FSBO is an acronym for “For Sale By Owner.” The term is used to identify property, usually homes, which are sold by the owner without help from a real estate agent. Typically, owners advertise their properties by means of websites, classified ads, word of mouth, and other means.
Good Luck Investing, Tamera Aragon! Unless you’ve been living under a real estate rock the past 12-18 months, learning how to flip houses is a big deal right now. With multiple reality television shows like Flip This House and all the others – it seems everyone hasflipped for house flipping. Just last week, I even got a call from US News and World Report to help them with one of their articles as a “Flipping Expert”. Get this – the report on House Flipping was eventually picked up by Yahoo! It just seems like there are so many people hyping the house flip thing, it seems a bit out of control. House Flipping Hits Hollywood? Even famous and even not-so-famous-anymore celebrities (what’s up Vanilla Ice)are now getting into house flipping…proving that Hollywood too it seems has gone flip-crazy. And although new foreclosures are declining, the fact remains that there are many great opportunities available to get into good house flips – even as we work through the foreclosure inventory and climb our way out of the great recession. House flip deals are still available and this makes for an ideal environment for people want to fix and flip houses – which may have something to do with the current frenzy. So What Are The Steps to a House Flip? When Kim Kardashian starts talking about house flipping…that’s an early sign that you need to get real. Although house flipping has been hyped a lot recently, the fundamentals remain the same: it’s a great time to get into not only house flipping but real estate investing in general. So let’s toss Vanilla Ice and Kim Kardashian aside and get down to how it’s done and what you can do to start doing it. Make no mistake, house flipping has never been and will never be as simple and easy as the “gurus” would have you think. Nor is it as easy as the reality shows would have you believe. Even if you ask them, they’ll tell you that it’s not as simple as it’s made to be on television. House flipping takes hard work, education and in some cases years of experience to do really successfully. But that does not mean that the new real estate investor cannot start doing it successfully…. But to do that, there are some key steps to success – and although there is no way to explain ALL the little details of how to flip a house – it can be broken down essentially into nine basic steps. So to illustrate the steps needed to flip houses, I’ve put together the following infographic which simplifies what is in practice a complicated process with multiple moving parts. But knowing the basic steps involved to start can certainly get you on your way to house flipping success.
If you have any questions about this or other real estate topics just LEAVE a COMMENT below. Posted by Mike LaCava I’m not sure why but a lot of real estate investors I know won’t touch rooming houses. That’s fine with me; because that means more profits for you and me! I’m a huge fan of multi-unit properties. There’s a good reason – more units equals more cash flow. If one tenant in a four-plex moves out, your cash flow goes down 25%. But if your tenant in a single family home moves out, your cash flow goes down 100%. Of course, many sellers recognize this, so multi-unit properties often cost more than single family homes. But here’s an interesting twist you may not have thought of: what if you could turn a single family home into a multi-unit property? You can – and you should. Early in my real estate investing career, I did this a lot – and reaped serious profits doing it. It’s a great way to generate a lot of positive cash flow in a short period of time. Best of all it takes very little work on your part. With the right property, you can easily create separate rooms for five or six tenants in one house – and that means collecting five or six rents each month. If you find the right neighborhood, and the right house, this can be a very simple and lucrative addition to your portfolio. Here are my tips to get started with Rooming Houses:
Yours in Success, Russ Whitney Large commercial properties provide the opportunity for incredible profit. These properties can also be intimidating. But the high purchase prices limit competition to investor grade buyers who are going to use investor grade calculations. When properly managed, the function of scale keeps costs low and income high. But like every other type of deal, it’s important to weigh the pros and cons. Five years ago I was approached by an investor looking for partners on a large apartment complex. The property consisted of 220, one to three bedroom apartments spread throughout 10 buildings on a 15 acre “compound” in Delaware. None of the buildings were occupied, but over 90% of the units were in rent-ready condition. At the time, this sized deal was