What and how much does the average Real Estate Investor or Real Estate practitioner know about Options? Even though there is a fair amount of general educational information and material available on the subject, it is surprising that so few Options are being used. Part of the reason for this is probably due to a shortage of specific, ["This is how you do it"], information and even more so, a shortage of Real Estate practitioners (Brokers, Lawyers, CPAs, etc.) who are knowledgeable enough about Options to give advice and guidance.
If these practitioners, and especially Real Estate Brokers, were to glean the education necessary to become knowledgeable in the use of Options, it would set them apart from the crowd and prove to be very lucrative for them.
I do not know of any Real Estate technique that compares with the “Option” when it comes to Leverage, Profit, Potential, Minimum Risk, Simplicity, Tax Benefits, and Flexibility.
Options can be used in almost any Real Estate situation; such as, investment properties and speculative endeavors. An old friend and mentor, Jack Miller, taught an exhaustive course on Options and their uses. Jack has since passed away; however, one might be able to obtain his instruction material from Common Wealth Press, P.O. Box 24837, Tampa, Florida 33623.
I think what I will do in a few Blog posts is show you some case studies of Options in action. The first one involves a 43 acre parcel of land which my company owned, fronting on Copano Bay in Rockport, Texas (on the Texas Coast). We had owned the property for some time and had anticipated developing it ourselves, at some point, but never seemed to get around to it. [You know what a Round Tuit is, don't you? We are all going to do something when we get one.]
Anyway we were approached by a Developer through a realtor who wanted to make an offer to purchase the property. This Developer planned to develop a mobile home park. Mobile Home parks do very well in this part of the country due to the thousands of “Snowbirds” that fly South in the winter. The Developer’s offer asked for a six month closing date with return of the Earnest Money if the Developer was unable to close due to financing or other problems. He also wanted the 6 months to do his Feasibility Study, and Engineering, etc.
We didn’t have any other potential buyers at the time so we decided to try to work with the Developer; however, we were unwilling to tie up the property for six months with no compensation. After some negotiation we agreed to give the Developer a six month Option to purchase the property. The Option fee was $10,000. In addition, if the Developer failed to exercise the Option, he agreed to turn over to us all his Engineering Work, Feasibility Study, Plats, etc., that he had done on the property.
The end of the story was that the Developer did not exercise the Option, therefore he forfeited the $10,000 plus the work he had done.
If you have some Option case histories, I would like to hear about them. Also, I would appreciate any other comments you would like to share with me.
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.
Showing posts with label investment. Show all posts
Showing posts with label investment. Show all posts
Monday, December 27, 2010
Friday, September 3, 2010
Create Your Own Private Money Source
This article is prompted by a question posed to me by a contact through eRealEstate Social Network.
The contact wrote, “Where can I find Private Lenders who are willing to work with Real Estate Investors? I have found a hard money lender, but it is very expensive. I could use some private Private Funds to help my purchases move faster. I am feverishly looking for houses to buy, fix up, and resell; however, often times I am beat out by someone who has Private Money readily on hand. I appreciate any help, direction, or referrals you may bring.” Jim Well Jim, you can develop your own Private Money source(s). However, it will take a little time, but if you treat them right (in fact, a little more than right) after a while you will have them calling you asking if you need to borrow some money.
Have I been on both ends of this Scenario? Yes, I have.
1. I have been the rehabber who borrowed funds from investors or partnered with investors. I haven’t done this
for a while; however, as mentioned above, I still get calls from some of those Investor-Lenders wanting to know
if I want to borrow some money.
2. Conversely, I have been the Lender-Investor who made loans or partnered with the rehabbers.
The key to success with these programs or any other partnered, is it has to be good for both parties. I could also write a book on failed partnerships.
Anyway, back to creating your own Private Money Source. I will list a couple of methods I have used to find Private Money Sources. First you should prepare a simple business plan to present to prospective Private Lenders. They will want to know how you plan to acquire, rehab and most importantly, sell the homes you wish to borrow funds on. If you have references or previous successful projects, put those as appendices to your plan. In any case, the Lender is going to want to feel comfortable that you know what you are doing.
1. Simply place an ad in the Classifieds, “Money wanted to finance a Purchase & Remodel of Real Estate
properties”, or “Experienced (if you are) Home Buyer, Rehabber needs funds for future projects”.
2. Talk to Title Companies, Escrow Companies, and Real Estate Attorneys for leads to Investors who loan to
rehabbers, like you.
3. If you know of other rehabbers who are closing deals, go to County Clerks and review the Deed of Trust or
Mortgages that were recorded on the property. These are Public Records that will reveal who the Lenders were.
Ads in the newspaper is the method that has worked best for me. With this Ad you should get a good response. Don’t try to make the loan over the phone. Set up a Face-to-Face meeting with your prospects. They will want to meet you before they get serious about lending you money. Set up the meeting in your office, a restaurant for coffee, lunch or whatever.
