30 pm Our Featured National Speaker: Dyches Boddiford

MREIA is a Proud Member of:
June
Volume 11 Issue VI
2008
Our Next General Meeting is Monday, June 16th, 2008
Our Next General Meeting is Monday, June 16, 2008
6:30 pm. Pre-meetings – Discussion groups for beginners and advanced members. Bring your questions!
7:00 pm. Visit the vendors; deal offerings from members.
7:10 pm. Announcements from the Board.
7: 30 pm
Our Featured National Speaker: Dyches Boddiford
Dyches Boddiford is a full-time real estate investor who began purchasing real estate in 1980 while working in
corporate America. He formed the Oaks Group, Inc. in 1986 to handle real estate related activities and since 1991
has devoted full time to making his company grow. Dyches speaks from experience in owning apartments, single
family houses, mobile homes, buying discounted mortgages and making mortgage loans, including using land trust
and land contracts. He is also a Past President of Georgia REIA and continues to conduct many seminars for
Georgia REIA members. Dyches has written books and teaches seminars on Financial Freedom, Asset
Protection, The Corporate Fortress, The Nevada Corporation, Limited Liability Companies &
Partnerships, Real Estate Investment Using Self-Directed IRAs, Advanced Strategies, Business Tax
Strategies, Estate Planning with Asset Protection, Guerrilla Bankruptcy Tactics for Creditors, The Mobile
Home Money Machine, Deals in Dirt, Discount Notes & Mortgages, Private Money Lending as well as
other topics.
Below are just a few of the topics to be covered:
Why Use Owner Carryback Financing?
• As a Seller
• As a Purchaser
• Owner Carryback Terms
• Nothing Down vs. No Money Down
• 0% Owner Financing
• What is a Balloon?
What Clauses Should Be Added to Notes & Security Instruments?
“Walking the Mortgage”
Saturday, June 21, 2008-All Day Seminar with Dyches Boddiford
See pages 6 and 7 for details.
Metropolitan Real Estate and Investors Association, Inc.
Your Board of Directors
President
Vice President
Secretary/Past President
Treasurer
Editor
Past President
Audio/Visual Chair
Legislative Awareness Chair
Hospitality
Lending Library Chair
Meeting Site Chair
Membership Chair
Registration Chair
Vendor Chair
Web Design Chair
Dan Schwartz
Joe Tevlin
Nick Zampetti
Bob Lee
Dan Schwartz
Frank Barillari
David Leidy
David Corsi.
Diane Stewart
Angela Fan
Nick Zampetti
Peggy Martini
Chuck Martini
Scott Linde
Vince Condello
(201) 791-4639
(866) 416-4378
(201) 343-8629
(908) 272-9491
(201) 791-4639
(732) 240-2050
(201) 965-3288
(732) 923-1410
(732) 249-9343
(201) 889-9026
(201) 343-8269
(201) 410-5017
(201) 410-5017
(732) 777-6857
(610) 258-7058
[email protected]
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Inside This Issue
June General Meeting
President’s Message
Vendor Index
The Changing Market
Dyches Boddiford
June 21st Seminar
Newsbrief: FHA Legislation
Owner Carryback Opportunities
Environmental Clean-ups
Negotiating: A Case Study
Why Owner Financing
Non-Assignable Contracts
Cover
3
4
5
6
7
8
9
11
13
16
18
Lease/Options: Pros and Cons
Roth IRA: A Case Study
Appreciating Appraisals
Communicating and High Tech
Dealing with Banks
Using the Internet to Buy/Sell
Unethical Contractors
Management Tips
Marketing a Vacancy
Tenants and Smoke Detectors
Ask Doctor CashFlow
MREIA Message Board
21
23
24
25
26
28
31
34
37
40
41
42
About MREIA
We are a not-for-profit Real Estate Educational Organization and a member of
The National Real Estate Investors Association.
The elected and appointed officers are unpaid volunteers.
DISCLAIMER
We do not render legal, accounting, tax, investment or other professional services or either through the Metro or at general meetings. We
disclaim all liability for actions (or inactions) taken as a result of any communications between the Board of Directors, appointed officers and the
membership.
We do not officially endorse any product, project, person or organization. Before making any investment decision, you are urged to seek
advice from qualified and competent professionals and to use due diligence before using any product, services or ideas presented in the Metro
or at general meetings. At times the Board may take particular positions or points of view on matters regarding the real estate industry. Said
positions do not represent solicitations.
Our speakers are permitted to sell any products or services they may have to offer our members or guests.. The opinions expressed by the
speakers and writers do not necessarily reflect the opinions of the Executive Committee or Advisory Board.
Volume 11 Issue VI
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June, 2008
FROM THE PRESIDENT’S DESK
Maintenance Tips
Nobody ever said that you had to be a carpenter, electrician, plumber or pest
control expert in order to check that a dwelling meets basic habitability
standards. Anyone with an eighth grade education can make a list of things that
should be corrected. I have organized the list below by topic:
Doors, Walls and Windows
Check all doors (including cabinets). Are the hinges properly working?
If windows have locks, check that they are in operating condition.
Check all screens from the inside and outside. Small holes can be easily
repaired with a patch kit.
Check that attic fans and chimneys have caps to prevent animals from
entering.
Look for peeling paint, especially in bathrooms.
Dan Schwartz
Electrical
Locate the service panel. Check that each circuit breaker is working properly. There should not be any
paint on any breakers that might interfere with them operating properly.. There are also certain brands
of service panels (such as Federal Pacific) that should be replaced. Their circuit breakers would not trip
and a serious fire could occur. Check whether the cost of labor and materials to replace only the
breakers (rather than the entire service panel) is less expensive. Also, is each circuit breaker properly
labeled?
Check that receptacles have not been covered with paint, missing or damaged. If the wall plate does
not cover opening, install an oversized plate.
Check that all stove, bathroom, roof fans and exhaust fans are in working condition.
Flooring and Stairs
Make sure that carpeting or wood is not loose which might create a tripping hazard.
Plumbing and Heating
Check for leaks: faucets and under sinks
Are there any gaps where pipes go through walls to bathrooms or kitchens? Can bugs enter?
Is the caulking around sinks and bathtubs in good condition?
Check that all thermostats are working.
Water heater: check that the pressure relief value has the pipe extension up to code.
Smoke and Carbon Monoxide Detectors
Test all battery operated detectors. Are they constantly “chirping?” If so, change the battery!
Test wired-in detectors.
Look for any flammable materials that are improperly stored
Exterior
Is there any trash on lawns, driveways or sidewalks. which should be removed?
Check that exterior lights or security lights are working.
Inspect the gutters: are they clogged with debris?
Dan Schwartz
Volume 11 Issue VI
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June, 2008
WE APPRECIATE OUR VENDOR MEMBERS
Name of Vendor
Contact Person
Phone Number
Page
Dave Saulnier
(877) 301-1166
39
Allied Home Mortgage
Joe Scorese
(610) 433-8180 Ext: 17
26
Best Insurance Agency
Patrick Best
(201) 848-7787
30
Laura Maggart
(863) 424-1130 Ext: 140
36
Kimberly Schmidt
(732) 567-6282
22
John DeVirgilio
(732) 671-1000 Ext: 157
32
Jaime Raskulinecz
(973) 857-8056
14
Bill Fort
(201) 243-9333 Ext: 207
22
Tony Croft
(201) 943-6800
33
George Gent
(732) 890-9093
32
Santi Rodriguez
(732) 276-2424
39
Jeff Essex Investments
Tim Zimmer
(973) 494-9673
32
Mawa Investments, LLC
Marcus Ware
(973) 698-8218
35
Mercury Chattel Appraisals
Kevin Cordell
(973) 885-7140
10
NJ Best Home Inspections
Paul Lanaris
(201) 320-7862
39
Winston A. Hahne
(908) 497-9333
12
Pest Plus Pest Eliminators
Scott Linde
(888) 838-8138
10
Prosperity Home Solutions
www.homedealsnj.com
(732) 855-0046
10
RE/MAX
Jack Pedersen
(877) 640-0060
35
Residential Home Funding
Marc Kaplan
(908) 879-7239
15
RNR Solutions
Salma Arefi
(201) 953-4548
10
Screening Works
Lauren Wilson
(781) 645-1373
17
Serico & Dubnik, CPA’s
Jason Dubnik
(732) 625-3752
22
Dan Shiver
(973) 684-5505
14
Paul Quinn, VP
(908) 231-9100
12
State Farm Insurance
Gregory Paglianite
(973) 857-0660
27
United First Financial
Manny Martinez
(973) 200-3569
41
Weichert Realty
Kathi Mangone
(973) 663-0997
14
Wells Fargo
Roberta Smith
(908) 709-3392
36
Win Win Realty Group
Richard Ford
(212) 787-2663
20
All Houses Big & Small, LLC
Bimini Bay Resort and Spa
Certa Pro
Coldwell Banker
Entrust Northeast, LLC
First Alliance Home Mortgage
Freedom Mortgage
Freedom Property Management
Gateway Funding
Noble Title Agency
Shiver Real Estate Agency
Somerset Financial
MREIA does not officially endorse any product, project, person or organization. For more information, please refer to our
Disclaimer on page two. Become a Vendor Member today!
