You’re A Winner!
May 19, 2009 Investment Strategy
So many times I encounter axioms that people hold onto. I came across one the other day where it stated, “A part of success is learning how to deal with failure.” It’s like one must accept failure as a common occurrence. I’ve got a better one: “A part a success is learning how to avoid failure.” Start thinking positive. Hang around positive and successful people. Stay away from losers. Get and keep the frame of mind of a winner and you surely will become one!
The Sky’s The Limit
May 17, 2009 Investment Strategy
No matter what I do, it seems that all that I eat, sleep, do, and think is about real estate. In other words, regardless of what I’m doing, somehow it is converted into real estate terms and analogies. It’s weird, I know; I can’t do anything without that incessant, and sometimes aggravating, diversion. It’s not always bad, though. I have a business mentality, and often it is, indeed, mind stimulating, invigorating, and healthy for my real estate mindset to think in such ways. Years ago, I took my little six-year-old to the community pool for something for her to do. For the previous three weeks before that, she’d been taking swimming lessons for 45 minutes per morning, and has elevated to an advanced swimming class of Level-3. I saw her dive off the low diving board many times into deep water. Near the end of her lesson, I cringed as she dove off the high dive. She appeared to do quite well. I worry just the same, though. She’s only six, and she’s so small. As we entered the pool area, I headed for the shaded umbrella table area for a business meeting with a friend. My daughter dropped her swim bag, removed her shoes, and donned her goggles. As she prepared herself, I thought of how all the previous times we had gone to the pool I had her remain in the shallower, three-foot section. There she would be safe and easy to watch. I contemplated whether to say anything to her or not; she has, after all, been off the high dive. At that moment I decided not to say anything and to let her run loose. She immediately darted toward the mid-section of the pool, which is between the three-foot and the deepest sections. She jumped in and played alongside the edge of the pool. Shortly thereafter she was doing handstands in the center of the pool. After a bit she got out and went over to the low dive for numerous jumps. Near the end of our outing, she played with friends in the shallow end. Indeed I had made the right decision. Why confine her? Why tell her of her limitations when she can decide for herself? Evidently, she had not exceeded her limitations where I thought she might. In fact, never would I have predicted that she would roam safely throughout the pool area. Granted, I watched her, but I also watched her succeed. When I got into real estate, many loved ones assured me that real estate was a mistake for me. Everybody had valid horror stories that would convince most that real estate was the wrong direction. My father was the most critical of all. He reminded me of how I had stripped my bicycle pedal as a teen, how I hadn’t ever fixed anything in my entire life, and how I hadn’t any tools! “Property owners need to fix their apartments. You can’t fix anything!” he would say. He was right, you know. I couldn’t fix a leaky faucet if my life had depended on it. Not so surprisingly, there was no way that I could even change an outlet or light switch, let alone a light fixture. My dad was right; he knew my limitations. Real estate was not right for me. In essence, I didn’t have a toolbox, nor knowledge to fix anything. He tried for weeks to discourage me and to point out my shortcomings, which were obviously many. (As you now know, I didn’t listen to him and invested anyhow (Not to spite him, but in spite of him). As I watched my little girl move about the entire pool area, I was pleased that I withheld my advice and good intentions. Although I was concerned, I let her discover her own limitations for herself, which far exceeded my initial assessment. Today, she found that she could move about the pool like the big kids, and grew in ways that she is unaware. Had I intervened, she would have been held back by my good intentions. I was pleased with myself that I allowed her to grow with experience and confidence. Your family and friends want the best for you as well. They want you to succeed, and more importantly, they don’t want to see you fail. Undoubtedly, they will tell factual tales that will horrify you, and hopefully for their sake, prevent your investing in real estate. My advice is to listen to their stories so as to prevent the same thing from happening to you. Read, listen, and learn everything you can to educate yourself and develop strategies and techniques before the purchase of that first piece of property. However, don’t allow others to impose limitations on you; discover limitations for yourself. Follow your dreams, and don’t succeed to spite them, but in spite of them!
What’s Your Excuse For Failure?
