How to Get Your Feet Wet in Real Estate

No money down, equity, short sale, foreclosure, flip, lease option, land contract……I can talk all of this in my sleep, but today, I’m the Monopoly Guy.  I’m going to be straight to the point and cover a lot.

This post  is a starting point; Getting Started:

Carleton Sheets; Many real estate junkies like myself have started out with him.  My cup is always half full, so did this informational product change my life??? Yes. I purchased this not knowing one single thing about real estate. There was one sentence in this $150 program that said; “JOIN A LOCAL REAL ESTATE GROUP”, so I pulled up a website that is listed below, Creative Real Estate Online. I pulled up many local groups and BOOM. It was nothing like I expected. At the time I was only 21 years old and the room was full of much older men and women. It was 10 minutes into the meeting before I realized how informational it could be. They were speaking all the lingo that I had been reading about and actually doing the things I had been learning all about. I explained my age and dreams when it was my time to introduce myself. What was different about them was there were no laughs or talks of failure. They were glad to have me there and be supportive along the way.

Find a Mentor: This should not cost you anything. It is wise to do a lot of research for credibility of the mentor if you are going to dive into real estate. There are agents, brokers and investors. While you are networking with them, take notes as to their names, jobs, and experience in real estate. Find one you like, and you’ve got a mentor.

Many folks that I counsel want to go get their Real Estate License. This can be expensive depending on what state you reside in. Truth is, you don’t really need your Real Estate License to be a Real Estate Investor. In some instances it could hinder your creative real estate purchases. Pro’s- it can and will always give you 3% of any purchase and you can have monthly access to the M.L.S (the Multiple Listing Service), a service listing that every single agent uses to list properties on. These are usually broken down by county or cities and each territory could have an individual access fee.

*Note, 72% of everyone that has wanted to get into Real Estate INVESTING gets a license! I totally made this up because if it was up to me I would of assumed 100%! Why is this, because anyone making a jump into the unknown, would like to have a security blanket. Being an investor full time means no guaranteed paycheck.  Knowing that maybe, their hopes, wishes, and dreams of resulting in a couple million dollars in real estate isn’t good enough. Folks would rather have a steady paycheck.

So you don’t and shouldn’t build your business with your job and credit. Excellent!

The Monopoly Game- When I first found out about the 1030-1031 Exchange – I felt that my entire life the rich and successful were showing me the clues through the board game.

Monopoly basic- buy property, own all, and then you can build houses and collect more rent. After you have enough houses you can EXCHANGE into hotels and collect even more rent. Our TAX code- If you own a single family house that is a rental and you have enough equity you can sell the house and the equity can be moved to as it states:

“a simple strategy and method for selling one property, that’s qualified, and then proceeding with an acquisition of another property (also qualified) within a specific time frame. The logistics and process of selling a property and then buying another property are practically identical to any standardized sale and buying situation, a “1031 exchange” is unique because the entire transaction is treated as an exchange and not just as a simple sale. It is this difference between “exchanging” and not simply buying and selling which, in the end, allows the taxpayer(s) to qualify for a deferred gain treatment. So to say it in simple terms, sales are taxable with the IRS and 1031 exchanges are not. Us Code: Title 26 10310. Exchange of Property Held for Productive Use or Investment”

If you read Donald Trumps’ Art of the Deal- His first property was a 1200 unit apartment complex and he sold it two years later and did a 1031 exchange to his first property in NEW YORK!

Here are some key terms and how to get started:

Short Sale- This is when a property is taken back by the bank, either before the foreclosure or after, when the bank buys it back. You make an offer to the bank. Lets use easy numbers- The property was taken from the bank, the bank needs at least $100,000 to make it a straight zero in their books. You find the right person at the bank to make an offer (this could be very tough to do). You find him or her, offer 60,000 dollars and of course they are going to DECLINE the offer. They want $100,000 or…or somewhere near. They counter you $90,000. The process goes back and forth until you both come to an agreement.

*The key to this is to know where you want your purchase price to be and don’t get emotions involved. So if it is $80,000 then strive and set your offers to get to this point.

Sheriff Sale- The Property has been seized and now the bank wants to get their money back from investors- The problem with this is that sometimes the amount owed on the property is more than you want to spend or more than what you see yourself getting into.

Bankruptcy- When a person files, sometimes they can reaffirm and keep the property, and other times they just walk completely away.

Pre-foreclosure- This is a buying technique that you can get to them before they file and lose the house. See ads below.

