Go REO Agent Blog

How You Should Handle the IRS (and how to get an accountant)

Jason Hanson — Sun, 05 Sep 2010 12:58:06 +0000

Last week I got a letter in the mail from the IRS. Of course, when I saw the envelope I thought two things: “Crap, I’m getting audited” and “crap, I owe them more money.”

When I opened the envelope there were several documents, which I didn’t really understand (or have the patience to understand) and for some reason there were multiple copies of each document. I still haven’t figured out the reason for this and don’t really care.

Anyway, as soon as I read the letter I faxed it off to my accountant so he could read it and take care of the problem. Which brings me to the main point of this article. If you’re a serious real estate investor and don’t have an accountant you’re nuts. With the rental properties and the flipping of houses and all the other things I do, I would never in a million years want to do my taxes myself.

Plus, I don’t trust the government…

I used to work for the CIA so I know the things the U.S Government does, and the last thing I would want to do is call the IRS first and get myself into some kind of jam by saying the wrong thing or having them record my conversation while I unknowingly made damaging omissions.

Obviously, I will never do anything illegal when it comes to paying taxes. I think anyone who doesn’t pay taxes is a fool. Look at Wesley Snipes who refused to pay taxes and he’s probably going to end up in jail for a few years. But, the thing is, you still don’t have to do anything illegal for the government to figure out some way to screw you.

Luckily, my accountant got right back to me and the problem was quickly resolved. Somehow the IRS had duplicate copies of my tax return but all of my taxes were paid and everything was good. Then they gave me some type of reference number, which of course I wrote down and will be waiting for the day when they contact me again saying I never resolved the problem.

But what if you don’t have an accountant yet?

Well, most importantly, I recommend getting an investor friendly accountant who understands the real estate investing business. My personal accountant is a landlord with multiple properties and used to own one of the REIA’s in my area.

You should definitely go to your REIA’s and ask all of the successful investors who they use. When the same name starts popping up often, that’s your clue that you might want to use that person. And whatever you do, don’t be cheap when it comes to your accountant. There are certain things you don’t want to skimp on in life and your accountant and lawyer are two of those things.

Also, to make it easy for your accountant to do your taxes at the end of the year I’d use a software like Quickbooks or Quicken rental. This is the smart way to save money –by making it easier on your accountant, not by going to some place like H&R Block to save money.

To sum it up, get an accountant now before tax season gets closer. They’re one team member you don’t want to live without.

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

How You Should Handle the IRS (and how to get an accountant)

Above and Beyond Buyer Expectations

Robyn Hardy — Sat, 04 Sep 2010 17:31:06 +0000

We all have our great listing marketing plans because it is easy to define which activities we should be doing to get a home sold but we don’t always understand it takes just as much marketing and strategy to support the needs of your buyers. Give your buyers the WOW factor by implementing the “House Wanted” marketing plan for every buyer you work with. This is how it works; you have a pre-qualified buyer (very important to pre-qualify) who is looking for a home in a specific area and you want to find every possible home available for that buyer to see. Every property in your area is available at some given time, you may stumble upon a few owners who are interested in selling but not interested in going through the listing and marketing process. They would be happy to let you preview the home for your qualified buyer but not ready for a sign on the lawn. This process opens the door for your buyers to have more buying options.

There are many reasons a potential seller will not list even though they know they should and, in some distress cases must, sell. Perhaps the house needs some fix-up work or they have a large family making it challenging to keep the home showing ready all the time. Either way, your job is to find those unlisted homes and give your buyer every opportunity to buy the perfect home.

This is how it works. There are a few activities that you will want to employ. It doesn’t matter if there are 20 listings in this area, your job is to find the ones that are not openly marketed. First you send a “House Wanted” postcard to the neighborhood your buyer is interested in. The verbiage should read something like “Mr. and Mrs. Jordan are interested in buying a home in your area. They have been pre-qualified up to $200,000 and are looking for a 3+ bedroom 2+ bath home. If you are considering selling we would love the opportunity to do a quick preview to see if your home fits the Jordan’s needs.” The next thing you do is walk the neighborhood on the weekends and talk to anyone you see on the streets. Ask them if they know of anyone who has been talking about selling. And lastly, get your request on Craigslist in the property wanted area and renew the ad as often as you can until that buyer finds a home.

Not only does this program work to support your buyer needs, it also gives you more insight into specific areas and knowledge about homes that may be available for future buyers. Below is an example of a postcard I just sent for a local Tucson agent. Don’t forget to partner up with your favorite vendors, especially lenders who have a mortgage insurance program like Nova Home Loans here in Tucson. It is great for them to get their refinance message out on your postcards.

I have also used this buyer marketing program to help agents who want to raise their average sales price and target higher end homes. All you need is one qualified buyer interested in that price range and you can get started. If you don’t work with those buyers, here is how you can start. Borrow listings from your brokerage agents and sit them open, advertise them and get them online with your contact information. Use www.postlets.com to get them syndicated, on Craigslist and pushed out through social media. It is free and you will reach the audience interested in the price range you are targeting.