May 14, 2009 Investment Strategy
We all have excuses for failure. The only difference is that some choose to use them as a handicap while others choose not to. In other words, losers use excuses where winners overcome objections and move forward. It’s unbelievable at how many people have remarked in the last three months about the reason that I do volume is because of the contacts that I have created over the last 18 years. Their excuse, upon my handing the course to them in person, is that it will be harder for them because of their empty stable of contacts. What surprises me is their defeatist attitudes and excuses without even beginning the course work. I submit to you that the only thing lacking is education, experience, and confidence, obtained through experience. Consider this, about every 60 days I have a whole new set of buyers and sellers. For the most part, these are people that I’ve never met before. Granted, I first go to my tickler file for quick and easy sales. Yes, I contact recent buyers to buy more properties. But if the bulk of my buyers and sellers are new to me, doesn’t this dispel the notion that you will not be successful because of the lack of your networking base? It should. I agree that it will take a good three months to evolve into a rhythm whereby you create new birddogs, referrals, and partners at a regular base. People lose interest. After a couple of months all of these folks need to be replaced with new contacts. Indeed, the more you contacts you create, the easier they are to create. Nothing beats education and experience. The positive note is that once you’ve developed the technique of networking, through experience, you can have the deals that I have and make the money that I do. Leave the excuses for the failures and for those who are afraid to grow with new ideas. Overcome this objection and move forward. Get educated, get experience, and get some money!
Plan And Prepare
May 12, 2009 Investment Strategy
Just about everyone I encounter wants a serious job or career change. The reasons vary from financial considerations to simply a strong desire to work for themselves. They see my lifestyle and interpret for themselves what I do and what I’ve done to achieve my success. What they perceive is quite simple: I make the right investments and I make money. It’s real simple, isn’t it? What if I put that simplified analysis to their jobs? They get trained/educated, they punch in and punch out, and they get paid on Friday. I contend that those who decide to go for the career change to real estate, with this perception, are putting themselves behind the eight ball and have a rude awakening coming. The rude awakening will be a result from lack of thought and preparation. The preparation for a career change goes far beyond one reading books and memorizing home study courses. Don’t get me wrong, establishing strategies and techniques are paramount to succeeding in real estate. Getting oneself positioned for a career change is as equally important. For example, flat out quitting your high paying job without lining up your dominoes is a big mistake. Investors should assault the real estate market with strategies that create additional income and net worth, so that when the job is terminated, income continues. For example, an investor could make $60,000 on a job and an additional $60,000 from real estate investing part time. This is where one could enjoy an income of $120,000 for awhile, whereby he could pay off bills and further get situated before quitting his job, forever. It’s not simply a matter of desire and ability, but a matter of readiness for the job and income change. Why quit your job too soon and needlessly put yourself behind the eight ball? True, big money can be made in real estate. I’m testament to that. True, I also quit my job at the drop of a hat. However, I had only a low paying job that could be replaced any day of the week. For those like me, it’s of no consequence. It’s for the others that cause concern. Life is difficult enough without suffering losses and setbacks. Keep your wits about you and engage in deliberate planning and preparation before quitting that good paying job. Real estate is sweet, but only for the few who are poised for success.