Have a copy of your plan to give to the Investor plus samples of some of your previous projects, if you have them. Be sure you can explain to your prospects how they will be protected by such as:
1. First Lien on the property
2. Title Policy
3. Hazard Insurance
If you have a specific property in mind, bring a presentation on that. Information like:
1. Purchase Price.
2. Rehab Costs – Include all costs, closing, Title work, and contingency amount; like 10%.
It seems like all projects overrun.
3. Details on the house – Bedrooms, baths, size, construction, etc. -
Pictures; inside and out.
4. Information on comparable Sales to reinforce your expected Sales Price after rehab.
The more prepared you are and the more detailed,
the more the prospects will be impressed.
You will have to offer a good return to your Investor Lender, say 10% to 12% interest, perhaps with a bonus after resale; either points or percentage of the profit. You may think this is expensive; however, consider this from the Investor Lender perspective. Most of these loans are short term so even though the interest rate may be high to you, the investor sees it as some type of administrative expense; taking their funds out of where they are invested in now, and getting interest for only 3 to 6 months on your deal. Also, once you have done a few successful projects with a Private Lender you can better negotiate on rates. Also, the word will get around that you are doing deals and other Private Lenders will be more inclined to want to do business with you.
This is getting a little long, so I will stop for now. However, I want to show you how you can use and lock-in these Private Lenders to longer range Investments for them. This will also help you sell your finished projects faster, which means greater profits.
NEXT EPISODE WILL BE COMING SOON.
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.
The contact wrote, “Where can I find Private Lenders who are willing to work with Real Estate Investors? I have found a hard money lender, but it is very expensive. I could use some private Private Funds to help my purchases move faster. I am feverishly looking for houses to buy, fix up, and resell; however, often times I am beat out by someone who has Private Money readily on hand. I appreciate any help, direction, or referrals you may bring.” Jim Well Jim, you can develop your own Private Money source(s). However, it will take a little time, but if you treat them right (in fact, a little more than right) after a while you will have them calling you asking if you need to borrow some money.
Have I been on both ends of this Scenario? Yes, I have.
1. I have been the rehabber who borrowed funds from investors or partnered with investors. I haven’t done this
for a while; however, as mentioned above, I still get calls from some of those Investor-Lenders wanting to know
if I want to borrow some money.
2. Conversely, I have been the Lender-Investor who made loans or partnered with the rehabbers.
The key to success with these programs or any other partnered, is it has to be good for both parties. I could also write a book on failed partnerships.
Anyway, back to creating your own Private Money Source. I will list a couple of methods I have used to find Private Money Sources. First you should prepare a simple business plan to present to prospective Private Lenders. They will want to know how you plan to acquire, rehab and most importantly, sell the homes you wish to borrow funds on. If you have references or previous successful projects, put those as appendices to your plan. In any case, the Lender is going to want to feel comfortable that you know what you are doing.
1. Simply place an ad in the Classifieds, “Money wanted to finance a Purchase & Remodel of Real Estate
properties”, or “Experienced (if you are) Home Buyer, Rehabber needs funds for future projects”.
2. Talk to Title Companies, Escrow Companies, and Real Estate Attorneys for leads to Investors who loan to
rehabbers, like you.
3. If you know of other rehabbers who are closing deals, go to County Clerks and review the Deed of Trust or
Mortgages that were recorded on the property. These are Public Records that will reveal who the Lenders were.
Ads in the newspaper is the method that has worked best for me. With this Ad you should get a good response. Don’t try to make the loan over the phone. Set up a Face-to-Face meeting with your prospects. They will want to meet you before they get serious about lending you money. Set up the meeting in your office, a restaurant for coffee, lunch or whatever.
Have a copy of your plan to give to the Investor plus samples of some of your previous projects, if you have them. Be sure you can explain to your prospects how they will be protected by such as:
1. First Lien on the property
2. Title Policy
3. Hazard Insurance
If you have a specific property in mind, bring a presentation on that. Information like:
1. Purchase Price.
2. Rehab Costs – Include all costs, closing, Title work, and contingency amount; like 10%.
It seems like all projects overrun.
3. Details on the house – Bedrooms, baths, size, construction, etc. -
Pictures; inside and out.
4. Information on comparable Sales to reinforce your expected Sales Price after rehab.
The more prepared you are and the more detailed,
the more the prospects will be impressed.
You will have to offer a good return to your Investor Lender, say 10% to 12% interest, perhaps with a bonus after resale; either points or percentage of the profit. You may think this is expensive; however, consider this from the Investor Lender perspective. Most of these loans are short term so even though the interest rate may be high to you, the investor sees it as some type of administrative expense; taking their funds out of where they are invested in now, and getting interest for only 3 to 6 months on your deal. Also, once you have done a few successful projects with a Private Lender you can better negotiate on rates. Also, the word will get around that you are doing deals and other Private Lenders will be more inclined to want to do business with you.