Contact Scott Linde at (732) 777-6857 or email [email protected] for details.
Volume 11 Issue VI
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June, 2008
BEGINNER’S CORNER: ADVICE TO STUDENTS
Harvard Days
by Steve Dexter
So here I am in Cambridge Massachusetts getting ready to talk to over 100 MBA
candidates at Harvard Business School. As I write these words from the campusadjacent Harvard Inn, I know my two hour talk, “What Street Savvy Investors Do to
Take Advantage of a Changing Market”, taps into a desperate need for practical advice
that smart young people need to have. The Harvard students are witnessing a
slowdown in Boston's real estate market that, while not as bad as California's price
plunge, it is getting there. California prices are down 24% and foreclosures are up
114% Massachusetts prices are down about 15% foreclosures up 45.6% AND
ANOTHER 35,000 Massachusetts residents will enter foreclosure in 2008.
Steve Dexter
Would you like to know what I am going to tell them? There are 5 stages to every real estate market1.
2.
3.
4.
5.
Steep Decline
Bottom
Beginning of the Ascent
Nearing the Peak
The Early Decline
Each stage requires a different strategy for real estate business owners, builder developers, investors who buy and
hold or flip and what kind of debt to take on. I will let these eager students know in excruciating detail what moves
they should make concerning their cash, debt, equity and risk threshold..
Young people-I don't care how educated you are- will be best suited acquiring assets that throw off passive
income. Most of the best and the brightest gradates of these Ivy League schools, who will work 60 to 80 hours a
week for some Wall Street hedge fund, a Boston based law firm or some other East Coast private equity company,
end up still being employees-selling their time to somebody else.
Young adults feel goods-deprived after years of going without. Instead, they need to start investing in assets as
soon as they re able and NOT:
1.
2.
3.
4.
Buy expensive cars that are worth 40% less the second they buy it
Lease those same expensive cars
Overspend for clothes that will be worth only pennies a year from now
Strain under high credit card balances used for big screen TVs, trips and furniture
In short, do not pay off worthless crap for many years.
You might think this common sense approach is a too-simple message for these young and fertile minds. If last
year's talk is any indication, most young people wonder what is going to happen next even the best educated.
There is such a need for the youth to get this message of economic independence. Every adult and school should
have these lessons in financial literacy uppermost in their minds.
If I put together a CD set, “What I told the MBAs at Harvard Business School”, would you buy it? Would you
also like to hear how my talk went?
Reprinted with Permission. For further information, visit www.stevedexter.net,
call (888) 993-9399 or e-mail [email protected]
Volume 11 Issue VI
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June, 2008
ABOUT OUR NATIONAL SPEAKER
Dyches Boddiford
Dyches Boddiford (pronounced Dikes) grew up on a farm in rural South
Georgia, 10 miles from the small town of Sylvania.
Though he was not too interested in farming, he took every chance to learn
about construction, wiring and plumbing. He had an interest in science from
an early age that was recognized and encouraged by several teachers.
Dyches attended the Georgia Institute of Technology, graduating with a BS
degree in Physics in 1971, a MS in Information & Computer Science in 1972
and post-graduate work in 1973. Though never having had an electrical
engineering course, he accepted an offer from a small Atlanta company as an
Electrical Engineer beginning in 1973.
In 1980 he began to learn about real estate and buy property on a part-time basis. His first property was his own home, but soon was
picking up rental properties as well.
Then around 1984, because of his travel schedule, Dyches began studying and purchasing discount mortgages. He saw this as a way to
invest in real estate without the need to deal with the property itself. But even then, he continued to add properties to his portfolio for
the tax advantages and appreciation.
In 1986 he formed The Oaks Group, Inc. to handle real estate related activities. The first purchase was an apartment complex.
After making a couple of job moves, the original company with which he had worked contacted Dyches and convinced him to return to
them. Over the next few years he moved up to Vice-President of the holding company.
In 1991, a national company on the New York stock exchange purchased the company for which he worked. They reorganized the
company and Dyches was let go. At that point, he was in the third year of a five-year plan to replace his salary with his real estate
income. He began working full time in his real estate investments and in 1992 earned more than he had working for his old
employer. His regret is that he didn’t go full-time 10 years earlier.
During 1991 Dyches was President of the Georgia Real Estate Investors Association (GaREIA). He was instrumental in securing the
first permanent office space GaREIA enjoyed.
During the early 1990’s most banks and financial institutions were unwilling to finance manufactured homes. Dyches saw this as an
opportunity to profit. He studied what others were doing and devised his own program to purchase used homes cheap and sell them
with owner financing at retail prices.
During the late 1980’s, Dyches and Louis Brown had researched the use of land trusts in Georgia. By 1992, Dyches and Louis decided
that because they were getting so many calls asking about trusts, they would teach a weekend class for GaREIA. Dyches also added a
Corporation segment to the session to show how other entities could be used with the trusts.
Over the next couple of years, Dyches was approached by a national seminar promoter to teach Corporations for him. Thus the
Corporate Fortress was born and has subsequently been licensed by an attorney to use with a presentation he makes nationally.
Dyches also developed his Mobile Home Money Machine course to teach others how to make money as he did in manufactured
homes. When he began to develop subdivisions for mobile homes, he joined Newton Boykin in writing the book Deals in Dirt.
Even though he has added additional courses over the years and is a national speaker, Dyches has remained a full-time real estate
investor. That is his main business and feels that only by being active in real estate investing can he bring real world experience to his
classes and materials.
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June, 2008
Saturday, June 21st at the Woodbridge Hilton
9:00 am to 12 noon; 1:00 pm to 4:00 pm
***Tuition includes Danish, coffee and lunch. ***
Members: $99;
Non-members: $149 or $224 (includes 1 year membership-saves $50)
Owner Carryback Financing and Land Trusts
On Monday, June 16, Dyches Boddiford will introduce the basic concepts of
Owner Carryback Financing. On Saturday he will go into much greater detail
and also provide you with other information not covered on Monday.
Isn’t it Time that YOU Become an Expert on Land Trusts?
If you don’t, it could cost you … big time.
The casual use of Land Trust has come back to bite several Real Estate Investors… simply
because they were not educated on their proper use. Don’t let that be you…
Should you be using Land Trusts? If so, when and how? Is the Land Trust the be-all and end-all
entity for asset protection? When would a the Land Trust file an Income Tax Return?
Dyches Boddiford will guide you through the legal and tax aspects of Land Trusts and other kinds
of trusts—what they really do for you and what they will not do. For some this may well be a
reality check! How does the Land Trust fit into your current investment strategy?
Discover how to add clauses that can strengthen your trust and much more…
• Step-by-step approaches to using Land trusts in different kinds of deals—here are a few:
o All cash
o Subject-to
o Conventional financing
o Owner financing
o Buying at foreclosure
o Buying/Selling on a Land Contract
o Leasing & Lease-Options
o Refinancing
To Be Selected from the Topics Below:
• Land Trust Basics
• Picking a Trustee
• Maintaining Privacy
• Trustee and fiduciary issues
• Changing Trustees…PROPERLY!
• Adding Estate Planning to Trusts
• Using Land Trusts in a 1031 Exchange
• Types of beneficiaries
• Funding the Land Trust properly
• Interesting & powerful clauses and variations
Volume 11 Issue VI
• Relationship of Players
• Trust Stacking & Entity Stacking Strategies
• Who REALLY holds title and Why
• Land Trusts & the Due-on-Sale clause—the real story
• Successor/Contingent Beneficiaries
• Transfer, Property & Income Taxes
• Liability issues
• The importance of Beneficiary Agreements
• How to avoid revealing the Trust documents
• Deeds into Land Trust
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June, 2008
NEWSBRIEF: NEW FHA LEGISLATION
House Committee Approves FHA “Short Pay” Loans
by Mike Jacka
“But our legislators think that they can fix anything, just throw some money at the problem.”
What does that mean for investors? Once again, Congress is trying to fix a problem
that the market is quite capable of fixing itself, and will when Congress gets out of the
way. Real estate always goes in cycles and always will. The current market is no
exception. But our legislators think that they can fix anything, just throw some money
at the problem. All this does is delay the inevitable. If this bill passes, some
homeowners will get relief, but history tells us this will only be temporary.
A key committee in the House of Representatives recently passed legislation that
would make up to $300 billion in federally insured mortgages available to borrowers
facing foreclosure. The bill, H.R. 5830, the Federal Housing Administration (FHA) Housing
and Homeowner Retention Act was passed out of the House Financial Services Committee
and on to the full house by a bipartisan vote of 46 to 21.
Under the principle provision in the bill, the FHA will guarantee a new loan to a
Mike Jacka
troubled borrower if the existing lender will agree to accept a short payment (i.e. less
than the outstanding balance of the loan) in full payment of the old loan. The new loan would be limited to no
more than 90 percent of the property's value and must have terms that the borrower can reasonably be expected
to pay.
Read the full story at: http://www.mortgagenewsdaily.com/522008_FHA_Short_Pay_Loans.asp
A lot of these properties need to go through the foreclosure process to get the properties back on the market at
a price that the buyers are willing to pay. The buyers are the ones who determine market value. In most cases,
that is much less than the current loan balances. If this bill passes, or another version like it, the mortgage
balances will be lower, and maybe even with fixed rate loans rather than adjustable rate mortgages or option
ARMS, but the homeowners will still need to stay in those properties making mortgage payments on loans that
have higher principle balances than the surrounding market is willing to pay.