Don’t Kid Yourself
May 9, 2009 Investment Strategy
Invariably, we all find ourselves in predicaments, some self induced, others not. For example, your car could overheat on the way to work without any advance warning. However, if the fan belt had squeaked over the last two weeks and snapped on the way to work, that would be something that could have been prevented. Of course, real estate is no different than anything else. It has its own situation comedies that sometimes are and sometimes not self induced. This article, however, will focus on a self-induced type scenario that puts investors behind the eight ball. Perhaps a bit of preventive maintenance is in order. For two months I’ve been talking with a local investor about buying wholesale and how to accomplish that feat. Realistically, its not that easy unless investors pay due diligence and bide their time. I now fully understand why they say, “Patience is a virtue.” Over these past two months he has dropped by countless time at my apartment complexes for one-on-one communication. His dropping by is the good news. Speaking to others about real estate is the art of networking and the essence of buying wholesale. So that is not the issue. The problem is that we’ve always talked about the same piece of property! Every time I’ve heard the story, I’ve consistently came to the same conclusion: “Don’t buy it. Find something else.” It all began with the honest interpretation of a novice investor. Houses in the neighborhood retail for $75-80,000 in fixed up condition. This house is quite run down and all real estate agent showings have not only brought no offers, but very negative comments about the condition. My investor friend stated that the house was two doors down from the one he lives in and it would be a real convenient investment. I advised that $45,000 would be a generous offer. In time, this deal has grown to desperate proportions. It’s now worth every penny of $90,000 and it needs very little repair! He now has it in contract for $80,000. He’s so excited, he can’t wait for it to close. What a deal! It’s so convenient. He can work his day job, drive home, and literally walk two doors down to work on his investment. I’m of the opinion that most investors buy one bad investment that goes sour and then they get out of the business, never to return. It takes due diligence to find good deals and it takes a great deal of patience. New investors get in a hurry to get their feet wet and to get into the business—–right now! Investors should bide their time and get their picks and shovels out and dig deeper. My newfound friend will be one of those. Although I’ve consistently advised against its purchase, he’s moving ahead with it. He dressed the deal up the best he could to win my approval because it was important to him. Even dressed up, the deal is bad and it will, guaranteed, sour. Why can’t he move on to something else? There is nothing else. He’s found no other deals where he could move on to. This is convenient as well. Has this investor put himself behind the eight ball? Is this one of those predicaments that could have been prevented? Are his two biggest mistakes lack of patience and lack of due diligence to find great deals? Yes, yes, and yes. Are you to be the next investor to get in and get out? Time will tell. Become knowledgeable, confident, streetsmart, and patient. Furthermore, for me, making money has always been inconvenient.
Tags: Landlording
Default Scenarios
May 7, 2009 Investment Strategy
Investors often ask if I’ve ever had to foreclose on notes that I’ve created. It is their biggest fear. It is fear of the unknown, so to speak. It is fear from what they’ve heard about. It is fear from those lingering horror stories about foreclosing on the guy who gives you a hard time and makes you wish that you were dead. Most of all, it is fear from losing money. Those who know me find me the same way, indirectly. They understand that if I play cards all night and lose, I want to die. I hate feeling like a loser. It’s weird. When I spend $5,500 at Disney World, it’s OK. When I lose $20 at cards, it’s not. Some things, like this, are beyond me. However, my perception of notes are altogether different. Notes are a business. Until now, all of my notes have been a winning proposition. In other words, I have yet to lose money on my notes. Granted, I have taken less than what I had expected in some cases, but I have yet to lose money on any of them. Notice the buzz words “Until now.” What exactly does that mean? It means that I have a foreclosure in progress at this time. My attorney filed in December ‘95 or January ‘96. We’ll address this issue momentarily, but first allow me to address “I have yet to lose money” first. If you buy a home for $100,000 and put $20,000 down, you would have real money in the property. Furthermore, if you paid down on the loan for a number of years, you used real money as well. Let’s say that you now owe $70,000 and you want to move. If you financed the property for a nothing down buyer, you would in essence be loaning them $30,000 of your money. If he defaults and tears your house up, you would be in despair. And so would I. It would be understandable. You have 30 grand in the property. It would be a bad situation. Consider if he were obstinate as well. He would not move unless and until the bailiff set him out. You needed to hire an attorney and go through the entire foreclosure process and lose money at the same time. This is totally contrary to what FAST-FLIP is all about. FAST-FLIP is not carrying a note on your home. Furthermore, it is not about losing money. For the most part, my flipping is done with investing less than $4,000 and getting it all back at closing. I leave the closing with a note as profit, instead of cash. Do you see the difference in the example above and me? I have no money in my project. I have no nightmare. Now, let’s address and analyze my until now situation. I created a note for approximately $13,500 payable monthly for about $119. He will not make any further payments and is considering bankruptcy. Is this a nightmare? You still need more information? Allow me to provide further details. When I sold it was to two men, partners in a corporation. Not only was the corporation liable, but the two men personally as well. (Is it looking better yet?) One partner wanted out so the other released him. Does this release his liability to me? No, because I did not sign anything to that affect, nor would I. It is both men and their corporation who are the current owners as far as I am concerned. Where’s the nightmare? Where’s the problem? I see none. I feel none. I have no money, real money that is, in the project. Will I lose money? No!
