollar for a note.
So let’s start putting this together. Remember, you are going to function as a “Middle Man”, not unlike the “Bird Dog” mentioned earlier. Here’s how we get started:
Find the Notes. There are numerous sources; such as Realtors, Title Companies, Real Estate Attorneys, etc. You can run a short ad in your local paper, such as – “I Buy Real Estate Notes” or “Top Dollar For Your Real Estate Note”. If you scan the ads you may see other people looking for notes. Don’t worry – There are enough to go around.
You could also look for ads offering “Owner Financing” in order to sell a property. Call the person, then ask them if they might want to sell their note after they close on the sale.
So let’s say you find a note for sale, what now? You need to have funds available to buy the note. Where do we get that? How do we know how much to pay for the note? In our next article we will get into answering these questions and how you can get that cash into your pocket.
To Be Continued -
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
So what about this “Flipping Paper” thing? Well, it’s a lot like flipping houses. It is also quite similar to being a Bird Dog for house-buyers, as I discussed with you in one of last week’s articles. What I’m going to discuss with you now is exactly what I did when I first got in the paper business. I took a seminar taught by Mike Meeker, a well known and excellent teacher, who I believe is now retired from teaching. I also believe he is living in Florida, or was when I last had contact with him.
Anyway, back to our story. This was back in the late 1980′s and I had no money available for investing. Here is the concept: You want to find Real Estate “paper” (Land Contracts, Trust Deeds, Mortgages, Notes) that is “For Sale” or will become for “For Sale”. To make it simple, let’s just call all these different types of paper, “Notes”. You are looking for Notes that were created in an Owner-Financed sale of Real Estate. Because of today’s market, these types of notes are plentiful; however, in any kind of market there will always be these “Private” Notes available because many buyers can’t qualify for Bank Financing and many properties won’t qualify for Bank Financing. To give you an idea of today’s market, just take a look at any major newspaper’s “Real Estate For Sale” section, and look for those ads that state “Owner Financing”, “No Bank Qualifying”, “Special Financing”, etc.
Trust me on this point; there will ALWAYS be Private Notes available and many of the owners of these notes would rather have a large chunk of cash NOW rather than monthly payments over X number of years. Also, there are and always will be Private Investors (and sometimes big company investors) who buy these notes. Why? Because almost ALL Private Notes can be bought at a substantial discount. Why? Because of the greater risk involved in these non-qualifying buyers and/or properties. In fact, I have never seen or heard of anyone who would pay 100% on the dollar for a note.
So let’s start putting this together. Remember, you are going to function as a “Middle Man”, not unlike the “Bird Dog” mentioned earlier. Here’s how we get started:
Find the Notes. There are numerous sources; such as Realtors, Title Companies, Real Estate Attorneys, etc. You can run a short ad in your local paper, such as – “I Buy Real Estate Notes” or “Top Dollar For Your Real Estate Note”. If you scan the ads you may see other people looking for notes. Don’t worry – There are enough to go around.
You could also look for ads offering “Owner Financing” in order to sell a property. Call the person, then ask them if they might want to sell their note after they close on the sale.
So let’s say you find a note for sale, what now? You need to have funds available to buy the note. Where do we get that? How do we know how much to pay for the note? In our next article we will get into answering these questions and how you can get that cash into your pocket.
To Be Continued -
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Friday, January 21, 2011
Real Estate's - Building Your Farm
Back in November, 2009 I wrote a couple of articles, primarily for Realtors, entitled “Building Your Farm”. The thrust of the articles was to suggest that Realtors, mainly new Realtors, with a little effort could build themselves a referral network that within a few years would supply them with plenty of business brought to them from past and present clients. I use the term “Client” to refer to someone who comes to you to represent them in business which involves whatever profession you are in, in this case Real Estate Brokerage. If you as a Broker/Agent deal with a person one time and have not established, nor do not establish a relationship that ensures that the person will do business with you again, then what you have is a “Customer” and not a “Client”. What we should strive to do is convert every customer into a client.
I have been a Real Estate Broker since 1975. During this time I have seen many people come and go in this business. I also have seen many people stay in the business. Those who stay and are successful are ones who built themselves, what I call, their “Real Estate Farm”. They sow the seeds with a new “Customer” by working their farm. The result is that the customers become clients and produce great “Crops” for the Realtor.
In case you would like to review those articles, which go into more detail about how to build your farm, they are still in the Archives of my Blog, http://www.RealEstateJack.net. What I’m going to do in this article is tell you about my personal experiences in my early days as a Realtor.