So, if homeowner were in this situation and got their current mortgage company to accept a short sale so that
they could qualify for the new FHA Homeowner Retention Act, then what incentive does the mortgage industry
have to take a lower short sale price if they know that the FHA has a program to cover the homeowner with a
new mortgage. The answer is none. This would help save the mortgage industry, but not the homeowners,
unless the homeowners don’t have to sell the property for a long time because the property hasn’t made it to the
market for the buyers to decide on the market price.
However, as a CREI (Creative Real Estate Investor) I am always looking for opportunities were others only see
negatives. A pessimist might see this as a road block to getting a good deal and an optimist would look for the
opportunity. As a CREI who looks for opportunities to take over existing mortgages “subject to” or take control
of properties with a Lease Option, it has been a struggle lately because almost every property I have looked at is so
far over leveraged that I cannot make the numbers work without the sellers paying me a lot of money to take over
their problem. And if they could afford to pay me that kind of money, then they wouldn’t have the problem in
the first place. Most of those mortgages also have an Adjustable rate mortgage which presents another problem.
That is why I have been saying for a while, that a lot of those properties need to go through the foreclosure
process to clean up that over leveraged dept and let the buyers decide what the properties are worth.
(Continued on Page 9)
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June, 2008
NEWSBRIEF: NEW FHA LEGISLATION
(Continued from Page 8)
If this bill or another one like it passes, what would you do? Wait for the market to catch back up with the loan balances
of those properties that the government created or wait for the properties to go through foreclosure which is very likely to
happen anyways? If you understand the current set of challenges CREI’s face today because of the overleveraged properties
or because of the ARMS and Option Arms, then you may have thought along the same lines as I have been. This could be
a way for us CREI’s to get those same properties via “Subject-To” deals or Lease Options with good terms in place and then
we could hold them for the long run and maybe even get them to cash flow once again.
What if someone in foreclosure wanted you to take over their property because they were ready to just walk away from it?
Today your only option would be to work a short sale with no real confidence that the lender would accept a short sale at a
price low enough for you to either sell it and make a profit or get a new loan to rent the property out.
Here is another idea to consider. What if you were able to work the short sale with the homeowner and then got the
homeowner the new FHA Short Pay Loan, if the bill get passed, which it looks like it will, and then simply take the property
over “Subject-To” the new financing or took control of the property via a Lease Option. Yes I know what I said earlier
about the price still being hirer that the surrounding market values, but the loan would be an FHA fixed rate mortgage with a
lower monthly payment and fixed expenses on the property. This is a scenario that could make the properties cash flow
again, even if you had to hold onto it for a few years. As a CREI, that is what I am looking for, a way to take control of
properties that I don’t have to get a new mortgage in my own name and then rent them out for a few years with a positive
cash flow and eventually sell them for a profit.
Reprinted by Permission. RealEstatePromo.com does not give legal, tax, economic, or investment advice. Real
Estate Promo disclaims all liability for the action or inaction taken or not taken as a result of communications
from or to its members, officers, directors, employees and contractors. Each person should consult their own
counsel, accountant and other advisors as to legal, tax, economic, investment, and related matters concerning Real
Estate and other investments. Copyright © 2002-2008 RealEstatePromo.com a Real Estate Investment Group. All
rights reserved. The author is the President of Real Estate Promo and the Minnesota Real Estate Investors
Association. Visit www.realestatepromo.com
NEWSBRIEF: SELLER FINANCING
Owner Carryback Options
by Dyches Boddiford
After a slow few months, we are hearing from closing agents that lenders are funding more loans. It was not
unusual over the last few months for a loan not to get funded at the last minute, often the day of closing. The
statement by the Administration that Fannie Mae and Freddie Mac would be provided with much needed funds
seemed to calm fears in the market.
Even during this unsettled time, owner financing attracts buyers. I had one property over the winter that was
renovated and I wanted to sell. Offering owner financing, I got several applicants. I weeded out several based on
their credit history and/or down payment. The family that I finally chose really liked the house. They had great
plans for the yard. This is the kind of excited buyer you want. I believe they will be a great asset to me and the
neighborhood.
This is also a great time to buy using owner financing. Those that need to sell and have not been able to do so
are prime candidates for this approach.
Reprinted by Permission. Copyright 2008, The Oaks Group, Inc. All Rights Reserved.
The Oaks Group, Inc., PO Box 505, Marietta, GA 30061. Visit www.assets101.com
Volume 11 Issue VI
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June, 2008
Volume 11 Issue VI
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June, 2008
NEWSBRIEF: TODAY’S MARKET
Preserving Evidence In Environmental Clean Ups
by Stuart Lieberman
If your underground tank leaks, your septic system fails, or your home needs lead
abatement, you will call in a qualified, licensed contractor to perform the needed work.
And that contractor will perform the work up to legally binding specifications. Which is
well and good if you or your insurance company will pay for the work.
But what if you believe someone else should pay? What if the former homeowner
is responsible because he or she failed to disclose the condition? What if your neighbor
is responsible because the leak originated on his or her property? What if a trucking
company is responsible for a discharge that originated from an overturned truck?
The above are all real life examples. In those cases, and others where litigation may be
needed to recover cleanup costs, the contractor should not think solely about meeting
technical requirements. Rather, the contractor must take additional measures required
to preserve evidence and prove a cost recovery case in court. You see, the contractor
must think about more than dirty soil and water -- he or she must also think about preservation and development of evidence.
Stuart Lieberman
For example, if soil is removed, the other side in litigation may allege that too much soil was removed and seek
to avoid paying the full cleanup costs. Sure, the cleanup technical requirements may not have required formal
documentation that every truckload of removed soil was dirty, but a jury may require such proof when trying to
recover the costs from the responsible party.
If a tank is removed and it has holes in it, will you keep the tank, or pieces of it? Will you notify probable cost
recovery targets in advance, before the tank is taken to a scrap yard? This will offer the other side a chance to
evaluate the tank independently. And if it elects not to take advantage of this invitation, at trial you can prove that
the opportunity was offered and denied.
If you are trying to convince a court that someone else should pay for an expensive cleanup, the more the plaintiff knows about the extent of combination before a lawsuit is filed, the easier the case may be to settle down the
road. Which may save everyone a considerable amount in litigation expenses.
If your environmental problem seems like a large one that really should be paid for by someone else, I very
strongly suggest that your retain legal counsel as early in the process as possible. That lawyer will work with your
consultants while they are performing their work. They will ensure that evidence is preserved and that pro-active
extra measures, which may cost only a little extra but may mean a lot at trial, are evaluated before doing so becomes difficult because the remediation has too far advanced.
No, you should not hire a lawyer every time you have an environmental issue. But issues that seem likely to require a lawyer after the cleanup is performed need legal attention before the work is completed. It is strictly a timing issue.
Often waiting until after the work is completed means waiting too late in the process. And that makes no sense
at all. Stuart Lieberman, a practicing environmental attorney, and is for general information purposes
only. It is not legal advice and should not be used in place of legal advice.
Reprinted by Permission. Visit www.liebermanblecher.com The author was MREIA’s featured speaker
at our June 2007 general meeting.
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June, 2008
Volume 11 Issue VI
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June, 2008
NEGOTIATING STRATEGIES
Negotiating Is an Everyday Thing
by Barney Zick
Let m e give you an exam ple of the difference betw een keeping your negotiating
lessons in your everyday m em ory rather than assum ing this is a subject that could
be filed aw ay forever. A fter I had closed the sale of a property to a stationery office
product storeow ner, I had a w raparound m ortgage, (actually in C alifornia it is
called an all-inclusive trust deed) and I had contacted a note broker w ho w as going
to cash m e out of the note. O n Friday afternoon he said that he had a doctor w ho
w as going to buy the note and he w ould confirm the transaction over golf this
w eekend and w e should be able to start the paperw ork for closing on M onday.
I was in the process of building a 48-unit apartm ent com plex and was out of m oney.
I wanted to get that note cashed out as fast as possible. I hopped on a plane on Sunday
m orning and w hen the note broker cam e to his office M onday m orning I was sitting
there on m y suitcase. T hat's w hen he told m e the great new s. T he doctor had changed his m ind.
I felt like som eone had kicked m e in the stom ach. I really needed that cash to cover the payroll for the last of the
apartm ent com plex. A nd I needed it now. T he offer I was getting gave m e about $.75 on the dollar for the equity in
the w raparound. I had talked to one other person w ho offered m e $.50 on the dollar but that seem ed like throw ing
out the baby w ith the bath water. I said a little prayer that went som ething like this: "Sir, I can't believe you let m e
get this far only to give up the m ajority of m y profit because som eone has changed his m ind. W hat can I do w ith
the note?"
I got an answer back. Really. I don't get answers very often w hen I look up in the skies and ask T he C hief Real
E state Investm ent C onsultant of the U niverse for help, but this tim e he really w hispered in m y ear, "D on't be a
dum m y; call the guy w ho's m aking paym ents on the note. Rem em ber, he's the one w ho didn't like being in debt." I
ran to a pay phone on the side of the highway there in Santa Barbara. I plunked in m y coins and called Los A ngeles
and asked the ow ner of the stationery story if he would like to get out of debt in a hurry. H e asked m e w hat I had
in m ind.