H. Roger Neal® Pays Buyer’s Bills Off
May 5, 2009 Investment Strategy
Here’s an example of a sweet little deal that I sold awhile back. I originally purchase this 3-bedroom house for $19,000 and worked on it for 3 or 4 days. I haven’t had time to add up the expenses, so I will exaggerate the tally at $3,000. In total, I have about $22,000 total in the deal. This is a deal where this older man called me from my advertisement in the Sunday newspaper. He stated that he wanted $24,000 and wouldn’t take a penny less. He knew the value to be much higher. On the other hand, he had just inherited the property from an uncle, so he originally didn’t have his own money in the property. After a while of listing with an agent, upgrading the interior with paint and flooring, is the time when he contacted me. I drilled him for information that I could use against him. (Anything a seller tells me can and will be used against him.) During our initial telephone conversation, I asked if he were sick and tired of trying to sell the house through an agent. Further, I reminded him that although it was a nice house he had no showings. He countered by stating that there were other buyers in the paper and he would call them. I replied that I would possibly pay $19,000 if I liked the house and that he should contact everyone in the paper and call me last. He called back in 3 days stating that his highest offer was $18,000, but he would take $22,000, if he had to. I stated that my 19 wasn’t an offer, it was a number if I it was worth it. He kept trying to meet me at the house, but every time I refused. I bragged, “I’m a busy man. I have no time to meet you unless you state that if I want it you will sell it at $19,000. I won’t look at the house until you agree to it.” He wanted to get back with a couple more investors who he had called out of the paper, so we hung up. He called back in two hours and said the 19 would be fine. I raced out to the property and, needless to say, I bought it. The interior of the house was impeccable. It even had the swinging wood door to the kitchen and French doors between the living room and dining room. There were hard wood floors throughout with new linoleum in the kitchen and bath. What was left to do you ask? On the interior, it needed a 100 amp circuit breaker and outlets in the bedrooms; there weren’t any. The exterior of the house needed a paint job in the worst way. It looked dull and dingy. An electrician took care of the breaker box and my son used his paint sprayer for the exterior paint job. In less than a week the house was in tip-top condition. I placed my advertisement in the newspaper and began contacting former tenants. I showed the house to two former tenants and they both wanted it. The one who filled out the application first with a $25 fee got first crack at it. She had a housekeeping job with marginal credit standing. In fact, there were about twenty unpaid bills ranging from $45 to $250. She had absolutely no savings and no car. However, she did work regularly and she wanted the house. The house appraised for $55,000 and she got a loan through a mortgage broker for $42,000. Out of the $42,000 came $3,000 for the mortgage broker, all her past due bills were paid, and the gap between the loan to value. (These lenders only loan 65-80% loan to value.) Who gets the gap? Essentially, the buyer does in the form of equity. Lenders want to feel comfortable with an equity position. Why don’t I find a better buyer through a real estate agent? My seller tried that. Remember? How do you expect me to do volume and FAST-FLIPS with agents? You’re right. I can’t. I walked from the closing with about $33,500, netting me with over $11,000! There were no agents used with either buying or selling, no banks requiring down payments and rigid credit standards, and best of all, no serious rehab to contend with. What a sweet deal!
What Are Low Income Housing Tax Credits?
