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F In Touch Today and its licensors. All rights reserved. www.intouchtoday.com
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Beyond The Basics I 1
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of Real Estate
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Investing
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ADVANCED
INVESTMENT
SEMINAR
Presented By:
Your Logo Here
Brought to you by:
Company Name – Company Website
! CAUTION !
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The information presented in this seminar
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is not intended to eliminate consultation
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with a qualified real estateu
investment
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broker. Real estate contracts
and
laws
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are continually changing.
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Brought to you by:
You already know why
you want to invest:
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• Capital Appreciation - Real estate T
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investing offers a high rate of return.
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• Security - In the long term,
real
estate
has
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shown a consistent increase
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when the economy
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• Tax Shelter
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can be tax deductions
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associated
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• Real estate will always be here. c
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• Real estate always appreciates
over
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• You can leverage your
investment
to pay off
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cin any other arena.
far greater returns
than
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successfully
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Brought to you by:
You will learn:
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• How to find properties
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• What to buy
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• How to analyze properties o 3
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strategies
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• Financing options
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• How to increase
property
value
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• Benefits
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1031 Exchange
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How
to
manage your properties, and
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C• The 7 Secrets of Investing in Real Estate
• The 7 Secrets of Investing in Real Estate
Brought to you by:
How to find properties:
Classified advertisementsy
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• For sale by owner
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• For rent – may convert rental into
sale 5
from
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owner who can’t get property
rented
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• Lease-options – not just looking to buy properties;
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use this information to obtain potentialh
buyers
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information (use this when you’o
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to sell)
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• Auctions –great way to find
potential
buyers
and
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maybe a great deal 6 m
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• Legal notices – every major city sells T
legal
newspapers and list foreclosures, h
tax liens,
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bankruptcies, estate sales and
divorces
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• Obituaries – offer to take
over
property they
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may be interested 6
in disposing
of quickly
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• Neighborhood newspapers – Thrifty
Nickel
,
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Shopper’s News are used by
sellers
who can’t
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afford traditional advertising methods
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Real estate magazinesy
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• Use photo of property, descriptionh
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knowledge of the area to determine
whether
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• Questions to ask the listing Realtor:T
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– Why are the sellers putting this property
on the
market?
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– What are rental levels in the area?
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– How have property values shifted
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– What is the population6
growth
in the area?
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Real estate agentsy
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• How to choose an agent:
– Interview candidates and ask the following questions:
• What is the best investment property available right now?
• Why? (You want to determine if the Realtor knows the financial
advantages of purchasing this property.)
• What type of experience do you have in this area? Ask for a
resume and references from clients who are investors.
Brought to you by:
Real estate agentsy
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• Work with agents who are also investors
–
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they know what you want ando
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waste
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your time selling you onn
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Off-market sales y
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• Locate a property that meets your needs
–
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approach the owner and ask if s/heh
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consider selling
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circumstances you may
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an offer
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Write your own advertisementsy
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• Write an ad offering to buy properties
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serious investor wants to buyu
properties;
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maintenance or repairs no
problem;
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quick decisions
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Brought to you by:
Additional methods for locating properties:
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Find Motivated buyers
• Those who have experienced a change in their financial situation
•
•
•
•
•
Poor health
Recent divorce
Recent unemployment
Estate sale (death)
Relocation
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• Great way to meet other investors
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– Obtain their names, addresses, email andh
fax information
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– You may have a property to sell them,
or
they
to you
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– Good way to obtain financing
information
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1for other ventures
– Good way to find financial
partners
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Auction ads
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• When property taxes not paid, government
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demands payment and can force a tax
foreclosure
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• Buy the property or buy a tax certificate
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(not available in every state)
forthe
amount of
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the back taxes
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Tax sales
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• Right of redemption rule – owner can redeem
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property by paying back taxes plus interest
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(20%-30%) within a set timeframe
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• You cannot sell the home n
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set time
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frame has expired
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Tax sales
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• Go to smaller towns, talk to the tax assessor
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and ask for a list of properties that
they
’
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taken back (this will yield more
success
than
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going to bigger city taxI
auctions)
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Tax sales
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• When buying at a tax sale investigate:
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– Title insurance availability o 3
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– Right of redemption parameters
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– Interest rate you will
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for money spent
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Tax sales
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What to buy
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Look for properties that you could potentially
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convert to a personal residence
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– Single family residences u 3
