What is your investment vehicle?

If you read the last post , do you now understand why we have such a sour spot for tenants?
Last post, we were talking about real estate as a viable source of monthly cash flow and a good, if not great vehicle for investment. But, as we were discussing last time, you haven't made a move yet. What is your reason for not taking that first step? Is it fear? Is it perhaps no extra money? Maybe it is a current or previous credit problem? How about scepticism? Lack of experience and knowledge? How about friends and family? Are they telling you that real estate will not make you money?
Let's talk about each one of these individually.
FEAR - The dictionary describes it as a distressing emotion aroused by impending danger, evil, pain, etc., whether the threat is real or imagined; the feeling or condition of being afraid.
If you notice in the above definition, fear is an emotion. Fear is also caused by the unknown. If you would find yourself in a helicopter or airplane, with a parachute strapped to your back for the first time, you would be apprehensive because you never jumped before, and do not know what to expect, and have no experience to keep the butterflies at bay. Your first real estate deal is going to be very similar to this. Since you have no experience to draw from, and limited knowledge of the industry, of course you will be fearful. Now, I am not saying that the fear will go away the more transactions that you do, but it will certainly subside. The same would go for jumping out of a plane with a parachute. There is always the risk factor. But, once you see the benefits of buying an investment, and develop experience and knowledge, you will be less and less fearful as time goes on.

LITTLE OR NO MONEY FOR INVESTMENT - This can be solved in any number of ways which we will touch in another post. But, just for ideas for this post, you could refinance your existing house and pull cash out to invest, contact the bank for a personal loan secured on personal property, talk to sellers of property and arrange a deal. You could borrow money from a relative, friend, credit union, or employer. There really are lots of options for accessing cash to purchase an investment, and we will talk about all of these in the future.

CREDIT PROBLEMS - If you have credit problems like late payments, delinquencies, bankruptcy, or just low credit scores, you first need to find out exactly what the issues are by pulling your own credit report. Thereafter, you will have the knowledge on what you need to repair. I will cover credit issues in a future post also, since there are so many reasons for credit issues. Also, it is important to note that the credit reporting bureaus are getting tougher and their method of calculating credit scores are getting more stringent than they were before. I just talked with a lender that told me that she is seeing more potential customers within the last couple of months with less than 680 credit scores. What she is seeing now, is people with good credit (no late payments, no delinquencies, no bankruptcies, no mortgage lates, etc.) with low credit scores. Since the lenders are using the credit scores as their first criteria for loan approval, they are turning more and more people down.

SKEPTICISM AND INPUT FROM FRIENDS AND RELATIVES - These can go hand and hand, since many times, you will hear from friends and relatives that buying real estate as an investment is just not going to work out for you. They have had friends that have bought properties, and since they only heard the negative aspect of real estate from their friend, and never saw the numbers that have occurred, they only had a very one-sided view, and they are passing that along to you. If you have a mentor for your new business, as we spoke about in a previous post, then you will be hearing both sides of the coin. There are definitely negative sides as well as positive sides to everything that you decide to do. The key is to have the backup from knowledge, experience (mentor), and current market conditions to enable you to overcome the negative, and build on the positive. There are a tremendous amounts of positive in real estate, and I will tell you from experience, that I would do this all over again if I were required to do so!

I just love buying properties, and know of many investors of the same mindset. Every one of these investors would never leave real estate as an investment because they now have the experience and knowledge to make wonderful amounts of money for their retirement and monthly cash flow.

tenants versus "flipping" continued

If you have read the last post, I would assume that you can see why we have a sour spot right now for renting versus "flipping". But, even though we ate sour grapes earlier, some properties are just asking to be kept. The first question that you ask yourself when you look at a property is: what is my goal for this particular property? Is my goal to keep this property, generating cash flow every month, and not incurring tax liabilities, or am I going to sell this property as soon as I can, making instant profit, but incurring capital gains tax that will have to be paid the following April 15th? Just a word for your perusal, if you decide to keep the property, rent it out, and generate cash flow every month, then you will be eligible to refinance the property, using other people's money (the bank's), have an 80% LTV, still holding 20% equity in the property. When you do decide to sell the property, you will be paying capital gains on the profit only. Because you have a mortgage lien on the property, even though you received cash from the refinance, you will still be paying only on the profit, not the cash that you received from the bank. Let's do an example for ease of comprehension.
Let's say theoretically, that you purchase a 2-unit property for $60K. With closing costs, the total acquisition cost to you would be somewhere around $66K depending on many factors including transfer taxes, real estate taxes, insurance, etc. So, now you just settled on the property, paid the $66K, and are looking to do some cosmetic repairs to the property. If you keep your taste modest (and depending on how much work the property needs) you could get away with less than 20K including labor and carrying costs. Now, you are up to $86K in total costs on the property. Let's assume that the property is now worth $120K completed. In this scenario, if you decided to sell the property, then with realtor fees, transfer taxes, and possibly closing cost assistance of, let's say 3%, plus misc. closing costs to the seller, you will have a total expense of somewhere close to $12K. This will reduce your net to 108K. So, doing the math, at 108K minus the total costs of 86K on the property, then your profit will be $22K. This figure is what you will be paying income taxes on, and not the total sales price.
Now, let's take this same scenario, and turn it into a refinance. You will be getting an 80% LTV when you refinance, and based on the above value of $120K, you will have an $96K loan now on this property. Assuming that you are not living in one of the units, and also assuming that you have good credit, the principal and interest payments at 7% interest will be $638.69. Now, you need to add in your monthly real estate taxes, and your monthly fire and liability insurance. In our area, these would probably total about $200.00 a month. So, assuming a $838.69 payment is what you are going to pay on this property every month, you will need to rent both units out for at least $420. to break even. In my area in Pennsylvania, rents are going for at least $600.00 for 2 bedroom units.
Based on this fictitious scenario, you will have paid yourself back for the $86K that you have spent on the property, received about $4K in cash (don't forget closing costs for the refi), and if you would be in my area, then you will rent these out for $600/per unit, and receive $1200.00 a month to pay the mortgage payment of $839.00 Since the tenants are paying the utilities, you will be receiving $361.00 per month for your troubles. Now, you can wait out the market, and wait until the property appreciates in value, having your monthly payments made for you, and generating a couple hundred dollars in cash flow every month!
Let's think about the property now, in 5 years. Let's assume that appreciation is somewhere around 3% a year (very slow market). The value at that time, will be somewhere around $139K. Your loan balance will be $90,366.00 according to your amortization schedule. So, your taxable profit at that time will be $139,000 minus 90,366. minus closing costs, seller assistance, and marketing fees, which will equal something close to $31K. Or, you could refinance again if you wanted to.
Does any other investment do this well even in a slow market? What is stopping you from making real estate your investment vehicle of choice?
Let's touch on this next time. Talk to you then.