I told him that I was thinking about selling the note that he owed m e to som ebody else and thought I would give
him the courtesy of letting him have the note instead. H e replied, "It just happens that a m an paid off a trust deed
owed to m e last night. I got a lot of cash in m y checking account and would be interested in doing som ething
sm art w ith it. It seem s the sm art thing to do is pay dow n m y debt. H owever, I wouldn't be w illing to prepay the
note unless you give m e som e kind of discount. W hat are you offering?"
M y negotiating lessons (yes, I always considered m y negotiating skill m y N um ber O ne skill) cam e to the
forefront. In this panic situation I didn't blurt out that I was w illing to accept $.75 on the dollar and m ight even
accept $.50 on the dollar if I had to. I instead said w ith as calm a voice as I could m uster, "Well, how m uch would
you need to have to m ake it attractive?"
H is reply m ade that sam e sort of special sound as having four sets of cherries com e chucking together in a line
on a slot m achine in Las Vegas, "I have to have $3,000 or $4,000 off or I wouldn't think it was a good deal." N ow
folks, we were talking about a third-of-a-m illion-dollar note. H e would be very pleased if he got three or four
thousand dollars off !
I rem em bered a second negotiating lesson. B esides getting the other person to ask to m ake the first
offer, never accept their first offer. If you give in, it seem s like you are weak and m ight give in m ore. If you give
in, it m akes them have less satisfaction w ith the transaction than if you argued som e. I told him that I could go
$3,000 but $4,000 was a little steep. H e said that he figured I would say that; that is the reason he asked for four. We
both laughed. I asked him , "W here are you?" H e replied, "I am in the back room checking inventory." I said, "Stay
right there; I'll be dow n to L.A . in two-and-a-half hours."
(C ontinued on Page 14)
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June, 2008
NEGOTIATING STRATEGIES
(Continued from Page 13)
When I arrived in L.A. I found that he only had $60,000 and the equity in the wraparound was more like
$125,000. Not being willing to compromise or give in, but still wanting to get the cash, because this was plenty
enough cash to cover the completion of the apartments, I took his personal check and had him sign a promissory
note for the difference due in thirty days. He paid in thirty days and I was cashed out of the note in two steps
without ever "compromising."
When a deal is meant to happen sometimes you just can't stop it from happening. However, if you keep your
cool about you and remember to use your negotiating skills at each and every step of all your business transactions,
it is amazing how often the end results are effective.
Reprinted by Permission. Bernard (“Barney”) Hale Zick, who passed away in July 2005, was a published author
and international real estate expert. His credentials included CCIM (Certified Commercial/Investment MemberRealtors), MBA Northwestern, member of Exchangers Hall of Fame, Expo Instructor of the Year and 1992
National Investor Conference Educator of the Year.
Take Control
of Your Retirement Assets Now
Diversify your retirement portfolio by using your
tax-deferred and tax-free assets to invest in a wide array of
alternatives including real estate.
For more information please call (973) 857-8058
or email [email protected]
www.entrustnortheast.com
Volume 11 Issue VI
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June, 2008
Volume 11 Issue VI
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June, 2008
FINANCING: OWNER CARRYBACK FINANCING
The Forgotten Carry
by William Bronchick Esq.
There are many benefits for doing an owner-carry installment sale as opposed to conventional
financing for both the buyer and seller. Sometimes the advantages inure to the benefit of one or the other, but in most cases
the transaction is “Win/Win” for both parties.
Benefits for the Seller
Most sellers of real property insist on the highest price and all cash. Sellers want a fast closing with little hassle.
Sellers also want to pay as little taxes as possible on the gains incurred. In many cases, the seller can have most of
his needs satisfied by an installment sale rather than a traditional cash sale. Let’s look at these needs one by one.
1. Highest Price. There is no doubt that a seller can insist on and receive the highest price when offering
flexible owner-finance terms. In many cases, the seller can receive more than the fair market value of the
property by offering these “soft” terms. People are always willing to pay a premium for non-qualifying
financing.
2. Cash. Nearly ever seller says he wants all cash, but few need it. What the typical seller wants is the most net
cash from the deal. Often, the seller has to pay closing costs, title insurance, broker fees and the balance of
the existing financing. In addition, there may be capital gains tax due to Uncle Sam. In many cases, the sale
of a property by an installment sale (particularly a "wraparound") will net the seller more future yield than any
source from which the cash proceeds were reinvested.
3. Fast Closing. Nothing holds up a sale more than new lender financing. In some areas of the country, it can
take months for a buyer to qualify and close a new loan to purchase your property. Since most standard real
estate contracts contain a financing contingency, you may end up back at square one if your buyer does not
qualify. Furthermore, if your house is not particularly nice or unique, it may take you some time to even find
an interested buyer. Since you are competing with all of the other houses for sale, you may need to spend
thousands of dollars in paint, new carpet and landscaping just getting the house ready for the market.
There are very few "assumable" loans and few sellers are offering “soft terms.” Thus, an owner-carry sale
makes your house unique. Furthermore, an owner-carry transaction can be consummated in a matter of days,
since there is no appraisal, underwriting, survey or other nonsense involved. In many cases, you will be able
to sell the property yourself, saving thousands in real estate broker’s fees.
4. Tax Savings. On an installment sale, so you only pay gains to the extent you receive payments each year.
This can be particularly advantageous if you have owned the property for several years. Furthermore, you can
combine the installment sale with an I.R.C. §1031 Tax-Deferred Exchange for further savings.
Advantages for the Buyer
1. Easy Qualification. The buyer, in many cases, prefers an installment sale to conventional financing
because it does not require traditional bank income and credit approval. The buyer may have poor credit
because of a divorce or recent bankruptcy. He may be self-employed and cannot prove income. He may be
new to his job and cannot meet strict lender guidelines. Even if he could qualify for a loan, the rate will be
astronomical if he has poor credit. Furthermore, few conventional lenders offer fixed interest rate loans to
people with a poor credit rating.
(Continued on Page 17)
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FINANCING: OWNER CARRYBACK FINANCING
Continued from Page 16
As you can see, there are dozens of reasons why a buyer cannot (or will not) qualify for a conventional bank
loan. The installment sale becomes the perfect solution for him.
2. Credit Rating. An installment sale may give the buyer a chance to improve his credit rating by owning a
home and making payments timely.
3. No Loan Costs. One of the biggest benefits for the buyer is not having to pay the costs associated with
conventional loans. Points, origination fees, underwriting charges, appraisal, credit reports, title insurance
and the plethora of other "junk" fees charged by conventional lenders can amount to thousands of dollars at
closing. The buyer is free from these with an owner-carry installment sale.
4. Fast Closing. A buyer can close and move into a property within days, since there is no third party lender
holding up the transaction.
Despite the elevated purchase price and interest rate, there are many benefits to a buyer who engages in an
installment sale transaction.
Reprinted by Permission. Visit www.legalwiz.com or call 1-888-587-3253.
The author, CEO of Legalwiz Publications, is a nationally known attorney, author, entrepreneur and
speaker. He has been practicing law since 1990, having been involved in over 700 transactions.
Volume 11 Issue VI
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June, 2008
WHOLESALING: FINANCIAL AND LEGAL CONCERNS
How to Get Around Non-Assignable Contracts
by Stephen Cook
In the beginning... When I first started investing contracts to purchase REO
properties from banks were still assignable. Whenever I wholesaled a property, I
signed a simple, one-page Assignment of Contract with my buyer which assigned my
buying position in my contract with a bank to my buyer. Effectively, my buyer (the
assignee) stepped into my shoes and closed the deal. As more and more banks were
burned by assignees who bought positions in their sales contracts but did not
perform, they decided it was time to start to control the selling process and force the
original buyer on a contract to purchase the property. Thus, they started inserting a
“Non-assignability Clause” in their contracts, which goes something like this:
“This Contract may not be assigned without the written consent of Buyer
and Seller. If Buyer and Seller agree in writing to an assignment of this
Contract, the original parties to this Contract remain obligated hereunder until
settlement.”
Stephen Cook
Because I was making a living by wholesaling houses, the non-assignability clause was a major thorn in my side.
It was preventing me from closing deals, costing me money in the form of additional closing costs resulting from
double (a.k.a. simultaneous) closings, and causing all kinds of headaches, often as we were approaching our closing
date. Whenever I bought properties from private parties, the non-assignability clause wasn’t an issue, but the
majority of properties that I purchased were sold by banks or by HUD, neither of which allowed buyers to assign
their contracts. As I like to keep my life simple and the clause was making my life complicated, I had to find a way
around it.
So I resorted to stealing...an idea, that is. I took a cue from the commercial real estate industry. As it so happens,
in order to avoid paying the substantial transfer taxes which result from the sale of large, multi-million dollar
commercial projects, buyers frequently request that sellers deed their property into an LLC (limited liability
company) and then purchase the LLC. Upon discovering this, I figured if this worked for commercial real estate
buyers, it could work for my buyers.