over my head. The investor was attempting to raise $2.5 million for the purchase of the building, improvements and necessary overhead and carrying costs to get the building occupied. While the returns were promising, I passed. Last week I got a call from the same investor. He told me about a similar project he was currently raising money for. Since that call I’ve been debating the pros and cons this new project presents. ControlIf you’ve spent any time in the Real Estate Investing world, the chances are that you’ve come in contact with some unsavory characters. Any field that presents the opportunity for high profits will attract those people who will scheme to make a quick buck at anyone else’s expense. I’ve unfortunately learned this lesson personally on more than one occasion. I’ve taken strides to ensure I’m never taken again. Among my many precautions, I’ve developed a need for control. If I’m in charge of who gets paid, when and for what, there’s a very small chance I’ll be taken advantage of. Control is one luxury I will not have with this large apartment deal. I’d be a small owner of the complex. While I’d like to put up the entire $1.5 million needed, the fact is, I just don’t have that kind of cash lying around. Even if I did, I’m not sure I’d want to sink so much into one project. My lack of control on the project is a definite con. Cash FlowIf you own a single family investment property, there’s one point of income. The ability to successfully collect that income (rent) from a tenant has a major impact on the cash flow of the investment. Moreover, if that tenant refuses to pay, it’s going to have a major negative impact on the success of that investment. That’s one reason I love multi-unit buildings. If I have to kick out a tenant or an apartment is vacant for a month or two, I’m not reaching deep into my pocket every month to cover the mortgage. In fact, the larger the building, the smaller the impact each unit has on the overall bottom line. The cash flow of multiple units is a major pro. Functions of ScaleThere’s a reason Walmart sells products at prices cheaper than anyone else. They buy more units of that product than anyone else. Manufacturers can afford to make smaller margins on one product because they know they’re overall profit will be much higher with larger orders. The Walmart principle applies on large apartment buildings. From management to maintenance, the costs per unit go down once you can reach the pivotal function of scale. As an example of a function of scale, let’s look at property management. Hiring a property manager to oversee a few single family homes is going to be expensive. Usually the cost will range from 6% – 15% of the rental rate. But for larger buildings, an in-house management staff can cost only a fraction of the cost. Function of scale for this type of project is a major pro. Return on Investment vs. RiskThe risk versus reward calculation is different for everyone. A professional gambler will certainly have a different comfort level for risk than, say, a teacher or an engineer. It’s important to determine beforehand what you’re willing to loose in a transaction before looking at the potential gains. Traditionally the risks in larger buildings are limited compared to those faced in a single family investment (if you’ve done your due diligence and bought at the right price). In this case, the project is well below my risk threshold. ROI is a pro. While large multifamily investments can be intimidating, they offer a great potential for profits. The large scale can offer insulation from risk as well as controlled costs. My mind keeps returning to that investor phone call from last week. The pros certainly out-weight the cons. It looks like I need to spend some serious time considering the offer. Posted by Josh Weidman Many of the properties listed on the market today are short sales, which account for almost a quarter of the listings in the U.S real estate market. The process of completing a short sale, which once took 6 to 9 months or in some cases even a few years can now take as little as 30 days to be approved. For this reason many homes being purchased by investors in 2012 are short sales. Short sales listed for sale on the market have been growing rapidly and have increased by 22% since last year. A short sale occurs when a lender agrees to accept less than the full amount that is owed against a property. This typically occurs when homeowners are underwater and owe substantially more on their home than their home is currently worth. Many of these homeowners may consider walking away from their homes but would rather sell their homes to an investor than have a foreclosure on their credit report for ten years. One important factor in short sales is the Mortgage Forgiveness Debt Relief Act which was introduced in Congress on September 25, 2007, and became law on December 20, 2007. The Mortgage Forgiveness Debt Relief Act of 2007 offers relief to homeowners who would formerly owe taxes on forgiven mortgage