rentals and tenants

Over the last couple of posts, I have painted a pretty bleak picture of tenants and rentals, that is quite a bit more biased than some. We have had some pretty exasperating tenants over the years. Much of that is due to the fact that we are a little bit too kind-hearted. Does this sound like some of you? The tenant runs into financial difficulty for some reason or another, and cannot (or won't) pay their obligations, and you work with them to try to help them past these "temporary" setbacks. But, are these really "temporary setbacks" or are they situations that the tenant has created for themselves? I will give you an example.
We had a tenant ( a single mother of LOTS of children) who was brought to us by a local religious organization. She was in a very bad situation at the time, and had to move out that day! Now, normally, that sends huge red flags up for us, and we usually do not subject ourselves to this potential future aggravation. However, in this situation, she was brought to us directly by the religious organization, and they vouched for her, telling us that they would provide the rent if she could not. So, we provided her with a vastly reduced monthly rent, and a 6 month lease, so that she had time to get on her feet again. Now, the house that we rented to her, had been our home that we had just moved out of and totally remodeled. Another red flag. She had lots of children. She also did not work outside of the home, waiting for her ex-husband to pay her child support for her huge brood. She also home schooled all of her school age children, which means that ALL of the family was there at all times. This should be a couple of red flags.
See what I mean about being soft-hearted? Or is it soft-headed? On this one, I am not so certain! None of you would do anything like this, or would you? We went against all of our better judgement to help out this poor single mother, with lots of kids and did it help her? Not a bit! She was in the same position at the end of our lease, as she was at the end of the previous lease. By the way, the previous landlord for her was a church.
Well, to make a long story short, she had a flood in the basement of our house, spilled wine on our newly polished hardwood floors, put holes in every single wall in the house, somehow she flung jelly on our 11 foot ceiling in the dining room, had leaky plumbing in every bathroom and the kitchen, put holes in the ceramic tiles in the bathroom shower, and tore out some beautiful rhododendrons that had been there for probably 40 years or more! She did not pay the rent for the last month that she was there, nor the fuel oil, nor the water bill (which was $950.00) for one quarter, and we had to send her an eviction notice to get her out of our house.
Where was the church in this whole fiasco? Hiding! They originally told us that she would receive budget counseling to help her get past these situations, and we were told that she participated in these. These were a requirement of the church for them to help her with her bills. But when we called the church to let them know what was occurring, the representative that we talked with, told us that they are not going to pay any more for her, and the representative started talking about how much of a tax break this would be for us! Great! From now on, we will put all sorts of unverified people in our properties, so that we can incur huge expenses to evict them, pay their bills for them, and fix up all of the wonderful repairs that they created at the property, so that we can get more tax deductions! Anyway, we fixed that house back up, put it on the market and sold it. But more on that later.
This is just the larger of the reasons that we are a little biased on tenants. We let our hearts get in the way, not allowing our reason to make decent, financially viable decisions based on credit, job stability, etc. Keep in mind, that if you are buying properties for investment, the choice of tenants can never be according to your heart. You bought these properties for business purposes, and that is exactly the kind of mindset that you need to have when you install tenants in your residential properties.
If you owned a commercial property, you would rent out that property based on the stability of the prospective business tenant. These are almost always long-term tenants who are building a business in your particular property. Almost 100% of the time, both you and the prospective tenant will be making the decision to rent or not to rent based on past numbers, a financial plan, and back-up capital. Not whether they are going through health problems, job layoffs, divorce, or any other life situation that can cause a residential tenant to fall short of their obligations. Since this is a business for you, then you must make your decisions based on the tenants' credit, income stability, amount of income, past landlord verifications, criminal history report, etc. Don't let your heart think for you. There are lots of very wonderful people in this world that have good credit, good job stability, and want to have a lovely house, but do not want to buy at this time. These are the people that you are looking for to install as tenants in your properties. Don't settle for less than this. Even if you have to pay a month or two of payments! You deserve good tenants in this beautiful property that you purchased.

the pros of renting instead of "flipping"

Last time, we discussed the downside of renting, and the pros of selling. Today, let's talk about the pros of renting, and the downside of selling.
Whenever you purchase a house for investment, you immediately assume all of the financial responsibility for that particular property. As we discussed last time, this includes the utilities, repair costs, taxes, insurances, ongoing maintenance expenses, municipal & inspection expenses, etc. This sounds like a lot of expenses for little amount of financial gain and lots of liability, doesn't it? But, there is a definite upside to renting versus selling that most people do not know about. Let's go through the following fictitious example first for clarification.
Let's say that we purchase a single family home for investment. Let's say that we acquired the property for $40K , and that it needs a lot of work. Looking at the comparable properties that have sold in the area, let's assume that the 3 bedroom, 1-1/2 bath home with 1300 sq. ft. will sell or appraise for $95K . Let's also assume that the total cost to repair will be $12K. Now, we have $52K in the property, and are looking at our options. What is the market like? Is it appreciating, stagnant, or depreciating? Assuming that the market is depreciating (as it is in our area currently), then what could you make off of the property if you sold it? Will you make $10-20K after expenses? How long will it be on the market? Will you have considerable carrying costs which will decrease your profits? How about a lower sales price? Will this help to sell it? Maybe adding some perks for the buyer might help. Keep in mind that perks for the buyer are out of your pocket. Perks could include closing cost assistance, purchase of appliances, change of cosmetics, or any other multiple help that you, the buyer, or the agent could think of.
Now, if you would wait for another year to sell, will the market be any better? Will you have more profit if you were to sell it? How about 2-5 years? Then would you be in a better position? But, you ask, what am I going to do about money in the meantime? Perhaps all of your working capital has been sunk into this house, and you need to make money on this house to pay off bills, free up cash, or buy another property. Here's one of best benefits of renting out your property... you can keep the property and sell it when the market is at it's peak by refinancing now, and pulling out cash (tax free), and rent out the property, generating free cash at no monthly expense to you! WOW!!! Did you catch this incredible opportunity? Think about it... you can pull out tax-free cash at no monthly expense to you, and wait out the market conditions, providing a much-needed service to the community, all in one fell swoop!
But, you say, tenants are not good for me. I just don't feel comfortable with meeting a prospective tenant, and taking the chance of having to fix up my property a second time. Well, you could always pay for a property manager to manage the property for you. They would be responsible for screening the tenant(s), pulling credit, conducting background checks, checking job stability and personal references, finding contractors to repair the small maintenance issues that arise from time to time, and everything else required to make your landlord experience a good one. Of course, you are going to pay for this service, reducing your monthly cash flow.
How about selling the property on a lease purchase deal, with a sizable down-payment? You can make the buyer responsible for the maintenance, and the tenant/buyer will have a vested interest in keeping the property in good shape. You would screen these people before you sign the contract, reducing your risk. If they run into financial difficulty, and cannot make their monthly obligation to you, then you would still have the down payment, plus you will still have the property to sell. You could either put your property on the market and have a settlement, or you could sell on a lease purchase again.
Sometimes, it is much better to rent out your property than sell it. You decide. It definitely depends on the property that you are looking to purchase, the location, the numbers, and the market.
Remember that mentor that we spoke about before? Now, is definitely the time to talk to them, and review your options.
If you have any questions, feel free to comment, or send me an email. I will be happy to answer them.
Talk to you later.