In November, 1972 after 22 years in the Army, I retired and needed a new profession QUICK. With a wife and four children (none out of High School yet), I needed far more income than military retired pay provided, especially in those days. I could probably have gotten a job with Civil Service; doing the same thing I had been doing with the Army. But I wanted something new and different, however, so with my Real Estate Sales Agent License in hand I embarked on my new career.
Now, as I tell this story about myself I’m also going to tell you about another Salesperson who began his Real Estate Career on the same day and with the same company. This is about a real person who I will call Homer. I’ll never forget how Homer and I were at the Real Estate office on our first day, in the library reading about Company Policies and so forth. This was on a Saturday afternoon, and as we were diligently reading, the receptionist came in and told us there was a lady on the phone who was at a house with our company sign on it, and she wanted to see the house NOW! She went on to say that we were the ONLY salespeople there and we needed to show the lady the house.
We were PETRIFIED! We had NO training except what was included in the Licensing Course. We were just supposed to be reading, NOT showing property. So, we went to show the lady the house. We didn’t answer any of her questions intelligently. Needless to say, she didn’t buy the house and as far as I know, was never heard from again. Now you thought I was going to tell you what a great job we did, right?
This little incident convinced me that this wasn’t going to be that easy, and that I better get some Real Estate Smarts real fast. So, I became a Seminar Junkie. I attended every seminar I could afford; sleeping in my van, etc. I eventually took all the CCIM Courses which were available at that time. Courses on Getting Listings, Exchanging, Counseling, Management, Etc. I asked Homer, with whom I had become good friends with, to go to some of these seminars with me, but he always had a reason not to go; couldn’t afford it, had floor duty that day, had to go get a listing, had to do showings, etc., etc.
My first full year (1973) in Real Estate I worked my a_ _ off. Believe it or not, I received the award “Realtor Associate Of The Year” for the state of Arizona in 1973 (my first full year in Real Estate). I think my total Sales Volume for that year was around Two-Million (This was a long time ago when a nice 4-2-2 home could be bought for $35,000. I know because I bought one, New)
During this first and subsequent years, I worked hard to stay in contact with people I had sold property to, those I sold property for, etc. I sent PERSONAL (not company) cards on birthdays, anniversaries, and most importantly – a card on the Anniversary of when they bought or sold the property.
After a couple of years I didn’t pull floor duty anymore. (If you don’t know what floor duty, you haven’t lived as a Real Estate Agent. This is where you are assigned to take ALL Walk-Ins, Call-Ins, etc.) I was fully occupied with referrals from past & previous Clients.
Getting back to Homer – Now I’m not picking on Homer. Homer became one of my “Real Friends”. However, Homer didn’t get the education he should have (in my opinion) and as a result in 1983 when I left this firm, Homer was still doing floor duty in order to find business.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
I have been a Real Estate Broker since 1975. During this time I have seen many people come and go in this business. I also have seen many people stay in the business. Those who stay and are successful are ones who built themselves, what I call, their “Real Estate Farm”. They sow the seeds with a new “Customer” by working their farm. The result is that the customers become clients and produce great “Crops” for the Realtor.
In case you would like to review those articles, which go into more detail about how to build your farm, they are still in the Archives of my Blog, http://www.RealEstateJack.net. What I’m going to do in this article is tell you about my personal experiences in my early days as a Realtor.
In November, 1972 after 22 years in the Army, I retired and needed a new profession QUICK. With a wife and four children (none out of High School yet), I needed far more income than military retired pay provided, especially in those days. I could probably have gotten a job with Civil Service; doing the same thing I had been doing with the Army. But I wanted something new and different, however, so with my Real Estate Sales Agent License in hand I embarked on my new career.
Now, as I tell this story about myself I’m also going to tell you about another Salesperson who began his Real Estate Career on the same day and with the same company. This is about a real person who I will call Homer. I’ll never forget how Homer and I were at the Real Estate office on our first day, in the library reading about Company Policies and so forth. This was on a Saturday afternoon, and as we were diligently reading, the receptionist came in and told us there was a lady on the phone who was at a house with our company sign on it, and she wanted to see the house NOW! She went on to say that we were the ONLY salespeople there and we needed to show the lady the house.
We were PETRIFIED! We had NO training except what was included in the Licensing Course. We were just supposed to be reading, NOT showing property. So, we went to show the lady the house. We didn’t answer any of her questions intelligently. Needless to say, she didn’t buy the house and as far as I know, was never heard from again. Now you thought I was going to tell you what a great job we did, right?