May 3, 2009 Investment Strategy
There’s been much discrepancy about when the tax credit program ends. This issue will clear that up and explain some of the specifics of that program. What does I know of tax credits? Certainly, I’m not a tax attorney, nor an accountant. However, in 1993 alone I received tax credits on four different projects. I’m a national speaker and author, but more importantly, I am an Investor. In the beginning of President Clinton’s term, he signed into law a permanent provision, an unending extension to the Low Income Housing Tax Credit Program. The Democrats listed this law as a budget item. It passed; it’s law. It will take an act of congress to end the tax credit program. As unlikely as it seems, based upon congressional ineptitude, it’s possible. My advice is to get on board with your tax credits and not wait too long because you could lose out in the long run. What Are Low Income Housing Tax Credits? They are credits granted in exchange for investors, both public and private, for rehabilitating or building rentals for low-income families and for restoring historic structures. (This book will focus entirely upon rental units.) The credits are subtracted dollar for dollar from the federal tax returns of both individuals and corporations. In other words, rather than the typical deduction method, the $2,000 in credits are actually subtracted
from the amount owed to the IRS.
Federal Trade-Off:
In the 80’s, the federal government extended the depreciation schedule increased from the 19 years to 27.5 years, except this time there was a trade off. Those investors who rehabilitate historical buildings or low income housing units would get tax credits. Credits are not a deduction, rather a dollar for dollar credit that you subtract after calculating taxes owed. In other words, if your taxes due were $10,000 and you had $3,000 in credits, you would only send in $7,000! The problem is that the application itself is so thick that it is discouraging to even flip through. You can only imagine figuring out how to correctly fill one out. (Most applications are in the millions of dollars. Small projects are few and far between.) If necessary, you could call your state agency and ask questions, and even attend seminars offered and conducted by the state. At the end of Chapter 2 of my book, you’ll find a list of all the state housing finance agencies. The objective is to attract investors for the purpose of renovating and making up-to-code rental housing so that certain individuals have access to decent and affordable housing. In theory, there will be fewer boarded-up buildings and more housing for low-income families. In reality, it seems to be making some impact based upon more than 35,000 units integrated in the program in Ohio alone between 1987 and 1995. Applicants include private investors, public, and non-profit organizations. In Ohio the pace as of 1995 is between 5-7,000 new units annually.
Two Low Income Tax Credit Avenues:
There are two facets of low income tax credits: those involving application for repairs only, and those for both repairs and building costs. If you just want to buy a tenant occupied building and make updates in furnaces, circuit breaker boxes, roofs, kitchens, or baths, it’s plausible. You can work around good tenants. There is a minimum expenditure of $3,000 per unit on all non-cosmetic improvements. You can easily see that one furnace, a new roof, updated electric would easily surpass $3,000. Afterwards, simply make application for the repairs only. The other and more profitable aspect is to find a boarded-up building, or one that will be vacant at closing, and apply for credits for both the repairs and building costs. The agency will frown on applicants who displace tenants, it counters the objective of the program. In the final analysis, you are providing decent housing to low income producing families and you, upon receipt of credits, are guaranteeing that these units remain such by adhering to income limitations for future tenants for a minimum period of 15 years. When neighborhoods are blue-collar and welfare, this is no drawback. If anything, it’s a further incentive to invest in, and upgrade, these areas. Compliance is easy. Individuals, partnerships, corporations, and non-profit organizations can apply for and receive Low Income Housing Tax Credits. Tax credits are also available on historical buildings. However, since I have not yet applied for and not yet received credits of that nature, I’ll defer on that particular aspect of tax credits.
A. Cost of Improvements Only:
The program has installed a repair bonus for investors who rehabilitate in certain census tracts, i.e., run down neighborhoods. There’s no guarantee that this bonus will be awarded, but at least you have a shot at getting it. Let me illustrate the difference between a non-bonus and bonus situation. For example, if your repairs were $12,080.32, ordinarily you would request 9% of that for your annual credit, which is $1,087.23, for 10 years. Over 10 years time, this adds up to $10,872.30. You get back almost every repair dollar invested in the property. With the bonus (2nd Kicker explained shortly) of favored census tracts, you take the repair figure and multiply it by 130% and get $15,704.42. Then you would use this new figure and multiply it by 9% to get the new, annual, repair tax credit of $1,413.40. Over 10 years, this amounts to $14,134.00, which actually exceeds the repair input of $12,080.32 by $2,053.68.