tenants

Today, let's talk about buying, repairing, and flipping; versus buying, repairing, and renting. What is the benefits to both? What are your goals for buying houses at all? Is it because you want to become independently wealthy, owning lots of property, helping provide affordable housing to disadvantaged people, or is it perhaps a sense of pride in fixing up an undesirable house, and turning it into an example of exceptional workmanship?
One advantage to buying houses to "flip" is that you wouldn't have tenants if you sell right away. You wouldn't have tenants to destroy your newly remodeled house. Now, none of this is applicable if you purchase a commercial unit, so for the sake of discussion, let's talk only about residential applications. You wouldn't have to come back in and fix up any of the necessary repairs required after they leave your house. Even if they are immaculate tenants, they still would leave a few issues behind them that the security deposit should cover. All of this, is more time and money, and since time is money, it all equivalates to lots of money! We went through lots of these issues, and have found a solution that works for us. I will let you know later in a subsequent post. For today, we need to find out what the advantages are for selling versus renting.
Let's talk about the advantages of selling for right now. As we noted earlier, the first advantage for some people is not having tenants. Another advantage is making money quickly, without waiting so that you have capital to be able to buy another property to make money on. Another advantage might be so that you can terminate a relationship with a partner, and move on solo. And how about those wonderful monthly expenses that you will occur when you buy a property of any kind? You know, you don't hear about the downside with many of the real estate gurus out there. And yet, there are quite a few downsides, just as there are in any investment. These could include utilities, taxes, repair bills, insurance, incidentals (phone, fuel ,meals) etc. You also would not have to pay to have the mowing done, the snow removed, and any other outside maintenance done. How about those hidden defects that you didn't find while fixing up the property? These could include roofing, structural defects, plumbing, electrical, and/or HVAC. Many times, it is Murphy's law, that if the roof will develop a crack in it, or the heater decides to malfunction, it is right after you fix the property up! Depending on the location of the property, you also would not have the liability for the property after the sale occurs. We currently have a property in a local city, where about once every year and a half, someone drives by and takes off the front porch which we either have to fix it ourselves, or report it to the insurance company, and then put the porch back up. It is a definite downside for that property!
Let's talk about the pros of renting next post.
Don't forget to email any questions that you might have!

Our story continued...

Our story gets more and more interesting as we go along. The last house that I wrote about, was the house that we bought in 2003. We still own that house, and are in the process of fixing it up a 3rd time, so that we can sell it. More on that in a subsequent post.
Now, back to the story. When we bought the house, we purchased the home in our name, applied for an 80% loan, and the partner paid for the repair costs, the 20% down payment, and closing costs. Our total monthly payment, at the time, was $450 for this house. We rented the house out to some people who I personally screened for credit, previous landlord experience, and also visited their home before signing the lease. Everything checked out o.k.
The credit was nominal (medical bills, and some utility bills), however there were no evictions on the credit report, and no indication that they were going to have a problem with anything. I even visited their home before signing the lease, just to make doubly certain that they were going to take care of the house.
After they moved into the house, they stopped "singing the tune" . They paid none of the rent, allowed their children to skateboard in the house, pulling up the intricately designed hardwood floors in the living room, tearing holes in the dining room linoleum, and breaking spindles out on the front porch railing, and the staircase going up the steps to the bedrooms. They also ended up with an almost $500.00 water and sewer bill, which is a leinable municipal item for the owner. Whenever you went to talk with them, they claimed hardship, cried the tears, and begged for understanding. One of their infant children had a tracheotomy, the property had issues that they could not live with, etc. The city sent an inspector out to the property at the tenants' request to look at "issues" that the house was uninhabitable, and needed repairs. The inspector called me, and told me that I needed to install 2 smoke detectors, and fix a leak in the bathtub. We repaired those immediately, and spoke with the inspector for reinspection, and he told us that we had a nice house with less than reputable tenants. He told me that they "sang the blues" for him too, and at first, he believed them.
We ended up evicting these people, paying over $1000.00 in attorneys' fees, and found out that if we would have inquired about them at the district justice level, we would have seen many cases of previous evictions in their name, which never went on the credit report!
The interesting part of this whole story is: that these people have done this same thing to numerous other people in their lifetime, and had the experience to pull it off many times. They knew the process so well, that after they lost the eviction in district justice level, they waited for the very last day of the appeal process, went into the prothonotary's office to appeal the decision of the district judge, paid NO money for back rent or otherwise, crossed out words on the appeal and changed them, and went their merry way. The prothonotary, sent the paperwork over to the business judge at the end of the day, and he took a cursory look at it, signed it, and they were now living in the property free of charge with their appeal filed!
I spoke with their new landlord (who was a realtor also), after they moved out of our house. She told me that these people just could not be the kind of people that I was describing! I told her to do her research in the district justice offices, and let me know what she found out.
This was certainly a learning experience for all of us, including our attorney, who just could not believe that someone could appeal a decision of the district court, without paying the amount of rent and costs awarded at that level, to the prothonotary! Fortunately for us, our attorney is a landlord, works with real estate, wrote a book about landlord/tenant laws, and is the solicitor for the sheriffs' department in the county. So, he had the experience to handle this oddball case as well. To say that we could have done this by ourselves, would be lying!
This brings us to another point for all of you investors and almost-investors: build your team wisely! Your team should include an accountant, an attorney, a contractor, and a realtor at the very minimum. You need access to many different people to help you achieve your goals of making money in real estate. Don't be afraid to pay them either. They deserve to make money on these transactions also. Remember, they are doing a service to you. Without them, you could not achieve your goals of investing. Besides, when you see the money that can be made from real estate, you won't ever go back to the mundane 9-5 mentality that is so prevalent in our society today.
Don't forget to email me any questions. I will gladly answer them for you. Talk to you soon.

Our story continued...

The last time we spoke about our experiences, we stopped at a house that we purchased in 2002. We still have that home and rent it for a couple hundred dollars cash flow per month.
We then decided to purchase another house with the same partner in the same city. A couple months went by, and we found a VA foreclosure with 5 bedrooms, bath and a half, off street parking, and in a great area for only $36K. Again, we put too much money into the home (we sent the same investor out again to repair the house(!?!), and rented the house out. We spent huge amounts of money finishing the hardwood floors in the living room, installing carpet in the bedrooms and the hallway, laying linoleum in the dining room and installing laminate in the kitchen. The whole house needed spackle and paint (there was paneling on all of the walls downstairs), all new lights and ceiling fans, remodeled kitchen and bathrooms, and then the outside needed work as well.
Would we do that again? No way! As in any endeavor that we as humans take on, we make mistakes. The key is: not to make the same mistakes twice! We made many mistakes on this particular home. First and foremost, is the partnership situation. Whenever you decide to run a business of any sort, you need to make certain that if you are going to have a partner, then both you and the partner needs to be compatible. You need to have the same goals, principles, and techniques. It is every investors' goal to make money on their investment. It is their method of achieving this goal sometimes that can be the deterrent for initiating a partnership with them . This was our situation. We, my husband and I, were very different from our partner. His ideas and experiences, we did not share. It is also very important to map out your expectations of one another from the very beginning. We did not do that.
Another mistake that we made, is buying a huge house that needed lots of work. Granted, most of it was cosmetic, but it was still lots of time and money. Some of the repairs were mechanical, and they had to come out of our pocket. Also, large houses have more liabilities from many view points. First and foremost, the larger it is, the more money that you spend. Secondly, if you rent out the house, it will be to large families. That means more wear and tear on your walls and flooring. Thirdly, if you sell the house, most people are looking for a three to four bedroom home, not a five or more bedroom. Because of the size and amenities, you will be listing the home for more money. This will throw those people who are looking for lesser payments, out of your market.
Speaking of repairs, this would be a third mistake. Always interview many contractors, get estimates, and do not hire them by the hour, unless they are trustworthy, and you have known them for a long period of time. Try to visit the project frequently, and keep them on track. Keep in mind that time is money! The more time they put into the project, the more money that you spend. That was the gist of our third mistake. The contractor who worked on that project, was constantly shopping at the big box stores (for the house), constantly taking breaks, smoking cigarettes, and finding someone to talk to.
We have built new criteria for houses that we look at in the future, based on the mistakes that we have learned from in the past. We now have a crew of contractors that we feel comfortable with, and we buy the materials needed for the house, not the contractor. We now buy houses by ourselves, without a partner. That is not to say that we would not have a partner, if the right situation arose. The numbers have to work for these houses before we buy them, and we never buy row homes.
Let's talk more about this again. See you later.