This little incident convinced me that this wasn’t going to be that easy, and that I better get some Real Estate Smarts real fast. So, I became a Seminar Junkie. I attended every seminar I could afford; sleeping in my van, etc. I eventually took all the CCIM Courses which were available at that time. Courses on Getting Listings, Exchanging, Counseling, Management, Etc. I asked Homer, with whom I had become good friends with, to go to some of these seminars with me, but he always had a reason not to go; couldn’t afford it, had floor duty that day, had to go get a listing, had to do showings, etc., etc.
My first full year (1973) in Real Estate I worked my a_ _ off. Believe it or not, I received the award “Realtor Associate Of The Year” for the state of Arizona in 1973 (my first full year in Real Estate). I think my total Sales Volume for that year was around Two-Million (This was a long time ago when a nice 4-2-2 home could be bought for $35,000. I know because I bought one, New)
During this first and subsequent years, I worked hard to stay in contact with people I had sold property to, those I sold property for, etc. I sent PERSONAL (not company) cards on birthdays, anniversaries, and most importantly – a card on the Anniversary of when they bought or sold the property.
After a couple of years I didn’t pull floor duty anymore. (If you don’t know what floor duty, you haven’t lived as a Real Estate Agent. This is where you are assigned to take ALL Walk-Ins, Call-Ins, etc.) I was fully occupied with referrals from past & previous Clients.
Getting back to Homer – Now I’m not picking on Homer. Homer became one of my “Real Friends”. However, Homer didn’t get the education he should have (in my opinion) and as a result in 1983 when I left this firm, Homer was still doing floor duty in order to find business.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Tuesday, January 18, 2011
Building Cash Flow Without Cash - Formula #4 - Become A Bird Dog
Let’s face it. There are many people would really like to get started making some money on their own, other than working at a regular J-O-B (Definition: Just Over Broke). However, they don’t have the START-UP CASH or they can’t spend the time away from their regular J-O-B.
I believe that most of the Formulas we have been giving you allow you to try them out in your “Other Than The Office” time. If you give these Formulas a real shot you will find that they DO work - that is if you match them WITH your work. However, you must give them a “Real” try. The more you try, the more experienced and confident you will become.
Also, remember to find yourself a mentor, if you can. Check out any Real Estate Investment Groups in your area. You can look these up online. Search Google for “Real Estate Investment Groups”. You will find every state listed. Click on your state to locate the different groups (clubs, associations, etc.) I find 12 groups listed in Texas. Visiting and joining one of these groups will expose you to all kinds of expertise in Real Estate.
Anyway, let’s get back (or started) on today’s Formula, “Being A Bird Dog”. You know the function of a Bird Dog, right? He/She finds and points out the birds (quail, dove, pheasant, etc.) for the hunter. For his efforts the Bird Dog is rewarded with treats, love, and tender care.
Being a Real Estate Bird Dog is somewhat similar. You, as the Bird Dog, find good Real Estate deals and point them out to the Investor or Rehabber who eventually buys the good deal, and you get your treat – $$$ – without having to put up your own money. Let me give you a couple of examples of how it works.
We will use an example with working with Rehabbers. These are people who are looking for properties that need repair and fix-up in order to make them ready to sell. Many times you will find them vacant and in generally poor condition. The Rehabber does the “Rehab” and puts the home or other property back on the market at a substantially increased price.
These Rehabbers really need to be doing the fix-up work rather than looking for more projects. This is where you, as the Bird Dog, come in. You get to know the Rehabbers in your area. One way to find Rehabbers is to run an Ad in your local newpapers, under Real Estate – Houses For Sale. Place an ad like “Handyman Special”, or “Fixer-Upper”. This should get you some calls from Rehabbers. Another way is to ask around with Realtors in your area, or go to the contractor area at Home Depot or Lowe’s. They will be there buying materials early in the morning.
My personal experience has been in the Rehab area. Several years ago, a partner and I were buying “Distressed” properties; fixing them up and reselling them. Many of our deals were brought to us by a “Bird Dog”.
So finally, here is Example #1.
1. You locate a house which obviously needs repairs. The house is vacant and has a sign in the yard,
“For Sale By Owner”. Note: If there is no sign, you can find out who the owner is by going to the
County Public Records).