I decided that if I purchased my properties within an LLC, I could sell my LLC to my buyer instead of
assigning my contract to them. As far as the sellers were concerned, the buyer (the LLC) on their contract
remained the same. For example, I would submit an offer to purchase a property at 345 Harford Rd., making my
offer in the name of 345 Harford, LLC. Then I would talk to my wholesale buyers about this property, offering to
sell them 345 Harford, LLC as opposed to selling them the property. Their incentive to buy the LLC was the
reduced purchase price that I could offer since I would save money on closing costs by avoiding a double closing
(one closing from the bank to 345 Harford, LLC and another from 345 Harford, LLC to my buyer). If my buyer
agreed to purchase the LLC, which in turn owned the contract to purchase the home, they would arrive at
settlement and sign as owner of 345 Harford LLC.
In terms of compensation, I sold an LLC to my buyer for whatever my assignment fee would be, which I could
collect in several different ways. If my buyer were paying cash, sometimes they would just cut me a check for my
assignment fee.
(Continued on Page 19)
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WHOLESALING: FINANCIAL AND LEGAL CONCERNS
Continued from Page 18
Then I would hand them the LLC documents, sign everything over to them, and our deal was done. In the event the bank
seller could not produce clear title, I would need to return the assignment fee to my buyer. Sometimes my cash buyers would
not pay me the assignment fee until settlement. In this case, I directed them to use my title company and would not produce
the original LLC documents until we were at settlement and I was assured that I was going to get my check. On other
occasions, my buyer needed to borrow money for the purchase. In these instances, I always directed them to use a private
lender who was familiar with my routine, which went as follows. My buyer requested a loan for his purchase price, which
included my assignment fee. For example, my purchase price with the bank might have been $30,000, but my buyer requested
a $33,000 loan to cover the $3,000 assignment fee he agreed to pay me. From the $33,000 loan proceeds, $3,000 would
remain after settlement which the title company would give to my buyer in the form of a check to the LLC. My buyer would
then endorse that check over to me at the settlement table.
To recap, here are the steps in the process:
Make offer in the name of an LLC. I often include the property address in the name of the LLC.
Once offer is accepted, create the LLC. Check with an attorney and/or your Department of State regarding the procedures
and costs for forming an LLC.
Assign/sell your membership (ownership) in the LLC to a buyer once you receive your assignment fee.
Check with an attorney regarding the documents required to assign/sell an LLC.
Collect your assignment fee in the form of cash or a check made out to the LLC and endorsed over to you by your buyer (the
new owner of the LLC).
Celebrate! Congratulations on a job well done.
Now to some, this process might seem a little involved, but it really is very simple. Once you have done a couple, you will be amazed at how easy it
really is.
Reprinted by Permission. Since 1998 Steve Cook has flipped hundreds of houses as an active Baltimore-area real estate
investor. Visit http://flippinghomes.com
New & Renewing Members
Barreros, Sergio
Castellano, Angelo
Christian, Douglas
Kofsky, David
Lagos, Harry
Lefkowitz, Jack
Mako, Chris
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Edouard, Johanne
Otis, Jeff
Rand, Gary
Renaud, Russell
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Hroblak, Allyson
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Volume 11 Issue VI
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Thomas, Wendel
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Vokral, Fred
Williams, Brian
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Zivari, Pamela
June, 2008
Volume 11 Issue VI
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June, 2008
LEASE/OPTIONS: PROS AND CONS
Rent-to-Own and Lease/Options
by Jack Miller
There are two main reasons why landlords offer tenants a Lease/Option on rental
houses: They want higher rents, but don’t necessarily want to sell their house; or
they do want to sell their house and want to give the occupant a chance to either
clear up bad credit scores, or save up a down payment, or earn some kind of rental
credit attributable to rents paid or improvements made.
Of course there are other reasons too. In many areas, when a tenant signs a net lease which requires him to
make mortgage payments as well as to pay taxes, insurance, and maintenance; and this is coupled with an
Option to buy, he is deemed by the tax code and State law to be buying the house as a purchaser under
contract. He can have an insurable interest in the house along with the owner and build equity just like the
owner. The owner motivates the tenant to do all these things by virtue of the fact that the occupant is
improving his own living quarters and building equity without actually having to qualify for or be liable for a
large mortgage. When he sells, he can capture his profit just like any other home owner tax-free.
The good news is that the owner thus rids himself of almost all management and operating
expenses in return for giving up future profit. The bad news is that, unless there are special equity
sharing provisions in the Lease/Option, he has also given up all future increases in value during the
period of the lease.
For those landlords who rent out low-income properties, maintenance is a constant drain on cash flow. An
interesting feature of a Rent-to-Own contract is that the occupant is considered to be a homeowner by
building inspectors. For some reason in many areas, building inspectors hold homeowners to a much lower
standard than they do landlords, so houses that are rented can cost many times as much to maintain as
houses being "sold" on a Rent-to-Own Program.
When the smoke clears, just about as many of the occupants under Rent-to-Own programs move out
without completing their purchase as those with Lease/Options so the landlord winds up with higher net
cash flow.
Jack Miller is an international speaker and active investor specializing in single family houses. He writes a
monthly investment letter and conducts seminars on Exchanging, Management, Portfolio Strategies and
Options. Visit www.CreativeRealEstateWorld.com
P.S. Just can't get enough? Check out his blog at http://www.JackMillersBlog.com
Volume 11 Issue VI
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June, 2008
Harry Frieland
Levitan & Frieland, P.C.
Counselors at Law
26 Columbia Turnpike
Florham Park, NJ 07932
(973) 966-0153
111 E. 35th St.
New York, NY 10016
(212) 432-3800
CertaPro Painters
(800) Go-Certa
www.certapro.com
Volume 11 Issue VI
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June, 2008
FINANCING: ADVANCED CONCEPTS
Fortunato’s Latest Roth IRA Deal
by Dyches Boddiford
I thought you might be interested in an email exchange between Pete Fortunato and I concerning a Roth deal he is
doing.
From: Peter Fortunato February 02, 2008
Subject: Roth example - closing on Monday
To: Dyches Boddiford
Roth I.R.A. as Reinstatement Savior
Rod owns a house that is encumbered by a $167,000.00 First @ 6.75% - $1,122.00 P&I
To reinstate the first mortgage requires: $13,000.00
Roth will advance the $13,000.00 via $180,000.00 Wrap/AITD @ 8.75% - $1,122.00 P&I
Estimated Result:
Ø $180,000.00 Wrap @ 8.75% = $15,750.00 annual interest
Ø $167,000.00 Under @ 6.75% = $13,464.00 annual principal & Interest
Ø Unpaid Interest on Wrap = $ 2,286.00 (New balance =$182,286.00)
Ø Amortization on First = $ 2,214.00 (New balance = $164,786.00)
Ø EQUITY IN WRAP: Earned = $ 4,500.00 + Advanced $13,000.00 =$17,500.00
From: Dyches Boddiford February 02, 2008 To: Peter Fortunato
Wrapped existing loan with an 8.75% loan, but kept payment equal to underlying loan. Interest only at 8.75% on
$180,000 loan would have required $1,312.50 per month, thus creating a negatively amortized loan of $190.50 per
month, $2,286.00 per year. Meanwhile, underlying loan continues to amortize. Will interest compound monthly?
By showing “P&I” in this step, you imply that any unpaid interest adds back to balance as additional
principal, therefore compounding the interest.
34.6% return the first year! Neat deal for your IRA! I assume you have a plan in place should Rod not meet his
obligations. How long is Wrap set to run?
From: Peter Fortunato February 02, 2008 To: Dyches Boddiford
It is, indeed, negatively amortizing and the unpaid interest adds to principal and earns interest.
(I'll use amortization schedule if I present this)
We'll write a three year note. I know Rod well. The property is a "keeper" and I know many folks who'd be
delighted to own it.(including me).
From: Dyches Boddiford February 02, 2008 To: Peter Fortunato
Don't know how you keep getting these amazing deals with people
you can trust. You never cease to amaze me...
From: Peter Fortunato February 02, 2008 To: Dyches Boddiford
Rod is a skilled handyman. My Roth has dealt with him in the past.A divorce has caused the cash flow problem.
The property is rented for $2,000.00/mo. My solution will enable him to survive and keep his property. I expect
him to pay off wrap equity in about 12 months and have title subject to his 6.75% first.
Reprinted by Permission Copyright 2008, The Oaks Group, Inc. All Rights Reserved.
The Oaks Group, Inc., PO Box 505, Marietta, GA 30061 Visit www.assets101.com
Volume 11 Issue VI
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June, 2008
BEGINNER’S CORNER: THE ART AND SCIENCE OF APPRAISALS
Appreciating Appraisals
by: Gregg Pitts
I’ve heard many rehabbers complain about appraisals, both when they are buying and selling. Because much
gnashing of teeth has been spent, I want to point out some of the shortcomings, but appreciate the place they
serve in our business. When I hear “appraisal”, I may have something totally different in mind than you do. It’s
important to think about what question the appraiser is hired to answer. Here are a few possibilities:
• What is the market value of this property given a willing buyer and willing seller? What should I expect
to see it for?
• Will the collateral satisfy the loan should the borrower default?
• Are the buyers over-paying for this property? Is it worth the investment they are making?