This is getting a little long, so I will stop for now. However, I want to show you how you can use and lock-in these Private Lenders to longer range Investments for them. This will also help you sell your finished projects faster, which means greater profits.
NEXT EPISODE WILL BE COMING SOON.
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, August 13, 2010
How To Find Good Mortgages To Invest In - Part II
In Part I we discussed some of the ways to find “Mortgages”, but we didn’t get to the “Good” part. Once the word gets around, AND IT WILL, that you have money to invest in mortgages, you will have several to choose from. “WORD OF WARNING”: Don’t get too eager just because these are the first ones and you are excited to buy a mortgage. You MUST do your Due Diligence or your career as a ‘Mortgage Investor’ will quickly change to ‘Owner Of Real Estate You Don’t Want’.
Just like other investment opportunities, be it Stock Market, Commodities, etc, there are good and bad investments in mortgages. However, there is one GREAT difference. If you do your diligence, you will be able to know you made a good investment and not have to depend on speculation. That’s one of the main reasons I like mortgage investing as opposed to many other investments. “YOU ARE IN CONTROL OF YOUR MONEY”.
OK, lets talk about Due Diligence and other factors when analyzing a mortgage. The note broker calls and tells you he/she has a mortgage for sale; or, maybe you located a private party through the newspaper who has a mortgage for sale. NO DIFFERENCE IN DUE DILIGENCE. My point is: No matter where or how you find the note, you still use the same safety precautions.
If I could pick out one single area that has caused investors the most problems, it would be greed. Trying to get the highest dollar return and not checking out either the property securing the mortgage and/or the party making the payments on the mortgage. This includes pressure such as, “You have to act fast or this deal will be going to somebody else.” If this situation arises, my advice is to say, “Well that’s too bad, but I’ll have to let it go.”
Mortgages available for sale are kinda like buses – “If you don’t get this one, there will be another one along in a little while.”
A good place to start is to check out the broker or the party that brings you the opportunity, unless of course, it is a mortgage for sale you located yourself.
The next party I would check out (as much as is practical), is the party selling the note.
Is this a “Mom & Pop” type deal wherein a private party has sold probably the only Real Estate they will probably ever sell and carried back a mortgage?
Or, Is the seller a “Flipper” who buys mortgages and resells them to investors?
Or, Another kind of “Flipper” who buys a property and does nothing to it and flips it to another with a marked-up price with nothing down?
Or, A rehaber – a party that buys property in need of repair, fixes it up and resells it to another party?
The point is – There are all kinds of people who sell property and finance it for the buyer. Also, there are many buyers who want a home and don’t really care about price or interest rate. They are more concerned with; how much is the down payment, and how much are the monthly payments.
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.
Just like other investment opportunities, be it Stock Market, Commodities, etc, there are good and bad investments in mortgages. However, there is one GREAT difference. If you do your diligence, you will be able to know you made a good investment and not have to depend on speculation. That’s one of the main reasons I like mortgage investing as opposed to many other investments. “YOU ARE IN CONTROL OF YOUR MONEY”.
OK, lets talk about Due Diligence and other factors when analyzing a mortgage. The note broker calls and tells you he/she has a mortgage for sale; or, maybe you located a private party through the newspaper who has a mortgage for sale. NO DIFFERENCE IN DUE DILIGENCE. My point is: No matter where or how you find the note, you still use the same safety precautions.
If I could pick out one single area that has caused investors the most problems, it would be greed. Trying to get the highest dollar return and not checking out either the property securing the mortgage and/or the party making the payments on the mortgage. This includes pressure such as, “You have to act fast or this deal will be going to somebody else.” If this situation arises, my advice is to say, “Well that’s too bad, but I’ll have to let it go.”
Mortgages available for sale are kinda like buses – “If you don’t get this one, there will be another one along in a little while.”
A good place to start is to check out the broker or the party that brings you the opportunity, unless of course, it is a mortgage for sale you located yourself.
The next party I would check out (as much as is practical), is the party selling the note.
Is this a “Mom & Pop” type deal wherein a private party has sold probably the only Real Estate they will probably ever sell and carried back a mortgage?
Or, Is the seller a “Flipper” who buys mortgages and resells them to investors?
Or, Another kind of “Flipper” who buys a property and does nothing to it and flips it to another with a marked-up price with nothing down?
Or, A rehaber – a party that buys property in need of repair, fixes it up and resells it to another party?
The point is – There are all kinds of people who sell property and finance it for the buyer. Also, there are many buyers who want a home and don’t really care about price or interest rate. They are more concerned with; how much is the down payment, and how much are the monthly payments.
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.
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