2. You do your research to determine what will the house sell for AFTER it is fixed-up? You find this by reviewing Comparable Sales in the area over the past year. How do you do this?
a. Talk to appraisers in the area who will have this information.
b. Find a Realtor who will get this info. for you from the Multiple Listing Sales (MLS).
c. Look for other houses for sale in the area which don’t need fixing-up and find out the asking price. Let’s say you find out that the AVERAGE sales price over the past year indicates this house should sell for $100,000 after being fixed-up.
3. Next – Determine what it is going to cost to fix-up the house and get it “Ready To Sell”. How do you do this?
a. Again, get to know some Rehabbers. Ask them to give you an estimate of rehab costs. Some will do this hoping to get the rehab job or maybe even to get the house for themselves; to fix it up and resell.
b. Try to develop a relationship with an Appraiser or two. Most of these people, with a little experience, are pretty knowledgeable about repair costs.
Let’s say that the high estimate to do the rehab is $15,000 (You can get a lot of rehab for $15,000)
4. Next – You have to build in a profit for the eventual buyer (The Rehabber in this case) Let’s say $15,000.
5. Your Bird Dog fee = $5,000
6. Misc. & Administration (There will always be unexpected costs – Trust me on this one). = 10% or $10,000.
7. OK – Now you offer the owner $55,000 for the property, AS IS. You can do this with a simple “Sale & Purchase Agreement”, available at many office supply stores; Office Depot, Office Max, etc. You write the contract up – With you “And/Or Assigns”, as buyer. This “And/Or Assigns” is critical. It gives you the right to assign the contract to another party. Now, I have said you would need No Cash to do this Formula. I may have lied a little. It would be a good idea to give the seller of the house a little “Earnest Money”, maybe $100, when you get the contract. It could be more or less, it could be a check, but the point is that it strengthens your contract when a consideration is given.
8. Now with a contract in hand, you go visit your Rehabbers and offer to assign them your contract for $5,000. If you find a taker, you are out of the deal with $5,000 in your pocket.
Let’s re-cap the Deal -
Eventual Sales Price of the House $100,000
Purchase Price to Seller $55,000
Rehab & Fix-Up Costs $15,000
Misc. & Administration $10,000*
TOTAL - $80,000
Gross Profit $20,000
Bird Dog Fee - $5,000
Profit To Rehabber $15,000
* If Miscellaneous costs are less, more profit for Rehabber.
Summary: Everybody WINS – That’s the major key to making deals and establishing a good reputation – Everybody WINS. Remember – If you can solve a problem, you can make $$$ – In this example you solved 3 problems:
#1 And MOST important – You solved the homeowners problem by getting his house sold.
#2 You solved the Rehabber’s problem by finding him/her a house to rehab.
#3 You partially solved you problem by generating $5,000 with little or no cash outlay.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
I believe that most of the Formulas we have been giving you allow you to try them out in your “Other Than The Office” time. If you give these Formulas a real shot you will find that they DO work - that is if you match them WITH your work. However, you must give them a “Real” try. The more you try, the more experienced and confident you will become.
Also, remember to find yourself a mentor, if you can. Check out any Real Estate Investment Groups in your area. You can look these up online. Search Google for “Real Estate Investment Groups”. You will find every state listed. Click on your state to locate the different groups (clubs, associations, etc.) I find 12 groups listed in Texas. Visiting and joining one of these groups will expose you to all kinds of expertise in Real Estate.
Anyway, let’s get back (or started) on today’s Formula, “Being A Bird Dog”. You know the function of a Bird Dog, right? He/She finds and points out the birds (quail, dove, pheasant, etc.) for the hunter. For his efforts the Bird Dog is rewarded with treats, love, and tender care.
Being a Real Estate Bird Dog is somewhat similar. You, as the Bird Dog, find good Real Estate deals and point them out to the Investor or Rehabber who eventually buys the good deal, and you get your treat – $$$ – without having to put up your own money. Let me give you a couple of examples of how it works.
We will use an example with working with Rehabbers. These are people who are looking for properties that need repair and fix-up in order to make them ready to sell. Many times you will find them vacant and in generally poor condition. The Rehabber does the “Rehab” and puts the home or other property back on the market at a substantially increased price.
These Rehabbers really need to be doing the fix-up work rather than looking for more projects. This is where you, as the Bird Dog, come in. You get to know the Rehabbers in your area. One way to find Rehabbers is to run an Ad in your local newpapers, under Real Estate – Houses For Sale. Place an ad like “Handyman Special”, or “Fixer-Upper”. This should get you some calls from Rehabbers. Another way is to ask around with Realtors in your area, or go to the contractor area at Home Depot or Lowe’s. They will be there buying materials early in the morning.