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– Condominiums
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What to buy
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Look for properties that you could potentially
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occupy and rent 1 or more units
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– Triplex
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What to buy
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Distressed property identifiers:
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• Needs TLC
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• Bank owned
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• Been listed with multiple real
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agents
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• The deal fell through I
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• Sellers are experiencing
personal
hardship
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Brought to you by:
What to buy
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Distressed property identifiers:
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• Home located in less desirable neighborhood
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and is in fair to poor condition
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–
–
–
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Gutters are sagging or falling off
Trash in the yard and/or in the house
Windows broken
Roof in disrepair
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What to buy Buy from a motivated seller y
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Telltale signs the seller is motivated: T
• Neglect – the worse the condition of h
the property,
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the better the deal
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• Undeveloped land – land located
on
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town; locate owner and
make1
an offer
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• Vacant homes – grass and bushes overgrown,
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place is deserted
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• Condemned homes – look T
for yellow
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property
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human habitation
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• For rent – owner may be highly motivated
to
sell
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if the property has been empty for
a while
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• For sale by owner – interpret
these
signs as
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“make me an offer”
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What to buy -
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• Websites specializing in forclosures: T
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– www.foreclosureworld.net (membership
required)
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– www.homesdirect.com (HUD)
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– www.denverva.com (membership
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Foreclosures
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What to buy -
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• Banks/credit unions – typically listed h
with Realtors
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• FDIC – typically listed with Realtors
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• County trustee
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Foreclosures
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What to buy -
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Bank discounts the mortgage and
accepts
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less than the outstanding balance
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consider the loan paid n
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Short sales
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What to buy -
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• Fannie Mae or Freddie Mac will typically accept
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82% of what they think the property ish
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• You must offer at least 82% or theu
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accept the offer
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• Some banks may acceptI
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it8is dependent
on the loan type
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Short sales
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How to buy short sale property
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1. Locate the seller, take over the propertyo
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(assume payments) and get written permission
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to deal with the bank
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2. Compile comps that indicate
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3. Detail the repairs
complete
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4. Identify
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Estate Owned) manager
Brought to you by:
What to buy -
residential vs. commercial
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Philosophical differences:
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Commercial
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Residential Properties
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Deal with people
Deal
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If the rent isn’t paid on time, you must
deal with the tenant
If the rent isn’t paid on time, refer to the
contract for specific remedies
If the property is damaged, you must
deal with the tenant
If the property isn’t properly maintained,
you can contract a commercial cleaner
and send the bill to the tenant
There are many governmental laws in
place to protect the rights of tenants so
that they cannot be exploited – this
restricts what you can and cannot do
The contract between landlord and
tenant generally stands as written
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Differences between residential
and commercial properties
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• Rents quoted weekly or monthly
• Rents quoted annually
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• Tenants typically don’t improve the property
• Tenants typically improve the property to
improve their business
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• No lease or short term lease
• Leases tend to be long term
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• Call you to fix minor problems
• Tenant fixes minor problems
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• Governmental regulations exist to protect tenant rights
• Government tends to leave you alone
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• Requires minimal capital investment
• Requires larger capital investment
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• Banks will finance up to 90% or more of appraised value
• Banks will finance 75-80% of appraised value
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• Appraised value remains steady when occupied or unoccupied
• Appraised value increases 2-3 times when occupied
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• Finding new tenant typically easier
• Finding new tenant typically more difficult
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• Large sum invested results in high management overhead
• Large sum invested results in low management overhead
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• You deal with people
• You deal with contracts
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Analyzing properties Cash-on-cash methoda
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Analyzing properties Cash-on-cash methoda
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• Calculation for the cash-on-cash method
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Analyzing properties Internal rate of return (IRR)
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• To calculate the IRR you must take into
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Property negotiation strategies
“Must have” clauses a
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1. Name/signature field clause
– Use “as nominee” to give you flexibility to 5
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2. Financing options clause
–
–
Include the phrase “contract is expressly subject to
and conditional upon the purchaser arranging
financing suitable to him/herself”
If you can’t find suitable financing, you’re not subject
to financing offered by the owner (which may not be
very attractive)
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3. Legal clause
– Include the phrase “contract is expressly subject
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approval as to title, encumbrances,
liens,
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4. Secrecy clause
–
–
Keeps the details of the contract between the parties
that are directly associated with the deal
This is crucial when negotiating a block of real estate
transactions – maintaining secrecy prevents one owner
from increasing the price of their real estate because
you’re buying an adjacent property
Brought to you by:
How to lock the deal a
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Use the “two chair close” to lock the deal
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Brought to you by:
How to lock the deal a
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• Picture two chairs – the reluctant and eager
party
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– You sign the contract and turn to the seller for his/her signature
Buyer Role
Seller Role
Point to the seller signature line and
then ask about some defect in the
property such as a stain and ask if it’s
been fixed.
The seller typically will affirm that the
problem has been fixed.
Allow the seller to peruse the contract
and ask another question such as the
neighbors – are they loud?
The seller affirms that the neighbors
are quiet and great.