debt. What this means is that cancelled mortgage debt would not be treated as taxable income and no taxes would be due on forgiven mortgage debt like in the case of a short sale. When a homeowner sells their home to an investor via the short sale process, the bank agrees to accept less than the full amount owed on the mortgage. The difference between the amount owed on the mortgage and the sales price is currently not taxed (as long as it is a primary residence). Normally forgiven debt is considered taxable income and a 1099 is issued but the Mortgage Forgiveness Debt Relief Act of 2007 allowed home owners that were underwater to sell their home via the short sale process without having the burden of having to pay additional taxes on the forgiven debt. If existing laws are not changed before the end of 2012 one of the resulting effects of the “Fiscal Cliff” will be that the Mortgage Forgiveness Debt Relief Act of 2007 will expire at the end of the year. While both sides of the political aisle are engaged in a 1950’s game of chicken, they fail to recognize that real people will be hurt as a result of their bickering. Middle class families who are climbing their way out of debt will not be able to get a fresh start when they have hundreds of thousands of dollars in negative equity and are not able to complete a short sale because of the tax consequences. Investors will see inventory dry up as less short sale listings on the market will result in less inventory and prices will rise. This is not good for the first time home buyer looking to achieve the American dream of owning their first home at an affordable price. The alternative for families looking to sell their home via the short sale process will be for them to choose to stay in their home without paying and allow their home to go into foreclosure. This is not good for the banks or the economy and produces a huge back log in our court system which is already overburdened with foreclosure cases. This is not a very efficient way to deal with the housing crisis. In other words, what we have here is a perfect government solution to the problem. Washington D.C. politicians simply do not understand how vital short sales are to the economic recovery. Short sales account for more than 40% of the sales volume in Rhode Island, Massachusetts, and Connecticut. In my home state of Florida, short sales account for 29% of all sales. The banks have a huge problem. They have too much inventory of homes that are negative equity. The real estate market must recover in order for the economy to recover. While prices are beginning to increase it is important to understand that making it more difficult for home owners that are underwater to initiate a short sale by taxing them is not good for the economy or the recovery. Washington D.C politicians need to consider this as we approach the “Fiscal Cliff”. Middle income families who are underwater on their homes will suffer the most. Nationally, short sales are completed on average for a sales price of $94,896 less than the mortgage balance owed. This means that middle class Americans who wish to sell their homes next year via the short sale process will have to pay income taxes on almost $100,000 more income. This is absolutely ridiculous, especially if they start taxing incomes over $200k at higher rates. Working families could see their income taxes double as a result of the tax increase, due to moving into a higher tax bracket and having to pay income taxes on the forgiven mortgage debt. In states like California and Nevada, the average short sale is completed for $171,907 less than the mortgage balance owed. Imagine a scenario where a middle class wage earner making $50k a year is considered rich because their taxable income exceeds $200,000 because they completed a short sale. The middle class is getting steam rolled by both parties. Big banks like Bank of America, JP Morgan, Wells Fargo, and Citi Group all got their bailouts. It is absolutely absurd that politicians are playing this game with this Washington D.C manufactured Fiscal Cliff while underwater middle class families struggle to recover from the housing crisis. I hope that the politicians come to their senses and extend the Mortgage Forgiveness Debt Relief Act of 2007 and do not let it expire at the end of the year. Anger is such a strong emotional force. Many of us are familiar with the emotion of Anger being a destructive-force; from raising our blood pressure to fighting wars against our enemies, anger has caused much destruction and devastation globally. However when anger is focused and harnessed into taking constructive action to positively change your life the results can be just as trans-formative. Many of the real estate investor-clients I work with confide that they want a change. Most newbie investors want to quit their jobs, work their own flexible schedule, and make enough passive income to support themselves and their families. Above all other emotions I listen for anger in a new investor’s voice.