My personal experience has been in the Rehab area. Several years ago, a partner and I were buying “Distressed” properties; fixing them up and reselling them. Many of our deals were brought to us by a “Bird Dog”.
So finally, here is Example #1.
1. You locate a house which obviously needs repairs. The house is vacant and has a sign in the yard,
“For Sale By Owner”. Note: If there is no sign, you can find out who the owner is by going to the
County Public Records).
2. You do your research to determine what will the house sell for AFTER it is fixed-up? You find this by reviewing Comparable Sales in the area over the past year. How do you do this?
a. Talk to appraisers in the area who will have this information.
b. Find a Realtor who will get this info. for you from the Multiple Listing Sales (MLS).
c. Look for other houses for sale in the area which don’t need fixing-up and find out the asking price. Let’s say you find out that the AVERAGE sales price over the past year indicates this house should sell for $100,000 after being fixed-up.
3. Next – Determine what it is going to cost to fix-up the house and get it “Ready To Sell”. How do you do this?
a. Again, get to know some Rehabbers. Ask them to give you an estimate of rehab costs. Some will do this hoping to get the rehab job or maybe even to get the house for themselves; to fix it up and resell.
b. Try to develop a relationship with an Appraiser or two. Most of these people, with a little experience, are pretty knowledgeable about repair costs.
Let’s say that the high estimate to do the rehab is $15,000 (You can get a lot of rehab for $15,000)
4. Next – You have to build in a profit for the eventual buyer (The Rehabber in this case) Let’s say $15,000.
5. Your Bird Dog fee = $5,000
6. Misc. & Administration (There will always be unexpected costs – Trust me on this one). = 10% or $10,000.
7. OK – Now you offer the owner $55,000 for the property, AS IS. You can do this with a simple “Sale & Purchase Agreement”, available at many office supply stores; Office Depot, Office Max, etc. You write the contract up – With you “And/Or Assigns”, as buyer. This “And/Or Assigns” is critical. It gives you the right to assign the contract to another party. Now, I have said you would need No Cash to do this Formula. I may have lied a little. It would be a good idea to give the seller of the house a little “Earnest Money”, maybe $100, when you get the contract. It could be more or less, it could be a check, but the point is that it strengthens your contract when a consideration is given.
8. Now with a contract in hand, you go visit your Rehabbers and offer to assign them your contract for $5,000. If you find a taker, you are out of the deal with $5,000 in your pocket.
Let’s re-cap the Deal -
Eventual Sales Price of the House $100,000
Purchase Price to Seller $55,000
Rehab & Fix-Up Costs $15,000
Misc. & Administration $10,000*
TOTAL - $80,000
Gross Profit $20,000
Bird Dog Fee - $5,000
Profit To Rehabber $15,000
* If Miscellaneous costs are less, more profit for Rehabber.
Summary: Everybody WINS – That’s the major key to making deals and establishing a good reputation – Everybody WINS. Remember – If you can solve a problem, you can make $$$ – In this example you solved 3 problems:
#1 And MOST important – You solved the homeowners problem by getting his house sold.
#2 You solved the Rehabber’s problem by finding him/her a house to rehab.
#3 You partially solved you problem by generating $5,000 with little or no cash outlay.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Thursday, January 13, 2011
Building Cash Flow Without Cash - Formula #3 Sandwich Anyone?
In our last article we talked about one way of creating cash flow without using cash. I told you how Bob and Greta used “Sweat Equity” to acquire income properties and generate cash flow. Let’s look at another “Formula” that could have worked just about as well and probably even better for the seller.
To refresh your memory, here was the situation: Bob and Greta found this duplex consisting of 2 apartment units. Each unit contained two bedrooms, and both units were vacant. The units needed some minor fix up, and more clean-up, to make them ready for rent.
The owner/seller did not want to manage the units anymore. He was sick and tired of tenants and toilets, and he wanted “out” of the property. He was asking $30,000 (Remember this was back in the 1960′s, but the formula still works today – Just add more zero’s). Bob and Greta bought the property for $25,000 plus their down payment; which was the work to get the units ready for rent. The terms were $150 per month including 6% interest, with the first payment being due when the first unit was rented. Bob and Greta quickly rented the cleaned up units for $300 per month (each), and after all expenses, generated a nice $300 per month Cash Flow. They later repeated this formula to create multiple Cash Flows.