Buying investment real estate

Last time, we talked about whether real estate is an investment. This time, we are going to talk about how to start. If after reading all of the posts here, you have read about setting goals, finding a mentor, and building steps to achieve your goals, then you should be ready and excited to start looking for investments.
When you first look to invest in real estate, it is not an investment platform that you can just go to a stockbroker to shop for this investment. Of course, you could always find a realtor that has a property for sale. Usually these are not the kind of properties that you are looking to start with, unless that particular realtor specializes in distressed properties, commercial properties, and/or investment properties. The next step for you is to look at different kinds of properties.
Some of the things that we look for when we are looking for a property to purchase is: high un-mowed grass, boarded-up windows, chipping peeling paint, old vehicles or personal possessions sitting in weeds, a tarp on the roof, etc. Usually, if there is a tarp on the roof, boarded-up windows, and other remedies to keep the house in some sort of secure, weather-tight position, the lender who is in the process of foreclosing on the property has sent someone out to try and protect their investment.
Another good source of leads for properties is in the courthouse. In the sheriff's' department and the tax departments are a good place to look. The sheriffs' department will have the list of lender foreclosed homes that are coming up in the near future. The tax department will have the homes in that county of people that have not paid their real estate taxes. When you look into either of these sources, make certain that you find out if there are any additional leins or encumbrances on the home(s) that you are intending to purchase before you get to the scheduled sales. Also, if you have found a source of capital, many times you need to have 10-20% down in certified funds. Even if you have not found capital to work with, it would be a wonderful experience for you to attend one of these sales just so you have additional knowledge.
I have been to any number of sales, and have not purchased anything from them, but have had a wonderful time just learning and meeting other investors there. My personal preference, is to wait until after the sale. In that way, usually the foreclosing lender will have "bought" the property back, and will have it put on the market, free of liens and encumbrances, and I can get a wonderful deal then. All of the homes that we have purchased, have been foreclosed upon already, and the lender was the seller. That does not mean that you won't be able to find wonderful deals at the sales, or before the property goes into foreclosure. You just need to look closely at all of the deals. Don't jump at the first house that you can find that you can afford.
Remember, one man's trash, is another man's treasure. If you do not have a vision for that house that you are looking for, cannot see potential, or just don't like it for whatever reason; MOVE ON. The "deal of a decade" happens every day! Really. The more properties that you look at, the more deals that you will see and learn to recognize. Not every deal is a good one.
If you have any questions about anything that we have spoken about today, send me a comment. I will be happy to answer them.

Buying investment real estate

Are you in the market to buy an investment? Did you look at paper investments that most people look at; stocks, bonds, annuities, & mutual funds? How about commodities? Did you search through the commodities market for something that could increase your cash-flow, build equity, and not take a loss or plummet? In today's market, did you find anything? Now, real estate is a different market altogether! In the real estate market, you can buy a house for $50,000, using hardly any of your own money (depending on how you design the deal), and instead of paying $50,000(as in purchasing a paper investment), you might only pay $5,000, and have $30,000 in equity the minute you settle on the property! Now, how does that work? It's called "OPM" - other people's money. Now, why would other people want to give you money to buy an investment? You generally cannot buy into the stock market using other people's money. If you decide to buy gold bullion, you generally cannot borrow money to buy it. If you decide to buy any insurances, they won't finance the policies over time. Then, why can you buy real estate with only a small fraction of what the "investment" is worth instead of full face value?
Can you see a stock? No, not really. You are able to "see" the printed value (at that particular time) of the particular stock or fund that you are looking at "on paper". But you cannot "see" the stock itself. Can you meet the board of directors of the company that the stock is offered by? Would you be able to boost their sales in that company, so that your stock will eventually appreciate, or split? Not unless you are in the day-to-day operations of that company in a position of authority, and you are made a stockholder as part of the "perks" that you receive. If you would need money for something, would you be able to "borrow against" your stock? Even in a classic 401k, you would not borrow against stock, but against the money that you, your company, and the appreciation has put there.
Now, let's talk about real estate! Why would someone want to lend you money on real estate? Can you see real estate? Of course! It is a brick and mortar building of some kind, or a piece of property with no improvements would be called a piece of land. Land has always been , from the dawn of time, an investment that everyone wanted. Historically, the nations fought wars for land, built civilizations on land, utilized the land for all sorts of purposes, bartered with land, and much more. Even today, there are wars being fought for land.
So, now, you have an investment that the banks, lenders, and brokers, can see, lend against, and attach a lien to. There are many people that would need to buy this investment from you, so that they could use it instead of you. You could do all sorts of improvements to the property, so that it is worth 100% more to someone else to either rent it from you, or buy it from you. You could take money out of it to start a business, or anything else that you would want to do with the money.
Wow! Now we know that real estate is an investment, with many options of making money, using OPM with very little, if any, of our own money. What is the next step? Remember, in a previous post, we talked about knowledge? We still need to learn all that we can, so that we can make some very informed and intelligent decisions on what and where we are going to invest. Let's touch on that next time. Talk to you soon.

Your take on the market.