• What’s the value of the house for tax purposes?
• What’s the tax basis of the property for the heirs?
• What will the value of this property be after the repairs and improvements are made?
The answer derived will vary depending on which question is asked.
All appraisals are driven on data which influence market value. These include comparable sales, income
stream, condition, and neighborhood. Additionally, personal judgment can be influenced positively or
negatively depending on the individual’s traits, background, experiences and psyche of the appraiser themselves.
For example, if the appraiser is “bullish” on the market and believes an upturn is likely, that may be reflected in
the appraisal, esoteric though it may be. If buyers don’t care for a particular neighborhood, it may be hard for
them to keep their opinions from influencing the results.
Income method: The property’s income and expenses are used in a calculation to determine value. Often hard
data can be difficult to come by or unreliable. Rents charged by other landlords may not be a perfect reflection of
the market. In fact, the density of housing may drive the rents up or down. Or some industry change may be
about to force a housing scarcity on a particular market. How can the appraiser’s appraisal be accurate with out
complete information? Many property owners don’t maintain good historical records or are unwilling to share
them. Expenses can also be understated or misunderstood.
Examples: water usage which many landlords of multi-family property include in rent. Families with small
children use a tremendous amount of water where as the elderly use practically none. How mixed are these groups
in the unit in question and how likely to stay that way?
Maintenance (or the lack thereof) must also be considered. If the current owner has let things go, then real
maintenance costs will appear to be very low when in fact they are just deferred. The appraiser may be able to see
the evidence of deferred maintenance and reflect it in the results. Only time will paint a real picture.
Replacement Costs: This method depends on the local construction industry to a large degree. If contractors are
“hungry,” replacement costs will be low. If they aren’t (such as right after a hurricane), then they will be high.
Furthermore, what is a “replacement?” Something over forty years old can’t be replaced because we don’t build
that way nor do we have the same materials available. Most appraisers would not be equipped to value special
materials.
(Continued on Page 25)
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ADVANCED INVESTING: OPTIONS
(Continued from Page 24)
Example: Some of the houses in my area are actually constructed of solid brick or stone, not veneer. I once lived in a house
with walnut trim. Imagine trying to replace that! Another house of mine had solid cherry cabinets. In neither case was one
penny added to the value for such features.
Also, the appraiser is probably not trained as a construction estimator. He must use a formula or software that cannot take
into account all the variables.
Sold Comparables: This method allows you to compare properties based on type of structure and environmental context.
Multi-family properties may be difficult to compare because what drives us to build a certain type of commercial building in
the first place is scarcity in the neighborhood. So it isn’t likely you will find a good “comp” because the type building will be
so rare to begin with. It will certainly be some distance between the two comparables so you have to ask yourself is the value
of the other building reasonable. That makes you ask yourself about the context of the two buildings. Would someone
living in one reasonably choose to live in the other? What amenities are available in each?
Tax appraisals: In many areas, tax appraisers use square footage to determine value. The average value per square foot of
living space is multiplied by the square footage of the target property. You can see where this calculation could go wrong,
but in general, it’s not a bad method of assessing thousands of properties across-the-board. A cynic will tell you it’s all
about a government’s need for money. One easy way to raise taxes is to raise values.
My Bottom Line:
• Appraisals serve the necessary purpose of a third party attesting as to the value of a property for all kinds of
uses.
• Appraisals use hard facts and data, but they must be viewed as more art than science.
• Appraisals are intended to answer one question and shouldn’t be used to try to answer another. I often have
homeowners cite the tax appraisal value as if it were a reflection of reality! Be prepared to answer that one.
Reprinted by Permission. Contact Greg at [email protected] or visit www.gregorypitts.com
TECHNOLOGY AND PEOPLE
High Tech - High Touch!
by: Scott Britton
Things have changed dramatically since I purchased my first house some 30 years ago. The biggest changes have been
in the realm of technology I can remember spending all day typing up my first Land Trust on my dependable old portable typewriter. Today, thanks to computers and word processing, I can produce an even better Land Trust in about 15 minutes.
Scott Britton
There are a lot of technology tools Real Estate Investors can and should be using to become more efficient and accomplish more in a
fraction of the time. Computers, scanners, software, the Internet, email, web based telephone services and cell phones all play a part in
this revolution. The danger and drawback to all of this technology is that you and I can become hung up with all the whiz bang gadgets
and forget about talking to real people. We can accomplish so much more with high tech strategies... but we must not neglect high touch!
This simply means we still need to talk with people. Communication skills are still the most valuable you can possess. This includes
both telephone skills and belly-to-belly skills. All of the technology in the world is useless to us as Real Estate Investors if we don't get
out in the marketplace and talk to people. Everyone is a prospect. Everyone you come into contact with is a potential buyer, seller, tenant
or source of referrals.
Embrace the technology, but do not neglect the people. Sharpen your skills at every opportunity. Make it a priority to talk with people
and provide extraordinary service. The combination of high tech and high touch is powerful. The key is a balance between the two. Used
in conjunction, both can move your business to new heights.
Reprinted by Permission. Visit www.RealEstateSuccess.com
Volume 11 Issue VI
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June, 2008
BEGINNER’S CORNER: CREATIVE FINANCING PROBIt’s No Fun Dealing with Some Banks
by: Phyllis Rockover, President, REIC of LA
What a month of torture. Why do I seem to get all the tough deals? I need a vacation after this. The first headache was a property that we
bought subject to from a seller who was in foreclosure. We made up the back payments, did a little cosmetic fix up and have a buyer ready
to close. He is even approved. Since we were supposed to close any day, we didn't make the August payment thinking it would be paid
through escrow. Big Mistake!!! The seller had negotiated a forbearance agreement with the bank. That means she owed a lot and got them
to take some now, some additional each month and some at the end. It turns out that the bank does not have to give any kind of notice if
you don't adhere to the agreement to the letter. So they just picked up where they left off - one week from sale. We found out by accident.
We were checking the property and saw a guy from Wells Fargo hanging around. He told us that it was going to sale the next week. What
a scramble. We called the bank. They told us to submit a package with proof that we had an approved buyer ready to close. We got all the
paperwork and submitted it. They denied us!!! We could not believe it. We called Wells Fargo over and over again and the servicing company over and over again. With banks, one “no” does not mean a no from the next person you talk to. We finally got them to agree to a
certified check sent to them with the balance of the forbearance monies owed. We sent it Fed-Ex (when it positively has to be there). It
was already Thursday and the sale was Monday.
Fed-Ex lost it and Friday we are freaking out trying to find it. I was on the phone with them every ½ hour, crying that I was going to lose
my house and my 6 kids and I would be out on the street. Finally, they found the package and delivered it. The bank told us that they
postponed the sale. It turns out that they did that even before they got the check. Who can understand why banks do what they do.
Lesson to be learned:
1. Always try to negotiate forbearance on behalf of the seller. Who are you? You are the trustee trying to keep them out of bankruptcy not an investor.
2. Never be one day late with payments on the forbearance.
Reprinted by Permission from the R.E.I.C. of L.A. News. Published by the Real Estate Investors Club of Los Angeles. September 2003 issue.
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SELLING STRATEGIES: THE INTERNET
How to Buy and Sell Houses Using the Internet
by: Mike Jacka
The first time I used the Internet to sell a house, it was a revelation. Usually when I
ran an ad to sell a house, I would typically get anywhere from 20-30 calls a day. I
would plan which weekends I was going to be in town to run an ad so I could field all
the calls from buyers. But this time I ran the ad and got only five calls the first day and
three calls on the second day. Then on the third day I got a call from a buyer, and the
first thing she said was, we want the house. Now this came as a surprise to me because
I had not talked to her nor did I put the property address in the ad. The lady said she
had gotten the address from my website. I had posted the info for the property on my
website and included my website address in the ad http://www.mhbuyers.com/.
I met the lady and her husband at the house, signed a purchase and sales agreement,
and collected a $5,000 earnest deposit. After the sellers left, the next-door neighbor
came over and asked me what was going on. Over the last few days, dozens of cars
were pulling up to the house. And this was a dead end street. I finally figured it out.
They saw the ad in the paper, went to my website, looked at the property and all the
info. They then drove by the house and looked around the property and in the windows.
Mike Jacka
I didn't have to field all those calls and the buyers got the info they wanted. Now I never worry whether I am
going to be in town or not when I put a property up for sale. I let my website do all the talking for me. I still get a
few calls from every ad; some people still don’t have access to the Internet. However, these days most people do
and would prefer to look up the information on the website first. I also put up at least one picture on the website
so people can see what the house looks like. I also include a map so they can find the house.
Today I use the website http://www.mhbuyers.com/, to prescreen both buyers and sellers. The main page is
the same as my business cards. I use a Special Report for sellers. They can submit their name and email address
and they get the special report with follow up emails set up sequentially. Sellers can even fill out an online form to
submit all their property information. Things such as: the property address, property description, why they want
to move and even how much they owe on their mortgage and if they are current or behind on payments.
So how do you get a website and how do you use it. Those are good questions and very easy to answer. There
are a couple of different ways to get a website:
1. You can go through the whole process of buying a domain name and getting a hosting company to host your
website. Then you would have to either learn how to design a website, or hire a web designer to do it for you.