Now, let’s discuss another way this could have been done to realize pretty much the same profit for the parties, and maybe even better for the seller. Let’s say that Bob & Greta offered to lease the property with the right to sub-lease to other parties. Again, there would be no money up front because Bob & Greta still had to do the fix up and clean-up. They would negotiate a 10 year Lease with the owner; with Lease payments of $250 per month. Bear in mind that the owner/seller still has to pay Insurance and Taxes; however, he also still retains all the tax benefits of ownership.
Bob & Greta rented out the units for $300 per month each, realizing a $350 per month Cash Flow. So let’s take it a step further. Let’s say that Bob and Greta want to spend their time finding more properties and not be bothered with managing the units. So here’s something they might consider: Sub-lease the property to another party; probably someone who is already managing other rental property. They could sublease the units to the third party for say $450 per month, which leaves immediate profit in the deal for the third party who can raise the rents as time goes by.
This technique is known as a “Sandwich Lease”. This benefits both parties in that Bob and Gretta can go and do what they would like to do, rather than manage property, and it also gives the experienced property manager, who is already in the business, immediate Cash Flow without having to find a tenant. To make this a sweeter deal for Bob and Greta when they negotiate the deal with the owner/seller, they should obtain an “Option” to buy the property for $25,000 at any time during the Lease period.
Now, let’s see what Bob and Greta realized from this deal:
1. They acquire and control a property without putting up any cash.
2. They created a “Sandwich Lease” which gives them $200 per month Cash Flow without any management on their part.
Note: This “Sandwich Lease” position could be sold to another party or used as part purchase price to buy another property – $200 per month for 10 years = $24,000.
3. They have an “Option” to buy the property for $25,000 which they can exercise at any time or they can sell or trade the “Option” to another party.
Not bad – with NO CASH and a little INGENUITY!
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
To refresh your memory, here was the situation: Bob and Greta found this duplex consisting of 2 apartment units. Each unit contained two bedrooms, and both units were vacant. The units needed some minor fix up, and more clean-up, to make them ready for rent.
The owner/seller did not want to manage the units anymore. He was sick and tired of tenants and toilets, and he wanted “out” of the property. He was asking $30,000 (Remember this was back in the 1960′s, but the formula still works today – Just add more zero’s). Bob and Greta bought the property for $25,000 plus their down payment; which was the work to get the units ready for rent. The terms were $150 per month including 6% interest, with the first payment being due when the first unit was rented. Bob and Greta quickly rented the cleaned up units for $300 per month (each), and after all expenses, generated a nice $300 per month Cash Flow. They later repeated this formula to create multiple Cash Flows.
Now, let’s discuss another way this could have been done to realize pretty much the same profit for the parties, and maybe even better for the seller. Let’s say that Bob & Greta offered to lease the property with the right to sub-lease to other parties. Again, there would be no money up front because Bob & Greta still had to do the fix up and clean-up. They would negotiate a 10 year Lease with the owner; with Lease payments of $250 per month. Bear in mind that the owner/seller still has to pay Insurance and Taxes; however, he also still retains all the tax benefits of ownership.
Bob & Greta rented out the units for $300 per month each, realizing a $350 per month Cash Flow. So let’s take it a step further. Let’s say that Bob and Greta want to spend their time finding more properties and not be bothered with managing the units. So here’s something they might consider: Sub-lease the property to another party; probably someone who is already managing other rental property. They could sublease the units to the third party for say $450 per month, which leaves immediate profit in the deal for the third party who can raise the rents as time goes by.
This technique is known as a “Sandwich Lease”. This benefits both parties in that Bob and Gretta can go and do what they would like to do, rather than manage property, and it also gives the experienced property manager, who is already in the business, immediate Cash Flow without having to find a tenant. To make this a sweeter deal for Bob and Greta when they negotiate the deal with the owner/seller, they should obtain an “Option” to buy the property for $25,000 at any time during the Lease period.
Now, let’s see what Bob and Greta realized from this deal:
1. They acquire and control a property without putting up any cash.
2. They created a “Sandwich Lease” which gives them $200 per month Cash Flow without any management on their part.
Note: This “Sandwich Lease” position could be sold to another party or used as part purchase price to buy another property – $200 per month for 10 years = $24,000.
3. They have an “Option” to buy the property for $25,000 which they can exercise at any time or they can sell or trade the “Option” to another party.
Not bad – with NO CASH and a little INGENUITY!
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Subscribe to:
Posts (Atom)