Are you one of the many people who currently is in a less than perfect financial situation here in America? Is your mortgage payment or rental payment too high, the cash flow too low, and the debt load out of sight? Are you currently wondering where to get your next payment for one or more bills? If you are one of these people, then you are looking for some concrete answers and hopefully some viable solutions to help you to remedy the situation.
If you have a mortgage that you are having difficulty paying, did you try to contact your lender? Most of the banks, and lending establishments are not excited to sell your house for you (foreclosure). They would much prefer if you contact them (talk to someone in a position of authority), and tell them of your situation before you come to a worse situation. If your rental payment is too high, then again, you need to talk to your landlord before you are late consistently and together you can probably come up with a good solution for both you and the landlord. Keep in mind, that your landlord or the rental agent (if he/she is ethical) is really expecting to hear from you if you have a hardship. He/She is also not very excited about hearing from you after you have been late for many months. Many times, they will work with you, and come up with some solution for you, especially if you come into their office with someone with good credit, job stability, and rental verifications, to take over your lease. If these options do not work, then keep in mind that when you first rented/bought your home, you signed a contract. Whether it was a lease, or your mortgage and note, you are still legally bound by the terms of the contract that you originally signed. Every time that you sign any document, you are acknowledging that you are committed to honor your part of the deal. If it is a lease, then you can wait out the time period of the lease (if you are not allowed to sublease), or you can move into another house now, and still pay for the remainder of the lease on the first one. If you cannot afford your rental payment now, this option would not be a wise financial decision. Another option for you would be to advertise for a roommate. This could also be a viable solution for homeowners as well. Homeowners are not bound by the rules made by landlords. They have the freedom to sell the house, rent it out and move, refinance, get a roommate, and many other options depending on the type of home that they own.
Now, what are the options for your consumer debt? You can always just not pay it. But this does not solve the problem. The goal is really to keep your credit clean so that you have more options open to you. Further more, by your signature, you are committed to paying for that debt. If you do not have lates on your credit report, you will have many more loans available to you to refinance your consumer debt. Refinancing your consumer debt, and not re-incurring it would be a wonderful way for you to free yourself from the high interest consumer debt that you now have. If you are past that option, then consider the credit repair programs that are out there. The key is to find a reputable credit repair program. There are some good programs out there, and if you contact your lender, chances are, they will know of a company that is reputable, ethical, and honest.
If you have a situation that you want to talk about on this blog, then send me a comment. I will look at it and respond. Hopefully, together, we can weather this storm, and come out of it unscathed financially.

financing programs

As I write this, I am thinking about all of the mortgage programs that we used to have. Just a year ago there used to be all sorts of stated income programs, 40 and 50 year term programs, buydown programs, adjustable rate mortgages, no PMI programs, you name it, it could be found! Just a couple of months ago, the real estate mortgage industry has tightened up to the point of conservatism! They were only looking for "vanilla" loans. Do you know what a "vanilla" loan is? An almost perfect loan...wonderful credit, high credit scores, plenty of down payment, plenty of income, many years of job history in the same industry, no credit glitches, not much debt, and the DTI ratio of less than 40%. Sound too good to be true? Yep! That is what the mortgage industry has found out as well. Now, they are relaxing their guidelines to accommodate people with less than perfect credit, not too much money, and especially in the refinance realm; not enough equity. Now, you are starting to see the lines of credit apps in the mail, the TV commercials touting debt consolidation by major lending institutions, and even advertising campaigns by the large lending institutions promoting "new" programs. It still isn't where it was last year at this time, but do we really want it to be? A good many of those programs were promoted to the wrong consumers by well-meaning mortgage originators. Some of these programs were negative amortization loans, which in the wrong hands could be detrimental to consumers. There were some very good negative amortization programs last year, but they were structured for a very specific, knowledgeable buyer/consumer. Are you looking to refinance now, out of a detrimental mortgage for your finances? I would strongly suggest shopping around. Do not give your credit information to the lenders, as every pull of credit ( unless in a 2 week time period for mortgages only) will drop your credit score. I would suggest pulling your own credit, making certain that you receive credit scores with your credit report. Take that into the different lenders and find out what sort of mortgage program they would suggest for your specific situation and needs. If that particular lender does not have the right program, then go to the next one until you find the right program for your needs. During this process, you will become more and more knowledgeable, ensuring a success for your project.
Before you go into the lenders, be sure that you look at your original mortgage documents to ensure that you do not have a pre-payment penalty on your loan. In many of the programs that the lending institutions have dissolved, there was a pre-payment penalty. In many of these pre-pays, you would not be able to even sell your property before you would owe up to 6 months of payments to your lender. If you do not feel comfortable interpreting your mortgage documents, take it either to your bank's loan officer, the title company or attorney that settled your property, a lender, or a realtor. Talk to you soon.

Voting for the proper deal

Last time we talked about finding a mentor, and developing a "board of directors". Today, we will talk about our local, state, and national government. For all of us to be profitable in the real estate, stock, bonds, REIT, etc., markets, we need to develop our government officials into what and who we want them to be. This is a not-so-subtle hint for voting for our officials, whether they are running for president of our country, or county prothonotary official. It is very important for us as U.S. citizens to individually analyze the situations facing our nation, and vote for the very best person based on their ability. In the investment ring, whether you know it or not, you are endorsing capitalism, which according to American Heritage Dictionary is an economic system in which the means and production and distribution are privately or corporately owned and developed. See dictionary link below.

Audio Help (kāp'ĭ-tl-ĭz'əm) Pronunciation Key n. An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.

In laymen's terms, this means that our profit is our own. Not like in Socialism. Then the government dictates the terms, the profits, and everybody gets a share regardless of their knowledge, ability, or position. So, in a Capitalist society, we would have to make decisions for ourselves, develop ideas, gain knowledge, and overall, increase our marketability to the world. If we hire a public servant (vote), then that person needs to be working for us, and not the government as an entity. We would have to research that person's experience and history, and base our decision off of these facts. That person needs to be of good character, no hidden issues, experienced, and most of all teachable. Since the person running for public office is a servant for the general public, and we, as citizens, vote these people into office, then that person has to have a servant's heart, to write the best laws, research the issues facing the nation, and develop a team of trustworthy people that will be able to help him/her serve his/her constituents better and more efficiently.
I will now get off my soapbox, and let you get back to business. Just think about what our nation would be like without businesses. Talk to you soon.

Your situation.

Let's talk about your situation. I am certain that our family is not the only family in the U.S. to face financial stress, worry, and goal setbacks. Most of the time it takes a couple of people to come up with a viable solution to a problem. Why do you think major companies have boardrooms? So that their board of directors can come up with a plan of action, take the necessary steps to achieve this action, and move on! There is not usually one or two people who make the decision for the entire corporation, but many people! Just like our government! It works for our local, state, and national government, it works for business, and it works for us! If you did not read the earlier posts on mentors, it might be a good idea to read it, and then develop a mentor for yourself and/or your family. If you have a situation that you think is different from the norm, and need to discuss it in open forum, send me a comment. We will try and find a way for you to resolve these issues.