B. Cost of Building and Improvements.
It’s much easier to rehabilitate with an empty building. Your repairs can be more extensive, and save in plumbing headaches later, for example. In fact, the more money that you spend now can be included in the tax credit application. Once the credits are awarded, that’s it. There is no going back and trying to add subsequent repairs to the tax credit, nor will there be any further tax credit applications considered on the subject property for many, many years. Furthermore, you can increase the award by including the cost of the building and its lot. For rehabbers, the lot and building merge into one figure. You can also include all soft and hard costs associated with its acquisition, like fees and loan expenses. By using the same example above for repairs, let’s see what happens if the building costs are $10,610. Multiply this figure by 4%. Your additional tax credit request for the building and lot is $424.40 per year. For 10 years, it is $4,244.00. Couple the $4,244.00 for the building costs with the $14,134.00 in repair costs, and you request $18,378 in tax credits over the next 10 years. You have spent a total of $22,690.32 for the entire project. The units are fixed up beyond code. The mechanicals are such that future repairs should be minimal.
1st Kicker:
Not only can you get $18,378 in credits, which about doubles your money, but you can still depreciate the building ($10,610) and expense and depreciate all of the repairs ($12,080.32). After all this, you still own the building and could sell it later for at least what you have in it. Furthermore, you also make a small bundle on the cash flow and appreciation where applicable. (But for now, ignore the depreciation and appreciation and focus entirely upon profits. Depreciation is really deferred taxes and appreciation may not even transpire in these neighborhoods.) Based upon my experience, you can net $569 per month on a double renting, like this building, for $350 per side. The annual income would be $6,828 and over a ten year period $68,280. Ordinarily, the cash flow and repair write-offs would be the extent of my profit, $80,360.32 for 10 years. Adding in the tax credits of $18,378 increases the 10 year outlook to $98,738.32, without depreciation and appreciation. After 10 years, sell on an installment sale for $40,000. Overall, profits would far exceed the original investment of $22,690.32 by $116,048 over the 10 year period. In other words, your $22,690.32 could turn into $138,738.32. And, this is on just one small investment property with tax credits!
2nd Kicker:
If your project is in a “qualified census tract”, you could increase the requested amount by an additional amount. That amount is calculated on the eligible basis of repairs. Simply, you take the repair basis and multiply by 130% to obtain the new basis. The new number calculated is now what is used to multiply by 9%. (Not to worry. It’s very simple on the application. It is on the application and you need only calculate if it applies.) So, if your repairs total $12,080.32 and you are in an allowable census tract the new figure would be $15,704.42. In other words, rather than requesting $1,087.23 for the repair portion, you would request $1,413.40. This is an additional $326.17 annually, and $3,261.70 over the next ten years. (Unfortunately for Ohioans, our director frowns upon the additional credit. Other states could enjoy this benefit though.)
Why Me? Why Now?
Recently I had a conversation with another investor where I briefly explained the tax credit program. He added that all the government does is keep taking benefits and programs away. I insisted this alone is reason enough to take advantage and participate in the credits. It’s my contention that every time they remove a program they generally replace it with something else, and of lesser value. It is up to us to stay abreast with the new programs and participate in them so that we don’t lose much ground.
Summary:
Just because your project qualifies for credits and is eligible for the added credit from 100-130% it doesn’t necessarily mean that either one or both will occur. Insofar as qualifying is concerned, there must be allocations left to grant to you. This can be overcome by applying early in the year. I would assume that most cases are on a first-come first-served basis like Ohio. When allocations are exhausted, you may be placed on a list like I was where I was in limbo. Shortly thereafter, I was contacted and told that I was granted my credit. As for the additional allowance of 30%, it is left to the discretion of the directors. Inside LOW INCOME HOUSING TAX CREDITS, Small Project Perspectives you will find that the book can be used from anywhere inside the United States. In fact, all the phone numbers for all of the states are listed in the book. It is generic for all of America.