Continue to ask negative questions
until the seller signs. You are sitting in
the “reluctant” chair.
This places the seller in the “eager”
chair and they work to keep you in
the deal.
Brought to you by:
Financing options Mortgage typesa
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• Principal and interest mortgage – repay
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• ARMs (Adjustable Rate Mortgage) – shorterterm loan that typically has a lower interest rate;
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• 15, 20, 25, 30 year fixed – longer-term loan type at a
fixed rate, the payment doesn’t change
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• Balloon – fixed for a pre-determined periodT
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Brought to you by:
Financing options Hard money lenders
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Financing options Investment partners
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Brought to you by:
Financing options Special loan programs
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Financing options Life insurance/401k
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Financing options Personal assets
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Brought to you by:
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• Use CD’s as collateral
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Brought to you by:
Financing options Lease option
y
a
d
o
Four-step process
T
h
5
c
5
1. Locate the property
7
3
u
3
o
3
4 –
T
2. Include a lease option agreement
clause
0
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8
1 a qualified
contract subject to buyerI
approving
m
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resident to occupy
premises
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y
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3. Pre-sell the house
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your tenant-buyer (you
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first
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use some of this money to close the deal
Brought to you by:
Determining leverage levels
y
a
d
• Financing your investment property is a o
T
balancing act between what you can
afford
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5
c
5
7
and what you feel comfortable u
risking3
3
o
3
4LTV
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– LTV (Loan to Value) – 80%
or less
0
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eliminates PMI (Private
Mortgage
Insurance)
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which increases0
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cash
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wdown payment – increases initial
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Brought to you by:
Determining leverage levels
y
a
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• What are your goals? More operating income
o
T
or greater future ROI (Return on Investment)?
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5
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7
3
u
• Are you comfortable taking considerable
3
o
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4
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risk or does taking too much
risk
keep you
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Brought to you by:
Increasing property value –
Use 40% rule
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To ensure your return on investment:h 5
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5
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3
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vs. remodeled
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take to
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1 overruns)
(figure time overages
and
cost
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y
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• STOP all work2
when
the 40% return on
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d
o
t
t
investment
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reached
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t
i
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Did you
know
more than 50% of rehab projects
i
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.
w
y
w
lose
money?
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Brought to you by:
y
a
d
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• Put in functional items in kitchens and
baths
h
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• Use small touches like addingo
some
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ceiling fans to appeal to renters
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than
or granite on
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countertops; use0
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rather than tile
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g
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coverings
or
cabinets
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y
w
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Remodel within the standards of the neighborhood
Brought to you by:
First impressions count
y
a
d
o
• Paint the exterior
T
h
5
• Clean up the landscaping and yard,
fix 7
gutters
c
5
3
u
3
and shutters if misaligned or broken
o
3
4
T
0
0
n
8
• Wash windows and screens
I
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o
0
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Brought to you by:
y
a
d
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T
h
• Paint the interior
5
c
5
7
3
u
3
• Replace worn out floor coverings
o
3
4
T
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• Fix improperly workingI
plumbing
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Brought to you by:
y
a
d
o
T
• Repair obvious problems (broken doors,
h
5
5
windows, screens, stains, cracks)c 7
3
u
3
o
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• Replace old, ugly countertops
4
T
0
0
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8 properly
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• Ensure heating and A/C
units
work
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Brought to you by:
Benefits of a tax free exchange
y
a
d
One of the last remaining tax shelters in real
o
T
estate investment is IRS Code Section
h
5
c
5
1031 – referred to as 1031 exchanges
7
3
u
3
o
3
4
• Trade one property for another
without
T
0
0
n
8
paying tax
I
1
m
6
o
• 45 day deadline for
identifying
the property
0
c
.
y
0
a
2
to be purchased
d
o
t
t
hon the entire transaction
c
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• 180 day
time
limit
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o
g
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i
n take possession or have
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(seller
cannot
r
.
w the proceeds of the sale prior to
y
w
control
over
p
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the expiration of 180 days)
Brought to you by:
Benefits of a 1031 Exchange How a 1031 exchange works
y
a
d
o
• The original property is sold (referred to as theT
h
“relinquished” or “downleg” property)
5
c
5
7
3
u
• Proceeds of the sale are transferredo
to an 3
3
4
T
Accommodator (someone who holds
the
funds)
0
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“like” properties
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o
0
c
.