Our U.S. Economy

I think that we need to speak today about the economy. Our economy is in a state of recession, whether the "experts" tell us that or not. The costs of our government have caused huge increases in prices of all of the commodities except housing. It is getting harder and harder for middle class people to retain their style of living, and it is getting easier and easier to tell the wealthy from the poor. With the increase in retail cost of fossil fuels, and now, most every other commodity, we need to look closely at our savings plans, our investment strategies, and our retirement future. This should include our housing as well. Do we really need that extra bath, that granite countertop, and that $35,000 kitchen upgrade? Depending on the rate of your mortgage, that $35,000 kitchen will cost anywhere between $200.00 and $300.00 per month for the next 15-40 years!
Now, how easy is it if one of the major breadwinners in your family would lose their income for whatever reason? At this time, large fortune 500 companies are downsizing, and many people are losing (in some cases) their only source of income! Monthly cash flow is definitely an issue for many of these unfortunate people. So, what is the way out? If you are in this position, or possibly could be, and are trying to avoid foreclosure, bankruptcy, and/or late payments, then you need to start by making some decisions on what your options are. The first thing you need to do is to write down all of the many options that you do have. Is renting out your house an option? Is selling your house and buying a smaller, less expensive house an option? Is converting your house into a multi unit an option? Is an additional source of income an option? Are there any changes that you can make to your spending, that will enable you to make mortgage payments a little easier; ie: take the bus or carpool to work instead of paying the high gas prices for your car. Can you do without the exotic coffee in the morning? Call your insurance agent and see if there are any changes that you would be able to make to impact your insurance premiums. If you are a smoker, would you be able to reduce the packs that you buy in a week? How about going out to eat? Is it a possibility for your family to sacrifice just one of those trips per month? Depending on the number of people in your family, and the types of restaurants that you like to go to, just this alone could save you $30.00-$60.00 a month! I know that in most of these areas, our family is as guilty as most everyone else is in the U.S. We have enjoyed a time of prosperity in the U.S. that was almost unheard of in the rest of the world. Now, as our U.S. economy is forcing us to face hardships and sacrifices, we are facing difficult financial issues that we are all unaccustomed to, and the idea of sacrifice, while very necessary, is also a little repugnant.

Wow! What a relief it is to finally have all of our receipts logged in, and our taxes done!
I just wanted to talk today about buying your first house or investment in today's market.
In the county that we live in, the real estate market has slowed down considerably, as it has around the nation, and the numbers of homes sold has drastically dropped, which means that buyers have a great chance of getting an excellent deal on a house, an apartment building, or even a commercial property. The interest rate is almost at a historical low, and will enable buyers to have access to properties that in the recent past, they really could not afford. The only problem with this scenario, is that the mortgage process has been reduced to standard fare; few stated income programs, few 40-50 year mortgages, and few of the very creative programs that have been prevalent up to last summer (2007). The good news is that all of the government programs (FHA, VA, FMHA, etc. ) have strengthened, and have changed their criteria to enable less than perfect credit borrowers to buy their first home. These programs are not available for non-occupied investment buildings or houses, and are geared only for owner-occupied borrowers. The rates on these programs are competitive, and the down payments are very low, especially when you combine these programs with other programs for first-time homebuyers. Most all of the closing costs can be paid for by the seller, or a non-profit local program set up just for this purpose. The other option, is that you can receive gift money from a relative, close family friend, or even your employer. Your total payment for the house is exactly that, your total payment. It includes real estate taxes, home-owners' insurance, principle and interest, and sometimes other insurances that you can opt for to protect you in case of disasters. For these government programs, the house has to be in good shape, and cannot have any safety issues, or these same safety issues will have to be repaired prior to settlement by someone. Many times, it can be a negotiating factor, if you, as the buyer, will do the repairs at your own time and expense. But, keep in mind, that when you put an agreement on a property, and intend to take advantage of a government program for that property, then all of these issues will have to be decided in advance. Once the agreement is signed and ratified, then both buyer and seller are bound legally to the terms of the agreement of sale. So, it is very important to have a realtor and/or a lender, familiar with government programs that will help you to access the perfect program for your situation. Familiarize yourself with the mortgage program requirements and all of the explanatory paperwork that you will be given so that you are an informed buyer. Ask questions, and learn as much as you can about the process. Don't forget about the lead based paint addendums, the radon disclosures, the mold disclosures, the flood certifications, the wood-destroying insect reports, and all of the many disclosures and addendums, some regional, that you will be required to sign that you have received. This can be a frightening process if you don't have the knowledge. As we said before, knowledge builds confidence! Have fun looking for your first home, and don't forget to ask questions. You are welcome to send me a comment if you have any questions. See you next time.

Sorry to keep you waiting! Tax time is always the busiest time of the year for us. We usually have 2 huge bags of receipts, and have to log those in every year. Not to mention credit card statements, bank statements, bank ledgers, and rental ledgers. This year, I started in February, logging receipts onto ledgers. Even with all of the time that we had, it still took until April 15, to tally up the numbers and enter it onto the 1040! If you have multiple businesses, and/or multiple properties, tax time can be very time consuming and challenging. For us, in 2007, we had sold 2 properties, and will have 3 that we will have sold for 2008. We will talk about capital gains in a later post.
Let's talk about the real estate industry in general. There really is no industry that you can make money in so many ways as the real estate industry. Think about it... if you decide to sell real estate as a realtor, you make money, if you act in the capacity of mortgage originator, and find a loan for a buyer to buy real estate, you make money, if you settle real estate in the capacity of a settlement company or attorney, you make money, etc., etc. etc. This does not include real estate foreclosure purchases and "flips", commercial real estate rentals, residential real estate rentals, real estate foreclosure purchases and rentals, and many more areas that you can make money from. It all depends on you! What are you good at? If you are sales-oriented, like paperwork, and are detail oriented, then real estate sales are for you. If you would rather fix up a house either for rental or sale, then distressed properties are what you are looking for. Be aware though that this industry is highly knowledge driven. If you do not know what you are doing, or are just new in this industry, then go slowly, study, ask experienced people in the same part of the industry, and above all, find a mentor. Keep in mind that the people that you do NOT want to talk to are: friends and/or family that have never bought a house, customers that are new to real estate, people that do not have the drive required for real estate, or anyone else that have numerous stories about the horror stories they have heard about real estate. Over the last twenty-plus years, I have met many people who have numerous stories about the horrors of real estate. The one common thread that binds these people is: they have no investment real estate of their own. I have found that those people who own or who have owned multiple properties, have stories, but they are not horror stories. Usually, these people (investors) have nothing but good to say about real estate investments. These same investors will tell you that it is a very time-consuming industry, and that there is no "get rich quick" way to make money.
If you are ready to start making money in a wonderful money-making industry, then start studying and gaining knowledge, look at all of the different "fingers" of the real estate industry, find a mentor, and take a step! Real estate is where it's at! See you later!

Our story continued...

Do you remember the house that we purchased in 2002, that we talked about in a previous post? Well, we ended up spending way too much on that house in repairs, and to cash out my partner, I ended up getting an LOC on that house for 80% LTV. Remember the terms that we talked about before? If you do not understand the last statement, then you need to study much more if you have your heart set on buying real estate. Anyway, to explain to those who do not understand, an LOC is an acronym standing for Line Of Credit, and LTV stands for Loan To Value. We then cashed out our partner in that deal, and rented the house out. Now, 6 years later, the house is worth about $55K, and we have a $35K LOC on it. So, if I wanted to sell, I would be able to sell it and make money on it. However, the rental amount is more than paying the payment, and we have $200.00 (after expenses) coming in besides. Now, with a LOC, or a HELOC, the credit reporting companies count those as revolving credit. If you have any revolving credit maxed out, that will be counted against you, and will affect your credit score. That has happened to us in the years since we purchased our first house. More later.

terms and info

Last time, we talked about repairs and knowledge of repairs, but this time, we will talk about knowledge only. If you are planning on making money in the real estate market, have you taken the time to learn as much as you possibly can about the industry? Whenever you start a new endeavour, you have to learn as much as you can about the subject(s) that you are interested in. Real estate is no exception! There is much to know! Let's talk about terminology. Look over the list below. How many of the terms do you actually understand? If you are unsure of 3 out of the 30, then do all that you can to learn more about those 3. If you have over 3 , then you need to learn more, so that you are not out-on-a-limb when you buy, or don't have the confidence to start the process at all! It is not necessary to buy an expensive course study to learn about this process! Just set your mind to learning more about this subject, and the knowledge will come. Knowledge builds confidence!