By far the highest percentage of successful investors I have helped have been angry and at a low-point with regards to their real estate investments and actions. Starting today you may choose to begin using anger as a catalyst to propel you to create realistic monthly goals and start implementing correct daily-action. Below is a small list of people and things to help you get angry and create change… Family and friends: Do not allow family members and friends to belittle your real estate dreams and positive spirits. Often times while trying to take care of us, our loved ones have a way of projecting their own goals, fears, and weaknesses onto you. This ill-placed advice from a person you respect can have huge damaging effects to your forward progress and the overall health of your business. When this happens stay firm to your goal of learning enough about real estate investing to make these people eat their words. Naysayers that offer no help: Similar to family members naysayers plant negative seeds in your brain making you think possibly that you are inept, that real estate is “dead”, that mobile homes won’t make any money, etc. ** In the beginning of your career it is important to have faith and soak yourself in education about your local market and REI in general** Main stream media and Guru’s: Whether it is the local News telling you that real estate is at an all-time low or House-Flipping shows telling you the market couldn’t be better – turn it off and tune it out. Depending on how gullible you are it is important to make your own conclusions rather than to blindly take the opinions of others [with ulterior motives of selling ratings or products]. You are the Investigator and it is your job to dig deep enough to find out the real estate investing facts from investors actively investing in your local market right now. Find, sign-up and attend your next Real Estate Investor Association (REIA) club meeting or Real Estate Investor’s Meetup.com group now. Your inner-self: If you are like me then perhaps your worst enemy is yourself. If you suffer from negative and self-defeating thoughts please understand that they are most likely not accurate. The lens through which you see the world has been created overtime and you are likely missing the key to release you from the rut you find yourself. With that said you will grow leaps-and-bounds faster with help than without. Invest time into reading self-help books, real estate investing blogs, and biographies of people you admire. Do this daily and socialize with like minded people. Other seasoned R/E investors and professionals: Caution: Do not get angry at other investors or real estate professionals that bad mouth the local economy and real estate market. These folks likely know something you don’t so listen to their reasoning, ask for other active investors’ opinions, do some research online and make your own informed decision. Even after a decade of real estate investing I push myself to get Angry with the limited-progress I have made. The reason I am angry with myself is because I know I could have accomplished more with the time I am given, however I like to watch TV and socialize with friends more than I probably should. I am angry with negative-minded investors because I see the limiting-beliefs stopping them dead in their tracks and I understand that with enough inner momentum anyone can change their current status in life. I see it happen every month when a new investor invests in their first successful real estate transaction in years… or ever. Get angry. Get focused. Make a difference. . Do what you love daily, John Fedro An article I wrote recently, telling the story of my first manufactured home community that I purchased for $400,000 and sold around ten years later for $1,525,000, raised the ire of a self-styled industry “guru” who contended that such amounts cannot be made with a manufactured home community. Of course, a community we closed on a few weeks ago in Kentucky showed an appraised value of over $1,000,000 more than we paid so it doesn’t seem that unique to us. But it does raise the question of how much money you can realistically expect to make with a manufactured home community. How much money do you want to make? People have different goals. Some people are only concerned with trying to get a higher return on their cash, which is currently getting 1% in a CD. Others are trying to create substantial wealth, far beyond a simple return on their down-payment. It’s a free country, so there’s no law on what you have to make from a manufactured home community purchase. What you make is totally based on what you buy. If you are buying communities at 7% cap rates which are 100% occupied, with no room for pushing rents or sub-metering utilities, then it is unlikely that you will create much value other than a 10% or so cash-on-cash return. You’ll run the park for a while, maybe make a small rent increase over time, but you’ll probably sell it back for that same 7% cap rate years later, and have a very small amount of profit going to you at closing. On the other hand, if you buy manufactured home communities at a 10% cap rate, and with significant room to push rents, bill-back utilities and fill lots, and then, after successfully putting all those factors into motion, sell that now 18% cap rate purchase for a 9% cap rate, you will have created a huge amount of value, which you will receive as a cashier�s check at closing. That’s one way that you can create $1 million of value with a manufactured home community. Don’t forget about buying $1 for 50 cents. Sometimes you can buy a manufactured home community on the front end, that’s already running well, for less than it’s worth. This is normally a result of a seller who has failed to perform proper accounting on his property, including expensing items