Lease/Option- Strictly Rent-To-Own, Be careful not all states will recognize a lease -option. Explained below

Land Contract- In my state a land contract is recognized. It is a rent-to-own deal but there are legal documents that are recorded at the local level. For every contract there is a small down-payment often times 10% of the purchase price.

Cash flow- Rent minus expenses (loan, management fee etc)

Some experts in the field and my insight on each:

Carleton Sheets- Web Site Here- Great intro, for the novice (but remember, he now makes most of his money selling books, not real estate).

Russ Dalby- Web Site Here- Teaches you how to buy and sell notes. A note is the physical document that binds two parties together for an obligated amount. Ex: I sign a mortgage loan (documents are the note) and say I only owe 25,000 on a house that is appraised at 75,000. Say I get sick and desperately need 25,000 dollars! I have it listed for 60,000 but my agent knows that I need at least 50,000. I could seek a broker that can purchase the note and continue to take payments for that property. I receive my 25,000, they have the potential to receive the payments and possibly make a lot more.

In my experience:  I purchased this and read all of it, I had one case that was very different. A guy I knew responded to our ad (listed below) and he just inherited a property that his uncle gave him when he passed. The property was in not the best shape, and it was only a 2 bedroom. So through my comps (comparable sales) showed that AT MOST, he could get 50K. He lived out of state and was leaving in about 4 hours.  ***Sometimes when you get these calls you have to work quick and make sure all your T’s are crossed and the I’s are dotted!*** We did our own title search, background everything. His uncle was doing a land contract with another investor and only owed 7,000 dollars. His loan or NOTE, was only 350 dollars a month. I brokered a deal that gave the California Boy 10,000 dollars with no headache. The property needed cleaned, new carpet and this guy had no time or even cared to make an extra 40,000. Long story short, he was happy, but I took my creative purchase to one further step. PERSONAL NOTE: I was a straight commission salesman with two kids, I needed  money and technically I borrowed the 10,000 to give to him. Once you get into the game you will find some people that understand what you are doing and will be delighted to make money off of you.

Steps: The process of thinking quick and making a couple bucks

1- Received call from ad

2. Get as much detail about the circumstances as possible (at first, since they don’t know you, they will not be honest with you even though you are the last stop)

3. Start background check on property and title search. If you call a local title company before hand you can negotiate a set price for emergency title searches.

4. Set appointment,  negotiate and make offer.

5. Close as soon as possible.

These last three steps are for some creative lending ideas, if you want to turn a fast buck, or if more conventional lending is not available for you.

6. Call a Hard Lender (Loan Shark) Presented plan that I would pay 10% interest for the 10k . No prepayment penalty! Crucial. A prepayment penalty if you pay the loan out before the set agreement. So $10k from this guy. My deal is complete, {10% on 10k, 350 dollars for only 7k loan left} The property can still cash-flow! (Cash-flow is Monthly Rent subtract Loans= Cash-flow)

The problem with this is that I’m still not getting paid, I got my own mortgage to pay, and family to feed. Beware this gets tricky and I would talk with a real estate attorney. Find one that understands what you are doing as an investor. Just because they are a Real Estate Attorney DOES NOT mean they understand what you are doing.

7. I went seeking to a more risky Hard Lender, one that can go a little bit higher and one that might want the property. So I had the same presentation typed for the other guy all I did was change the numbers. This time I was presenting a sale for $20k today! Some tough negotiation, but in the end he bought it.

Breakdown:

Distressed owner owes $7,000, I borrow $10k, and pay the owner $17k.  I quickly flip the property for $20k to another investor.  The closing was easy and I was happy, just around 5pm we closed $20,000 dollars – $17,000 I net, and $3,000 dollars is my profit minus lawyer fees, contracts and title (around $400). I really got $2,600 for 1 very quick day.

I had the title company make additional check to the investor A (10,100 dollars) HOLD UP! Why 10,100 , because I gave him an extra 100 dollars for his trouble and most importantly gained even more trust for the next deal!

Summary:  Real estate investing is really a art, there are so many different approaches on how to make money off of it.  The list above is just one small idea for the beginning investor who doesn’t have millions in the bank, and can’t obtain conventional lending.  Quick flips are a great way to build up your bank account so you can get into some heavier hitting.

John Beck- Web Site Here- Purchasing property that folks have never paid real estate tax on. Its possible but most mortgage companies automatically put it on your loan after it has built up to a certain amount. I have a list of every single county in the US that you could call, I could coach you as well – just email me.

This  was just a quick, starter pack and as you can see every segment could be a book within itself. So good luck.