(referred to as the “replacement
” or “upleg” properties)
y
0
a
2
d
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• Closing must occur
within
180 days of the close of sale
t
t
h
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h
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of the relinquished
property
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g
t
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• The y
Accommodator
turns control of the money over to
w
w
p
w
the
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property escrow
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Brought to you by:
Benefits of a 1031 Exchange -
y
a
d
o
• Shift risk from one, high-valued property toT
several
h
5
lesser-valued properties to diversify investment
c
5
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• Management-intense properties can
be
sold and
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4
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0
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replaced with more manageable
properties
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Brought to you by:
y
a
d
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• Property owners who geographically relocate
T
h
5
can relocate their equities
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5
7
3
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• Exemption from reporting all or ao
portion
of the
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4
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0
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sale profit
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8
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Brought to you by:
y
a
d
o
• No recapture of any excess accelerated depreciation
T
h
5
• Increase income yield by replacing current
property
c
5
7
3
u
with higher-priced, more productive
property
3
o
3
4
T
0
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• Establish new depreciationn
deductions
on a higher8
I
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priced building
m
6
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w
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Brought to you by:
Managing your own properties –
The cons
y
a
d
o
T
h
c
u
o
T
n
I
6
0
c
.
y
0
a
2
d
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u
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g
t
i
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i
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.
w
y
w
p
w
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C
• Although you may be good at managing your own
properties, you are losing money
5
5
• The time you spend managing could be spent
finding
7
3
3
3
and closing more property deals
4
0
0consuming and
8
• Property management is stressful, 1
time
m
ultimately not very profitable o
Brought to you by:
The pros
y
a
d
o
T
h
c
u
o
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n
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6
0
y
0
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2
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n
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r
.
w
y
w
p
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C
• They take care of everything and it only costs about 7%10% of the rent to manage a property
5
5
• Think about the costs you incur each month 7
3
3
3
• How many times do you go to the property?
4
0
0
8
• How much time do you spend doing
paperwork,
getting
1
m with tenants?
repairs scheduled and made, c
dealing
o
.
Brought to you by:
The pros
y
a
d
o
T
h
c
u
o
T
n
I
6
0
c
.
y
0
a
2
d
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t
h
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h
u
o
g
t
i
n
i
r
.
w
y
w
p
w
o
C
• How often do you have to call the tenant to get the
rent? Once, twice, more often monthly?
5
5
• Reduces your direct liability
7
3
3
3
• When you have direct contact with tenants,
4they will
0
0
8
sue you (it eventually happens to all
1
m
landlords/property managers) o
Brought to you by:
Seven secrets of investing
y
a
d
1. You make money when you buy.
o
T
h
5
c
5
7
3
u
3
2. Always buy from a motivated seller.
o
3
4
T
0
0
n
8
I
1
m
6
o
0
cthe property.
3. Fall in love with the0
deal,
not
.
y
a
2
d
o
t
t
h
c
h
u
o
g
t
i
4. Never name
your
n price first.
i
r
.
w
y
w
p
w
o
C
–
It may not be in the form of cash in your pocket, but
your net worth will just have increased.
–
The more desperate the seller, the better the deal you
will strike.
–
Buy your personal residence based on emotion –
buy investment property based on numbers.
–
Let sellers name their price first, and then negotiate
from there. You may get a better deal than you
anticipated by letting the seller name the price first.
Brought to you by:
Seven secrets of investing
y
a
d
5. Be countercyclical.
o
T
h
5
c
5
7
3
u
6. Buy with zero down or little down.
3
o
3
4
T
0
0
n
8
I
1
m
6
o
0
c
.
7. Seldom sell.
y
0
a
2
d
o
t
t
h
c
h
u
o
g
t
i
n
i
r
.
w
y
w
p
w
o
C
–
Don’t sell when everyone else sells. Don’t buy just
because everybody else is buying.
–
Put as little of your own money into the deal as possible.
Your return will be higher and you can use the cash you
saved for additional properties.
–
If you hang on to properties for decades, you will
generally see a decent rate of return on your investment.
If you sell prematurely, you may look back on your
decision and say “if only I had kept that property – look
what it’s worth now.”
Sometimes you need to sell or you’re made an offer you
can’t refuse – then and only then, sell.
–
–
Brought to you by:
Be committed to ongoing
education on investing
y
a
d
o
• Keep up with laws surrounding real estate andT
taxes
• Read books, join clubs, read blogs, sign c
uph
for 5
5
7
3
u
newsletters to further your RE education
3
o
3
T-800in-4real
• Work with professionals who n
specialize
I
1
estate investing
m
6
o
0
c
.
y
0
a
2
d
o
t
t
h
c
h
u
o
g
t
i
n
i
r
.
w
y
w
p
w
o
C
Brought to you by:
Thank You!
y
a
d
o
T
h
5
c
5
7
LOGO
3
u
3
o
3
4
T
0
0
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8
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1
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6
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0
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0
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2
d
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t
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c
h
u
o
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t
i
n
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r
.
w
y
w
p
w
o
C
Name:
Office:
Website:
Brought to you by:

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