I use http://www.anrdoezrs.net/click-1888737-10382531 to buy my domain names:
http://www.mhbuyers.com/
http://www.autopilotriches.com/app/aftrack.asp?afid=<%BRANDER2%>
These are both Domain names that I own. Next you need to host your website, for that I also use
http://www.anrdoezrs.net/click-1888737-10382531 - That is were you put your website that you have created.
(Continued on Page 29)
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SELLING STRATEGIES: THE INTERNET
(Continued from Page 28)
I use Microsoft FrontPage to create my websites.
You can get a copy of Microsoft FrontPage at:
http://www.microsoft.com/frontpage/. You will have to have your hosting company install the FrontPage extensions on
your server. This enables Microsoft FrontPage to upload your website and manage it on your server.
2. The other way is to get a complete package already set up. http://we-sell-mjacka.successfast.net/freetrial/index.cfm has
the templates all setup for you. All you have to do is choose a layout and color theme you like. That is it. When you have a
property for sale and put in a description of the property, it will automatically be included in a national directory.
Here are a few samples using the above Custom Websites:
http://we-sell-mjacka.successfast.net/ - my website
http://www.resultsquick.com/
http://www.foreclosurefreedom.com/
The best part of this system is they even give you a simple 10-Day step-by-step tutorial delivered to your email; one step per
day for ten days. And when you list a property for sale, it is included in a national directory. Go to my website http://wesell-mjacka.successfast.net/ - click on the link to your left “National Listings.”
What do you do to get people to your website? Do you need to get placed in the search engines? The answer is no... Not for your real estate business. But you do want to list your website on everything you do in print:
Business cards – Signs - Flyers - Newspaper Ads - Articles - Press releases - Billboards - Yellow Pages Ad
Put your website address ( URL – Uniform Resource Locator ) on everything you do. This is the best way to drive targeted
traffic to your website. Don’t worry about the search engines. Getting your website listed in the search engines is very time
consuming and expensive. And Most of the traffic you would get from the search engines will be coming from people in
other states and other countries. This is not targeted traffic.
Search Engines like http://www.yahoo.com/ would be worth trying. At Yahoo, it is more of a directory listing rather than a
regular search engine. You can get your website listed demographically. For example: I am in Minnesota. I would list my
website under: Business and Economy > Shopping and Services > Real Estate > By Region > U.S. States > Minnesota. If you use a special report, people can request to receive your special report from your website. (If you use the Custom Websites http://we-sell-mjacka.successfast.net/freetrial/index.cfm - Setting up the forms is simple and the 10-Day
step-by-step tutorial will walk you through it.) They would fill in their information in a form and that form would be
emailed to you. You now have their contact information. I send out the report immediately and then call them a few days
later to follow up with them.
To recap:
▪ You get a website setup using either the Custom Real Estate Websites at:
http://we-sell-mjacka.successfast.net/freetrial/index.cfm and use the 10-Day step-by-step instructions to set-up your new
website. or
▪
Buy a Domain name, get a hosting company to host your new website, design your website and get up uploaded to your
server at the hosting company.
Start advertising your website on everything you do, business cards, ads, flyers, signs, etc… List your properties for sale so
they get listed in the national directory (if you are using the Custom Real Estate Websites). Set up a Special Report request
form on your website to be emailed to you, then mail out your special report. Follow up on the leads. Buy some houses!!!
Reprinted by Permission. The author is the President of Real Estate Promo and the Minnesota Real Estate Investors Association. Visit www.realestatepromo.com
Volume 11 Issue VI
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Volume 11 Issue VI
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June, 2008
REHAB 101: UNETHICAL CONTRACTORS
Lies I Have Heard
by: Robert L. Cain
If you have dealt with contractors, you have probably heard the same lies I have.
They erupt from their mouths as rationale for their questionable behavior and
unreasonable demands. They are often accompanied by "righteous indignation" that
anyone would question this contractor's forthrightness. Here, in no particular order
of deceitfulness, are four of them.
It's a standard agreement
Sure it is. It's your standard agreement that requires the property owner to give
away the store and that doesn't require the contractor to complete the job in a
workmanlike manner or, for that matter, even complete it at all. The “standard
agreement” does require you to pay, though. One electrician who did work on a
property of a landlord I know had a "standard agreement" that didn't even require
him to clean up his mess or repair the wall he put holes in for the wiring.
Everybody does it that way
I certainly hope they don't, because if everybody did it that way, buildings would be
Robert Cain
falling down all over the country. Those are the words you hear when you ask
about the corners the contractor cut to get the job done cheaper. Because contractors always "did it that way" we
have building codes. Those building codes were not instituted because every contractor was meticulous in his
work. They were instituted because of the work that goes along with "everybody does it that way."
I need the money up front
Then you don't need to work on my property. You get paid when you are finished and the work is done
properly. Not getting paid should not be a problem for a contractor because of contractors' lien laws, which can
result in a lien on the property they worked on if the owner doesn't pay. If the contractor doesn't have the money
or credit to buy the necessary equipment to do the job, that should raise a crimson flag.
I couldn't sleep nights if . . .
This is the one that says "Liar, crook and scam artist!" When you hear those words, tell the contractor he has five
seconds to leave the property. A number of years ago I heard those words come out of the mouth of a furnace
repairman. The oil furnace didn't work and the tenants, instead of calling me, opened the Yellow Pages and called
the number in the biggest ad. They called me in a panic after he told them the "furnace was shot," and could
blow up. When I arrived he tried to con me with those very words. He couldn't sleep nights if he didn't replace
this furnace. I told him to leave in none too kind words. After he left I called Bill, the furnace repairman I always
used. He came over, fiddled, messed around and tweaked, then said, "Are you sure you've got oil?"
When he measured the oil in the tank, there wasn't any to measure.
Reputable contractors don't have "a standard agreement," they have agreements that can be amended and
corrected to fit the job. They don't necessarily do work the way "everybody" does it, they do it the way that is
correct. They also have good credit so don't require money up front. And "they couldn't sleep nights" if they did
sloppy work or cheated a customer. Lies that both you and I have heard are those that should tell us to send a
sleazy contractor on his way and call a reputable company. Copyright 2007 Cain Publications, Inc. Reprinted
by Permission. Robert Cain is a nationally-recognized speaker and writer on property management and
real estate issues. For a free sample copy of the Rental Property Reporter, call 800-654-5456 or visit
www.rentalprop.com.
Volume 11 Issue VI
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June, 2008
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Volume 11 Issue VI
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Volume 11 Issue VI
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June, 2008
LANDLORDING: MANAGEMENT IDEAS
Management Tips from Mr. Landlord
by: www.mrlandlord.com
Don’t Let Them Know You Are A New Landlord.
If you are new to landlording, the prospective tenants don't need to know. When dealing with your tenants, act like you have
done this a hundred times before. Talk little and listen and finish the deal or repair and get out of there. Many of us here
know you sometimes feel the pride of property ownership and are happy to show the work you have done and discuss the
details on your next property you are looking at. However, discussing this with a tenant is a mistake and they will gladly stick
a pin in your bubble of a head and burst it.
If you want to be tenant friendly, discuss weather, Walmart, fishing, hunting, just not your business, period. As a new landlord, don't invite problems, the landlord trail already has enough of them.
Always Call Their Current Landlord.
For all you newbies, do you call the landlord to check on a potential renter that is applying to rent?
This week I took an application for a husband and wife with four children. They want to rent a four bedroom. Both have
good jobs. Both fill out an application. They both are thin people and are clean and seem ever so nice. They say their lease is
up mid month next month and they have gave there out of state landlord a 30 day notice they are moving. I ran the credit
check.
First red flag: it said that last year they lived in another state over 1000 miles away.
Second red flag: they had four cell phone companies in different states not paid. But nothing else. Strange. No credit card or
car debt. Or so it seemed. Of course they had cash in hand but did not seem overly in a hurry. They would wait the two days
and perfectly understood why they needed to be checked out. They assured me they would check out.
Well, I found their out-of- state landlord number and BOY, OH BOY, DID HE HAVE A STORY FOR ME!
He rented to them and he too ran a credit check, but he did not call THEIR landlord. They were to move in on the first of
September but showed up six days early with all their personal property in one vehicle. They wanted to move in… so he let
them.
After they were there a week they moved in their Pit Bull dog. The lease said no pets at all.
They moved in September and by December were already two months behind in rent! So he called them the first of January
and told them that he needed his two months payments. Result: tenants filed suit against the landlord (!) and wanted all their
money to be paid back plus moving expense! The landlord hired an attorney and went to court a week ago and now they
have to be out the end of this month! When in court the judge asked them how long they needed to move and they asked the
judge for two more months! The judge gave them to the end of this month.
Their lease was not up till September of this year. They aren't even out and they owe for five months rent now! And have a
dog and who knows what the place on the inside looks like? All of this did not show up on the credit report. It all came out
when I called the current landlord. In fact, my call went to his machine and he called me back and talked to me long distance
for an hour! So my question to you is: do you call the current landlord to chat?
Act Quickly Regarding Unauthorized Pets.
This is the recommendation if you hear a rumor of a resident with an unauthorized pet. A landlord asked recently
on the Mrlandlord.com Q&A Forum what to do after driving by their rental and sure enough there was a dog outside, even though the lease specifically says no pets of any kind.