Tags: LIHTC, Low Income, Tax, Tax Credit
What Do I Flip With The $1 DOWN®
May 2, 2009 Investment Strategy
So, you ask, what is the most easy, least risky, lowest cost, and most fun plan to implement? Plan IV, the Option to Purchase is by far the most gratifying and easiest real estate method to make money known to real estate investors, second only to inheritance. With the Option to Purchase, you can flip any real estate entity: land, houses, farms, multi-units, and commercial buildings. Regardless of where you are and how much money you have, there is no excuse for failure. (Save your excuses for those who will listen. Other investors only want to hear success stories.) Allow me to address vacant land and farms first. Those in rural areas may complain that there is no city nearby where they could landlord like I do. That is a valid concern. So, you’re out in the middle of nowhere. Do you have land and farms nearby? If so, you’re in luck. Did you know that the Option to Purchase on vacant land is standard for the industry? Well, it is. You know how bank loans are standard for selling a home? That’s how the Option to Purchase is for land. Why is the Option to Purchase standard for the industry for land? Usually there is some sort of contingency involved with building and/or rezoning. Rather than writing it up on a standard real estate contract, you would use my Option to Purchase contract. In essence, with one dollar you would have the option to purchase vacant land, or even an entire farm. (The dollar amount could vary from state to state.) Nearly every builder you will ever encounter would have the Option to Purchase based upon rezoning or the like. Couldn’t you get the Option to Purchase as well? Sure you could, and without all of those contingencies. The contract is simple and brief. It state the seller’s name, your name, the one dollar put down, and the deadline to close. That’s about it. Oh, my! What if it doesn’t close? Will you need to file bankruptcy or kill yourself? No. You lose your dollar, the cost of running ads in the newspaper, and your time. That’s all. Can it get better than this? Yes. Particularly for investors like me who’ll flip anything. Furthermore, consider that you have no real estate bills, repairs, water bills, no city code inspectors, and no……………..tenants! It’s sweet. All right, you’ve acquired an option to purchase. Now what? Advertise your option, (legal in most states, not Oregon and maybe others), call off a tickler file of investors/buyers that you have and will generate. Pass out fliers at your real estate investment meeting. Enlist the help of real estate agents. How hard can it be? Not very. You stand to lose one dollar, have no responsibilities and liabilities, and have only money to gain. The profits can be taken either in the form of cash at closing or a note due and payable monthly to you. The taking back of a note generally facilitates the quickness of the sale. In fact, if you put a one-year balloon in your note you will have the best of both worlds: a quick sale and cash. What about single houses? Certainly that would be the hardest. Why would sellers allow anyone to put an Option to Purchase Contract with one dollar on their house? They’d have to be nuts; wouldn’t they? I’m mean, what are the odds that this would possibly happen? I understand your questions and reservations. Admittedly, it makes sense that this would be the least likely scenario. Fact is, it’s just as easy to find these deals as it is for any of the other type of real estate. What would motivate them to sell a single house this way? Recently, a seller saw this as an opportunity to bypass all of the real estate agent listing baloney. I closed his house in less than 60 days without even so much as running an add. What about multi-units? One seller was a real estate agent who was quite familiar with the traditional methods of seller real estate. He had two doubles in a real bad neighborhood with code violations. We entered into an Option to Purchase and I sold both of them off of one ad. Is it really that easy? Yes and no. It is really easy if you know exactly how to acquire and sell, and you have the right contracts and know how to use them. Until you learn the full process, it won’t be so easy. Once learned, though, it can’t get any easier than FAST-FLIP Plan IV, found in the home study tape course. You will learn how to find and sell in all five plans. All buyers of the tape course are welcome to call on the hotline for 1 year to aid in your studies. The Option to Purchase is indeed surreal.
You Pay Tenants To Move? You’re Kidding, Right?