that should be capitalized, or not collecting the rent because they are too friendly with their tenants. Benjamin Franklin summed it up. Benjamin Franklin once said “diligence is the mother of good luck”. What I think he meant is that your success or failure is based on how you buy the property on the front end. If your goal is to create a significant amount of capital by buying a property that has great numbers going in, with the possibility of even better performance over time, then you can make a lot of money with a manufactured home community. If, however, you buy a community with lousy numbers and no possibility of improvement, then you will make no money or even lose your money. But this is not a “get rich quick scheme”. Buying and operating manufactured home communities is far from a “get rich quick scheme”. But that does not mean it’s not a “get rich scheme”. The only reason to get involved in this industry is to make money it’s not a sexy business that sounds good at a cocktail party, nor is it really that much fun. But I think it’s safe to say it’s never a “quick” business. Holding and operating a community for 5 to 10 years is anything but “quick”. As the industry becomes more professional, the opportunities will diminish. Of course, one of the reasons that there is so much money to be made in the manufactured home community business is that the industry is dominated by moms and pops, who are not the most sophisticated sellers. There are roughly 50,000 manufactured home communities in the U.S., and the majority of these are owned by the original founders or folks who have had them for decades. There are hardly any new communities being built, so this supply is static. As professional investors buy out these moms and pops, the profitability of manufactured home communities based on going-in cap rates and potential income growth will decrease. This means that there is some sense of urgency, and it is not a given that opportunities will always be as ripe as they are now. There are two types of business models in this industry. There are public companies that prefer to buy “finished” goods that are stable but have a lower return, and others who seek out “turnaround” opportunities that are non-stabilized, and offer higher returns for those who take the time, effort and risk to stabilize them. There is no reason that these two business models cannot happily co-exist. And also no reason that the lower returns of the one niche should apply to the other. The industry “guru” who believes that it is impossible to make significant money in this business has been hanging around with the guys at the public companies for too long. Conclusion I am proud to make significant returns with manufactured home communities. I firmly believe that there is still plenty of opportunity in this industry. Those who think otherwise either don’t really know what they’re talking about, or don’t have what it takes to be a successful community owner. “Fix and flip loans” are investment opportunities that every real estate investor should have in their portfolio. Passive real estate investments can be easy to own but offer low returns and typically tie your capital up for an extended period of time. Active investments like rehab properties offer healthy returns over a short period but require a great deal of work and time. Lending money to other active investors, though, gives you the best of both worlds. What Fix and Flip Loans Do These loans provide capital to the enterprising investors that are fixing up America’s housing stock, one property at a time. Here is how they work:
Given the significant down payment that many of these private loans require coupled with the extensive screening that you will be able to do to ascertain the strength of the borrower, these loans are also good places to park your money. With this in mind, consider including fix and flip lending in your real estate investment portfolio. Posted by Ken Meyer This article is for owners who have their own website for their vacation rental. If you don’t have your own website, hire someone to build it for you. If you can’t afford to hire someone, then have a friend make a site for you. The point is, in today’s market it’s important to have not only a regular website but also a mobile website.Did you know that mobile web usage is set to overtake desktop usage by the year 2014? The first thing you have to do as a new vacation rental owner is to have a website built by an experienced webmaster who understands the importance of Social Media, SEO, and placement of Vacation Rentals on all major search engines. I highly recommend that you find a webmaster who has experience with building vacation rental websites and is knowledgeable with this form of business. These days, with a bad overall economy, it is even more important to keep that revenue coming in even when you are not in your peak season. After having your website built, then you need to get down to the business of marketing your vacation rental website online. Savvy marketing can be an excellent way to keep your property fully booked. Fortunately, there are lots of options for vacation rental owners to choose from when it comes to selecting an online vacation rental advertising medium. That can be a good and a bad thing – just because a vacation rental website exists, that does not mean that paying an annual fee to have a listing on that website is going to lead to inquiries and bookings for the owner. As with many things, there are lots of dependencies that will determine success. The higher the vacation rental website is on that list, the better you are likely going to do by paying them for a listing on their vacation rental website. Check where that particular vacation rental website you are considering advertising on shows up in Google rankings for searches