HUD1, 1031 Exchange, amortization schedule

seller's disclosure, agreement of sale, lease purchase

hard money, soft money, non-conforming

bank foreclosures, sheriff sale, mortgagee

seller-held second, short sale, title insurance

subordination, real property, prepayment penalty

acquisition costs, balloon, points

ARM, buydown, blanket

chain of title, lender, debt-to-income

HELOC, liens, truth-in-lending

This is just a partial list of terms that you should know about. Feel free to email me if you need more information. I will do my best to point you in the right direction.

You know, the "experts" tell you to hire someone knowledgeable to do the repairs quickly and efficiently, however, does that really make sense? If you do not know how to do the repairs yourself, and how to shop for materials, then how do you know if the contractor is not taking you for a financial ride? He (or she) might tell you that you need something to "bring it up to code", but do you really need the item(s) or service(s) that person is telling you? Do they even know? The code book is so large and cumbersome, that even the code officials have not read it in it's entirety! Wouldn't you like to be informed in the whole process of buying, renovating, flipping, renting, maintaining, and selling? Wouldn't it be a much better idea to actually "know" the terminology, and the technical know-how of installation? Why not go to one of the big box stores, and get the information on how to install floors, ceilings, finish drywall, lay tile, carpet, and laminate? They generally have flyers that you can pick up, that will give you some of the basics of installation, and also the tools that you will need. Then, go back and price the materials, even if you are not going to do the installation yourself, at least you will be a little bit more knowledgeable when a service provider comes to you and submits an estimate for the job.

On that first house we learned a lot of really good lessons, but it was time to go on to house number 2! In 2002, we purchased another house at a foreclosure real estate auction in a hotel room in a local city. We had been in the property before we purchased it, and actually submitted an agreement of sale to the listing agent for the purchase of that home. At the time, we offered $16K for the home, to the listing office, and were rejected, when the "owner", the bank, decided to sell the house at public foreclosure auction, using a licensed auctioneer. We registered before we went to the auction, and bought the house for $13K, instead of the $16K that we offered originally. Now, after settlement, we all were the owners of a small 2 bedroom semi-detached home that needed a new roof, the basement dug out (it was a dirt floor), new windows, and a lot of cosmetics. My family and some industrious teenagers went into the home to haul dirt by the bucket load up the steps and into the backyard. After we had removed over a foot of dirt, we hauled down the steps bucket after bucket of sand so that we could lay brick on the floor. The brick, we hauled over from a barn about seven miles away that someone wanted out of their yard. Of course, that was all taken down the steps as well. Luckily, the basement was not a very large area, so that it only took 4 of us about 15 hours to complete. However, we certainly were exercising forgotten muscles hauling dirt, sand, and brick up and down numerous steps for a couple of hours at a time!
After we were finished with the basement, one of the investors in the club was going to repair the house for us. We have since learned, that for us to hire someone is a good idea, but usually not to pay someone by the hour! This investor was not making income from any other source except the small amount of work that he could get from the investors' club. Being a little bit green at that point, we did not analyze our costs as we should have, and ended up paying this man for numerous shopping trips to get supplies and materials, numerous smoke breaks, and lots of "I feel like talking to people" breaks as well. At that time, I learned more of the "language",(meaning my scraper was not a spatula, and the philip screwdriver was not a starpoint) and was in the process of learning how to do some of the repairs myself. I watched, listened, and learned a lot between then and now. I now can install any kind of floor myself, paint, install ceilings, doors, windows, cabinets, and much more! I know what people are looking for in the houses that they purchase from us. I now can shop at building materials auctions knowledgeably and with confidence, knowing what the prices of individual materials are.

On this house, we spent money to have someone remodel the house for us. At the time, in our investors' group, we had quite a few individuals that bought houses and completely remodeled them without the help of a contractor. They operated completely hands-on. Is this better or worse to put all of the time into the building yourself? Is it better to save the labor costs, and spend huge amounts of time on the building? You be the judge! If you are buying houses in your area, and have experience fixing these houses up yourself, let me know what your thoughts are. We have other investors that are buying houses that are not in need of repair, and buying them directly from investors at a higher market value, and keeping these properties for rentals. For us, this is not our strategy, as we make more money from the repair of these properties. There are many ways to invest in real estate. You need to find the method that is right for you personally. I will tell you, we all learned a lot from each other, and from trial and error. Over the last 10 years, we have found what works, and what does not , and what is right for us, might not be right for another investor's personal financial situation or goal requirement. Let me tell you, there is no teacher like experience, and no friend like wisdom. If your desire is to invest in real estate, start reading, learning, and meditating on real estate. Don't start by looking at 100 houses like famous authors tell you to do. Don't knock on doors and ask people to sell their houses, until you have enough confidence in your ability to close that deal. Yeah, it's exciting when some seller tells you that they will sell you the house based on whatever "deal" that you and they have agreed upon, but, how do you know that it is a "good" deal for you, until you have researched the market, potential financing, current or eventual costs of acquisition, potential legal ramifications, and a host of other issues?

While we were in the process of fixing up our house and that of our tenant, we decided to buy another house to flip. In 2001, we went halves with another investor, and bought a townhome (which was a HUD foreclosure). It needed a lot of work! It was so bad, that my husband looked at the home, and asked me point blank what in the world I was thinking! Now, at that time, we only purchased the home for $15K, and then had another almost $20K to put into it! We had a contractor at the time that owed us money, and he was doing the work for less than $7.00 per hour, and the balance of the hourly wage that we were to pay him, was to repay his debt. We had to add all new windows, new roof, paint, flooring, kitchen, and enlarge the almost non-existent closet size bathroom. Now, if you do the math, you will find that we personally spent only @ $17,500 on the total project. We then sold the home for $60,000 @ 6 months later, and made our $17,500 back, and also $10K besides! Now, my husband was excited!

For all of you real estate investors out there, we might as well start at the beginning.
We bought our first investment in 1998, when we bought an almost 3000 sq. ft. 2-unit house to live in. It had a total of 8 bedrooms, 3-1/2 baths, and the rental unit was on 1/2 of the first floor only. Our total PITI payment was $1064 at that time, and the income from the rental apartment was $495 for a 2 bedroom 1st floor apartment. In all of the almost 10 years that we owned that house, we never had a vacancy. So, hence, our payments were less than $600.00 to live in a 6 bedroom house with 2-1/2 baths and a 2 car detached garage! I would seriously suggest to anyone wanting to get started in real estate investing, that you seriously look at purchasing a multi-unit. Do not even look at multi-units over 4 units, as they are considered commercial units and would require different financing. Now, living in the same building, or even on the same property with their tenants might not be for everyone, but for some people who would like inexpensive housing payments, so that they can invest in other areas, this would be a good way to start.
To go on, this house needed a little bit of work to make it beautiful cosmetically, so, we spent the next almost 10 years removing wallpaper, spackling (lots of horse-hair plaster walls), sanding, painting, installing cabinets, flooring, lighting, landscaping, etc. Always, the first priority was the rental unit, so that we would have no vacancy, and a happy tenant. You know, with less than $600 payments per month, you could afford to buy building materials.