May 1, 2009 Investment Strategy
In 1973, I received an honorable discharge from the Army. Within a few short years, I acquired a position with the city. This deadly combination of Vietnam veteran and inspecting sewers gave me the personality that I would love to forget. The dubious title, “The Landlord From Hell” was truly accurate back then. When tenants did not pay rent, I was verbally harsh and would scold them accordingly. I misinterpreted the non-paying of rent as an insult, and was out to teach them a lesson. The lesson was that for not paying me they would be evicted. Once the eviction was filed, no money would be accepted. The lesson would not be taught without the full impact of losing one’s home, and hopefully, set out into the front yard. The event was anticipated, and understandably so based upon my recent history. The exact problem was that I took it all personally, and I should not have. My focus should have been, and is now, that when tenants do not pay rent it is because they have chosen to do something else with the rent money on that given month. The key is to understand that it really doesn’t matter who the landlord is at that time. In other words, if you were not the landlord, someone else would get burned instead. Since this is true, how can you logically take it personally? You can’t. Once you overcome this obstacle, you are on your way to understanding this concept. In 1981 I met an older man whose name was John and was about 65 years old. He had been a landlord for many years and had all of his properties paid off. I was really impressed with his vision to buy, accumulate, and pay off so many buildings. Upon retirement, his inability to negotiate good sales for himself made him fall short in his entire scheme of things. However, he could do some serious landlording. Two major points that I learned early, from him and I will never forget, are required to implement the paying off of tenants:
1. Never talk mean to tenants. Always keep the line of communication open. John told me that he had talked mean to a male tenant once, and while in the basement checking a repair problem was locked in the basement. He could hear the man yelling something about cutting him with a knife while rummaging through the kitchen drawer. John broke his way out of the basement window and was chased down the alley by the tenant with knife in hand. Surprisingly, a police car had just turned into that same alley. Under these and similar circumstances, you could never go back and negotiate an exit interview. If you remain kind and level-headed, you could knock on the front door anytime to re-negotiate with new offer. It took me many months to evolve as John had suggested. To this day, I remember scoffing at him, stating that I would never give money to someone who owed me money. It just wasn’t right. However, today I take great pride in admitting that I was wrong and benefiting from the change. In fact, I have become so proficient at negotiating deals for tenants to move, I feel that I have become the “Master At Paying People To Move.” My negotiations begin with, “If you move right now, I’ll give you $100 and I’ll clean the apartment.” When the need arises, I’ll evolve into “$250 and you clean the unit.” Remember that you are sitting on a full month’s deposit. Also take into consideration the cost and time of eviction. Wouldn’t is make more sense to pay $200 for a clean and vacant unit today, rather than going through the cost of an eviction and further loss of rent? (You can deduct the $200, or whatever, from rents collected.) Last September, I noticed an apartment so filthy that I could envision myself being interviewed by a local television station. Although her $375 rent had been paid, I wanted her out now. I told her that she must move immediately and I would pay her $100. She said that she would be out by the next day and have the unit clean. Nothing happened the next day. Her mother showed up and I told her of our arrangement. She and her other daughter removed all of her items from the apartment and called me on the phone. Her mother wanted to give her daughter the $100 as per agreement. I reminded her that the kitchen and bath needed to be cleaned. She remarked that if she mops and scours that it is she who should receive the $100. I agreed that was the fair thing to do. She cleaned and scoured, and I paid her $100. I got a receipt from her and wrote it off on my tax return for ‘95. I sent her daughter’s information to the collection agency and included the $100 that I had paid to her mother for cleaning. The unit was empty on the 15th. I had paid her $100 out of the $375 deposit. I patched walls and repainted. The unit was re-rented on the first of November for $375 rent and $375 deposit. If this doesn’t convert you, nothing will.
2. Take money anytime, even after the eviction has been granted. (When money is the issue.) Over time, I developed this myself. It primarily stems from doing my own tax returns. I noticed that some properties did better than others because of the rent collection issue. My goal was to get all properties to become as good as my best. I quickly figured out that if I accepted $836 from someone about to be set out, it would greatly enhance my bottom line. Consider when this happens three times in the same building during the same year! These two ingredients increase your bottom line and allow you to better get along and negotiate with hard-core tenants. More importantly, it provides you with the proper attitude and atmosphere for collecting more money and setting aside petty concerns about personal insult and revenge. Pay tenants to move, collect money anytime, and join me in the arena of success.