(Continued on Page 35)
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LANDLORDING: MANAGEMENT IDEAS
(Continued from Page 34)
One response from a landlord colleagues was as follows: From someone that turned his head once and thought
well how bad can it be. And then $6000 in damage later.
I suggest you issue a notice of default of lease stating that if ALL animals are not removed immediately upon
receipt of letter that eviction proceedings will be started. I would also recommend driving by and snapping a
picture or two.
Smoke Detector Reminder.
This lifesaving tip is for all landlords. A safety feature in all rentals is the smoke detector. Smoke detectors need to
be checked and maintained on a periodic basis. Who is responsible for periodic testing? Your rental agreement
should make it the responsibility of the resident. An example of a rental clause is as follows: “Maintenance of
smoke detectors shall be the responsibility of the tenants, who shall maintain the device as specified by the
manufacturer.”
The clause makes the tenants aware that they have an obligation to periodically test the smoke detector and to
report any problems in writing. Although the tenants have the responsibility, should you forget about the smoke
detector? It is a good policy to help your residents remember. Once a year, send them a postcard or letter
explaining how to perform the test. Advise them to report any problems. Most residents are very happy to test
their detectors and do so when they receive the reminder.
Reprinted with permission from MR. LANDLORD newsletter. For a free sample, call toll-free, 1-800-9502250, or visit www.mrlandlord.com to register to win a free landlording book.
Sherwin Williams Discount Cards
MREIA is a member of National REIA. Sherwin
Williams offers significant discounts on their
paints and products through NREIA.
If you have not already received your free discount
card, request one when you attend the next
MREIA meeting.
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Volume 11 Issue VI
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June, 2008
LANDLORDING: MARKETING TIPS
When to Market a Vacancy
by: Wojciech Kic, CPM, CCIM
In the world of real estate ownership and management profit is the name of the game.
There are a great many details that impact the bottom line in the operation of a rental property. In equally good
or bad rental markets, the cost of property insurance, utilities and repairs will impact the cash flow. In a slow
rental market, where no mistake goes unpunished, a management error may cause a premature sale or a
bankruptcy.
Of all expense factors in the operation of a rental property, no single expense exceeds in importance the
cost of vacancy and rent losses. In as much as a lease agreement creates value through future rental
commitment, yesterday’s vacancy represents a permanent loss.
Eliminating vacancy is a goal that all landlords have in common. The approach of landlords in eliminating
vacancy will vary. Some landlords will spare no expense in advertising a property. Others will hire professional
real estate agents. The difference in success is in the timing of the marketing effort.
When does one start to market the rental property for lease? The beginning of the marketing effort for many
landlords is the receipt of a thirty day move-out notice from the current tenant. Most residential lease forms
contain clauses that allow landlords to show the premises to prospective tenants throughout the lease.
Tenants are expected to cooperate in the rental process. The landlord’s expectation of tenant’s cooperation
includes the installation of a real estate agent lockbox with a key to the property. The landlord’s wish list also
includes keeping the dwelling clean, the yard cut and the display of a good attitude when faced by prospective
tenants.
While lease agreements appear to secure the tenants’ cooperation with the landlord when moving from the
property, is the landlord’s expectation of the tenant’s cooperation realistic? Worse, even when a landlord finds
himself with a cooperating tenant, is the tenant’s cooperation in the landlord’s best interest?
Before answering the above question it is important to estimate the demand for THE SPECIFIC property
offered for lease. In the Houston area, where housing is abundant, the total demand for each specific rental
property is very limited. For example, the Multiple Listing Service in Houston reflects a current availability of
approximately 5,500 properties for lease. With an annual 2003 absorption of approximately 11,000 properties the
current inventory reflects about a 6-month supply.
In a property abundant real estate market, tenant behavior characteristics are different than in real estate markets
characterized by shortages of rental housing in general, and affordable rental housing in particular.
Let’s analyze a typical showing of a tenant occupied property. After setting an appointment with a prospective
tenant, a landlord does need to coordinate the showing with the current tenant. The least of the reasons is to
secure the current tenant’s cooperation and to announce an intrusion into tenant’s personal time. Maybe a tenant
will be nice and clean things up? How about the smelly cat litter and always-overjoyed cocker spaniel? Of course
nobody knew that the potential tenant is possibly allergic to pet dander and cat hair.
(Continued on Page 38)
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LANDLORDING: MARKETING TIPS
(Continued from Page 37)
Will the current tenant cooperate? First lets examine the showing schedule. You expected 4:00 p.m. but the
current tenant knows your game. You are desperate and hopeful. How about 4:30 p.m. today? Better yet, no,
5:00 p.m.…tomorrow. And what did you have to promise to the current tenant to gain their empty kitchen sink?
An immediate deposit refund? Or was it a “Hail Mary” pass and YOU traded tenant’s
deposit for last month’s rent? Please accept?
Now the showing. At 5:15 p.m. tomorrow. You may not care about politics but you will pay for a polarized
electorate in your rental property. Current tenant is a Republican? Evidence to wit? Sign in the yard? You just
lost half your prospects. Current tenants a Democrat? Ditto for the other half.
Now how about the furnishings. Are they nice enough? Too nice? If the tenants would only removed the ivory
tasks from the wall, that might help. Or is it a buffalo? But wait, the furnishings are perfect. No way could YOU
ever afford it. Neither will your new tenant. Better have excuses ready explaining why you leased to the current
tenant in the first place.
Now come the promises. Will you paint the property? “Of course,” (I will only touch-up). The prospective tenant is
thinking, "Great!” (He will repaint it entirely). How about cleaning? Have you ever heard how many words an
Eskimo has for different colors of snow? Which one word did you chose when you promised that a previously
occupied property would be spotless when vacant?
The current tenant’s lifestyle will hint at the landlord’s personal bias of an expected lifestyle from the future
tenants. It is a limitation that prospective tenants find unacceptable.
How many prospective tenants will a landlord drag through these hurdles? Typically, given a limited pent-up
demand for each rental property, a landlord in Houston will likely run out of rental prospects before the property
actually becomes vacant. Once you are out of rental prospects, time must pass before the demand for the
property builds up again. It is our estimate that when showing an occupied property to prospective tenants, it
takes 40 days more to find a new tenant than when starting the marketing process with a vacant property.
But that’s not all. A tenant secured when shown an occupied property is rarely delivered a product that meets
their expectations. Landlord’s unkept promises set up the stage for a confrontational relationship with the tenant,
and it does not bode well for lease renewals.
In parts of the country where scarcity of housing is the norm, tenant decision-making considerations are difficult
to discern. The use of leasing techniques from limited-housing opportunity markets does not meet the reality
(read: profit) test in the Houston real estate market.
What is the alternative? Do not count the gains of showing a property when it is still occupied. The perceived
advantage of a head start adds days to the marketing effort and it negatively impacts the quality of the lease.
Instead, use that lead-time to study the current market rents and to schedule the make-ready maintenance and
repairs. Place the property on the market as soon as it is ready for immediate occupancy. The odds are that one
of the first prospects will take it. You will have no promises to break, and you will be ensured a long-term tenant.
How? You just delivered to the future tenant a complete leasing experience, including a respectful treatment
when it is their turn to move out.
Reprinted by Permission. Wojciech Kic, CPM and CCIM, is Vice President and an owner of Clark,
McDowell and Kic, Inc., Realtors (an accredited management firm specializing in the management and
leasing of single family houses, condos, duplexes and fourplexes in the greater Houston area). The
author has also taught real estate management and marketing classes at Houston Community College.
Visit www.cmkreal.com or e-mail [email protected]
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LANDLORDING: Q&A
Ask Dr. Cash Flow
by: Nick Sidoti
Q. I supplied smoke detectors in my rental unit when my
tenants moved in. Now the tenants are saying that there never
were any smoke detectors in the unit. What should I do?
A. You should immediately replace the smoke detectors. Smoke
detectors are used to save lives in case of fire. It is imperative that all
of your rental units have operating smoke detectors at all times.
After you have replaced the smoke detectors have your tenants sign
a smoke detector agreement which verifies that you have supplied
the smoke detectors and that they are in working order. The agreement should also instruct
the tenants not to remove the batteries or the detectors, except to replace batteries as needed,
and to immediately inform the landlord of any non-working detectors or any problems.
Nick Sidoti
It has been my experience that tenants will often remove the batteries from smoke detectors because of false
alarms due to smoke and steam from cooking.
[Editor’s Note: tenants also remove batteries to power their child’s toys!] It is important to tell tenants not to remove the
batteries because of false alarms, but instead to inform you of this problem if it happens frequently. This will allow
you to relocate the detector. It is also important to tell the tenant how to silence a detector which has sounded as
the result of a false alarm, without removing the battery. Tell the tenant to use a newspaper to fan the smoke or
steam away from the detector and it should shut off.
Reprinted by Permission. Nick Sidoti, R.A.M. is a registered apartment manager, licensed real estate
agent, investor, lecturer, author of several real estate courses, an award winning columnist, and President
of the Western NY Real Estate Investors. For information on his courses or to submit questions for
Nick’s column, please email [email protected], visit www.drcashflow.net or call 716-773-2980.
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June, 2008