Loans,Credit, and Real Estate

Is this the kind of frustration that real estate investing is all about? No, not usually. Once in a while you find a really good deal that you can not turn down. You acquire it, make the repairs (if needed) , and then rent it. Most of the time, you do not buy 2-3 units at the same time unless you have a large crew to work with, or synchronize your settlements to coincide with the end of the first project. Let me tell you, good deals are out there all of the time in many, many areas of the world. They really do happen every day!

Loans, Credit, and Real Estate

Hi! My name is Cyndi. I have been in real estate for well over 20 years. When I started, real estate was not as regulated as it is now, and a handshake meant something. The real estate market has evolved over the years. Some changes for the better, and some changes are not as positive as lawmakers would have us to believe. Just to give you an example, when I started in real estate, we had 2 pages of sales agreements. Now, often we have over 22! Of course we need lead-based paint addendums, radon disclosures, mold disclosures, and numerous other information pages that are attached to the agreement to keep us all safe. Scary? not at all! Information frees you to make logical, wise decisions. Again, when I first was a licensed realtor, there were not the gamut of mortgage loans, consumer loans, and credit cards that there is today! Nowadays, people can get a loan for 100% of the appraised value of the house, have the seller pay their closing costs, and they will be in the house in 45 days with $500 or less out of pocket! I have helped numerous people achieve home-ownership in this fashion.

When I was growing up, my father was a well-respected bank president. I still hear many stories of how he had given people loans on a hand-shake. These loans were not based on credit reports, credit scores, and how many hoops the applicant can jump through. Today we are in the computer era. Everything that we do is linked to our social security number! It is so important to protect our social security number, that lawmakers have initiated privacy laws that protect us from identity theft.

Have you ever applied for a credit card, car loan, or mortgage, just to find out that you don't have the necessary credit score or credit according to the criteria of that specific lender? Doesn't it feel like you have just been rejected by another person that you have been diligently trying to build a relationship with? Worst of all, in most cases, there is a third party involved (ie: lender, bank, salesperson) who is depending on the (positive) answer from the originator of the loan to make a sale happen. (Imagine being turned down after a proposal of marriage with your (hopefully) future mother-in-law sitting somewhere in the same room!) How embarrassing! This is exactly how it feels to be rejected for credit! Financing is the key to many of the projects and goals that we are looking to achieve. Other People's Money or OPM for short, is the key to buying real estate investments.

Have you ever, or do you know of anyone who has stellar credit, and cannot get a loan because of low credit scores? That is the situation that we have faced in our real estate investing. We have never been late in any payment for any creditor for over 10 years. However, because of the fact that we had numerous loans outstanding, (and many of them maxed), we had to settle for a higher interest rate loan, shorter term, prepayment penalties, and additional expenses. Just because of our "low" credit score. In other words, we had to pay a high price to achieve our financial goals. Now, we are a little wiser, and a lot more knowledgable when we buy a house or investment. We have structured our financial life in such a fashion that we are using OPM to achieve our goals and ambitions. Anybody can do this. Below, is an itemized list of things that you will have to do to achieve your investing or real estate goals.

1. The very first thing on your list is to write down your goals. Many people do not have goals to be able to achieve! They go through life living from paycheck to paycheck waiting for that bonus, overtime pay, or tax refund to spend for extras and\or goodies. With a financial goal, you will have a reason to save, a thrill when you achieve your goal, and the desire to continue setting goals. And always if you are a couple, make those goals joint goals. Make perfectly certain that both of you agree on the goals and the time frame specified for achieving these goals. The other very important issue that you need to know is writing the goal(s) down. There is something very powerful about having these goals mutually agreed upon, written down, and posted in a place that you see it consistently.
2. Get your cashflow position in order. What that means, is get your monthly expenses in line with your monthly income. If you make $2500 per month and you are spending $2700 in expenses, it will not take long before you are head over heels in debt. You might have to make some hard decisions on decreasing monthly debt. This might include reducing the size of your housing payment, consumer loans (ie: car loans, personal loans) , or revolving debt (ie: credit cards, lines of credit).
3. Build "steps" to achieve your goals. A baby does not take steps the minute that it is born, and neither will any of us be able to achieve our goals without taking small steps one at a time. Examples of some steps might be: develop a monthly budget, develop a savings plan, pull your credit so that you know what is there. There are many reputable on-line links to be able to pull credit, and you will know what is on there to be able to take care of. Make an appointment with a bank or lending establishment so that you may develop a relationship with them. Believe it or not, bankers are people too! They want to see the people that they are dealing with. They also want to learn to know you. Make sure that you find a lending establishment with good mortgage, consumer, and revolving loans. Study their loan programs. If the lending has multiple programs that you could be looking for, then build a relationship with the loan officer. That does not mean going in every day, and hanging out in his/her office. Building a relationship means to make an appointment, get brochures of the banks programs, ask questions, and build a written plan to take into the lender to be able to see what you are planning.

The important part of achieving any goal is perseverence! If you feel that these goals are not attainable, too long of a time frame, or too difficult, you will not even start! Take baby steps. One small goal that you have achieved, is worth more for your self-image than trying too hard and pushing yourself beyond your ability. This not only is discouraging, but affects your health as well. I will give you an example of goal setting that happened to my family. A little over 3 years ago, we purchased a wonderful 200+ year old stone commercial property. It had over 20,000 sq. ft. with a house and a barn in a great area. It was a fire-damaged property, and needed gutted, and we rented lots and lots of dumpsters. Not even 6 months after we settled on this property, we put an agreement on a large fixer-upper house for our family to move into. We had been looking for over 6 years for a property like this, and we finally found it. It also needed a good bit of work, much of it being cosmetic, however, it all needed done before we could move into it. Now, we had 2 fixer-upper properties to fix up at the same time with only one crew. On this property was another house which also needed work, and it was to be rented out within a month of settlement. So, now we had 3 buildings that all need varying degrees of work to be done, and only a limited amount of manpower and funds. Add this to the old house that we moved out of, which needed updating to get it ready to sell! To say that we were over our heads at this point was not quite true to say, but with monthly payments on all properties, with only enough manpower to do one building at a time, would quickly deplete all of our funds. We will talk more in detail about this later, but the point is that now, we were working towards all of our goals too quickly, taking step after step immediately, and it put us in a very stressful, unhealthy position. My family started working around the clock, recruiting as many people as we could to help us fix up these houses as quickly as we could. As anyone knows, with 4 complete houses that needed beautified, limited manpower, peoples' schedules, and quickly diminishing funds, you just cannot complete that many within 2-3 months! Hindsight is always 20/20, but I wonder what we could have done differently. I do know though, that we were always exhausted, never on-schedule, constantly frustrated, and our health was failing as well due to stress, exhaustion, and unusual schedules.