that a renter is likely to enter. For example, if you had a vacation rental for rent in New York City, see which vacation rental website comes up first for a Google search of “new york city vacation rentals“. After clicking on the link from the Google search results that takes you to a particular vacation rental website, take a look at how many vacation rental properties show up on that page that Google took you to. In the vacation rental website business, we call that a “city index page”. Many vacation rental websites will charge more to be closer to the top of the page.The closer to the top your property shows up on the city index page, the more page views and leads you are going to get. Many vacation rental websites will charge more to be closer to the top of the page. This will lead to more inquiries and bookings for you, but as a business owner, you have to weigh that against how much more that will cost. Marketing is another skill that all vacation rental owners will have to build skills in, the business of owning a vacation rental is a lot more complicated than it was 20 years ago, as there’s a lot more competition to deal with. Ongoing education and savvy marketing will put you ahead of your competition. Posted by Maria Rekrut The drop in household debt in the second quarter of this year contains some really great news for Real Estate investors. During the period from April through June, U.S. household debt dropped 0.5% from the previous quarter. Over time this will lead to a stronger housing market, but in the short term the numbers reveal several obstacles in the way of a full recovery. You may be wondering what relationship a drop in household debt has to Real Estate. According to the Wall Street Journal, much of the drop can be attributed to the efforts of homeowners to pay down their mortgages. This is good new – especially for investors. The Silver LiningJust a few weeks ago I received a lead from a homeowner interested in selling their property. By all indicators, this was an incredible deal. During our initial conversation I began researching recent sales in the neighborhood in preparation of making a “ball park” offer over the phone. That’s when the deal died, but not because of my offer. One of the first questions I ask a seller is whether a property has any outstanding mortgages, liens or unpaid utility bills. In this instance, the homeowner told me no. The truth is that she and her husband owe more on the house than it is worth. I’ve encountered this scenario more and more frequently since the market crashed 4 years ago. It has become harder and harder to find private sellers with any significant equity in their homes. Many times seller motivation gets canceled out by their inability to satisfy their mortgage. During the Great Depression people were losing their homes to the banks just like we see today. The major difference between then and now is the equity in the property. During the 1920’s and 1930’s it was not uncommon for a bank to require a 50% down payment. Only a few years ago lenders required 20% to buy that first home. The fast money of the last decade that offered millions the chance to buy a dream home “no money down” has now land locked many sellers in those houses. Real Estate investors have been left picking through the heap of motivated sellers to find those few properties with enough equity to make a profit. The recent numbers seem to indicate that homeowners once again recognize the value of a financially stable home. As they pay down debt and reduce mortgage balances, the Real Estate market will continue to strengthen. The increased equity will also provide more and more opportunity for Real Estate investors to thrive. The Storm CloudsBefore we all start singing “Sunny Days are Here Again,” it’s important to look at the down side of the new Fed data. Though some of the drop in household debt can be credited to responsible homeowners, a portion is attributable to the irresponsible. Some of the decreases are the cause of homes lost to foreclosure. When a lending institution writes off an obligation to pay, it’s no longer included in the calculation of household debt. Thankfully, in the second quarter, the number of people entering foreclosure dropped to its lowest level since 2007. (But that fact, too, has a sinister side in the Real Estate industry. Twenty-two percent of nationwide sales are foreclosures and REO properties. The decreasing inventory of these foreclosed homes has slowed sales according to RealtyTrac.com.) Another negative contributor to the positive Fed numbers is a tightening in the lending market. Requirements have become very strict. Individuals who traditionally qualified for loans are being denied – even with a sizable down payment. With fewer households qualifying to buy, the number of people taking on new mortgage obligations has decreased. Looking Forward to Sunny SkiesI think we all look forward to the day when these trying times are behind us. I almost can’t wait to tell my grandchildren about “how it was in my day.” If for nothing else, our current financial troubles provide the opportunity for our own romantic stories of walking up hill in the snow to and from school each day. Until that day comes, we can take heart in the positives that are right in front of us. Three months is a tiny snapshot in the long road to a recovered economy and a strong housing market. But the numbers look promising. Homeowners are starting to be responsible again. Banks have again become responsible. They’re only lending to qualified borrowers. Stability is returning and equity is growing. For Real Estate investors there is a ton of opportunity just around the corner. When we finally reach recovery, it’ll be a deluge of deals falling from the sky like rain drops. |
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