Lastly, market your “Home Wanted” buyer program to all buyers to show them what you will do for them that most agents are not currently doing. You can place your ads for this program in the homes section of the newspaper and build a landing page on your website for them to learn more about your program. Buy a domain that reflects this program and have it land on the page related to it. Example: TucsonBuyersProgram.com. Best wishes!

This is a 6 X 11 inch postcard front and back.

Mobile Home Tenant Screening Guide

John Fedro — Sat, 04 Sep 2010 12:08:49 +0000

Ultimately whoever occupies your investment home is your decision. The choice of who will move-in, maintain and occupy your investment property should be carefully screened and cherry picked until you have the “perfect” tenant or tenant-buyer. Let’s get real, “In many areas of the country some landlords are fighting over the scarcity of renters in the market.”

After only a handful of year’s managing properties I have come to agree with the classic 80/20 rule. Eighty percent of the tenant problems that will arise are caused by only twenty percent of the residence. Therefore the worst part for me is knowing that most of these problems could have been avoided if I had spent five extra minutes qualifying each tenant before I allowed them access into my investment home.

So there is the dilemma; Do you rent/rent-to-own your home now to a less than qualified tenant with first and last months rent or do you wait (and continue paying holding costs) for Mr. & Mrs. Right?

Being a landlord isn’t always easy, you are responsible for making snap determinations for who can and cannot live in your home. Not only that but you have only a short period of time (days) and limited resources to qualify or disqualify these new applicants. Lets looks at the facts..

Screening Your Mobile Home Tenants

Verify Employment: Call the present and previous employers to see if the applicant still holds current employment, how secure his/her job is for future work, and if applicant has been reprimanded or suspended for any reason? If there is no response to your call, keep calling until you get through to a past employer. Employment shows the ability to pay your monthly rent or mortgage payment. A length of two or more years is nice to show stability.

Exception to Employment Length: Monthly income is necessary to insure your monthly bill is paid; however looking solely at the length of employment may not always be pertinent. Many hardworking employees have been downsized over the past 5 years due to no fault of their own, simply a negative economy.

Criminal history: DUIs, Armed Assaults, Robbery, Domestic Abuse, Misdemeanors vs. Felonies, Jaywalking, Parking violations, Etc. Whether renting mansions or mobile homes I am not comfortable with violent criminals or sexual offenders in my property. Make your own decision for this topic and stick to it!

Eviction History: You should not be surprised by a tenant leaving unexpectantly or not paying you on time if that tenant has had a track record of prior evictions. Typically recent past experiences will shed some light on how your newest tenant will behave towards you and the amount of respect they will show you and your property. If your tenant-applicant was evicted from his/her last place of residence or within the last 10 years than it should be no surprise when they stiff you for rent down the road.

Exception to Eviction History: The past is past. If a past eviction is over ten years old I will generally look the other way with no since rental blemishes. If a 30 something tenant-applicant just admits (before I run the background check) that in his late teenage years he was not as responsible as he could have been and got evicted I will generally overlook this blemish.

Sexual Predator: Check the nationwide database at http://www.nsopw.gov. This should have been disclosed by the applicant at the time of submitting the application. This may be a deal breaker for many of us!

Down Payment Ability: Let us be honest, price cures most past blemishes. If a tenant/tenant-buyer can put down a large down payment or deposit most of us have the tendency of looking some past credit or criminal hiccups. Ultimately if you are on the fence about letting your tenant-applicant live in your home simply increase the down payment or security deposit amount until you are happy to let the tenant rent your property

Honesty: I tell every applicant of mine, “We grade on honesty in addition to what we will find on your credit and background checks. Is there anything else we will find when we pull your background report?” If an applicant has had a criminal mishap in the past and admits/explains the situation to me prior to me finding it on his/her background it helps show honesty and I’ll allow the small infraction. If the applicant lies or forgets about his/her 2 felony convictions than I will have no alternative but to think he/she is lying and therefore they will be denied. Never rent to liars!

Credit: Credit is important; don’t let anyone tell you it is not. Credit is the barometer that landlords can use for a quick evaluation to see if the subject applicants may be a potential risk for rent or rent-to own.

Exception to Credit: Millions of Americans lost their homes and jobs during the housing crash in the late 2000’s. Many of these individuals had to foreclose or claim bankruptcy in order to save what little their families had left. It is for this reason ‘Credit’ should be looked at as guideline, not a rule.

In the beginning of my real estate career I was told to write down everything I looked for when screening my rental/rent-to-own tenant applicants. Write down what criteria I would accept and would not accept in a potential tenant/tenant-buyer. i urge you to do the same and write this list down, keep it in a safe spot (say the back of your filing cabinet). If anyone claims you choose another applicant over them simply refer to your qualifications guidelines sheet.

Happy, Safe and Profitable Investing,
- John

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

Mobile Home Tenant Screening Guide

The Christmas Syndrome

John Tuccillo — Fri, 03 Sep 2010 19:57:44 +0000

Today’s employment numbers were disastrous. We are losing jobs when we should be gathering steam. Part of the problem is a general lack of confidence and part is a real systemic problem of having no job creation sector to lead us. The weak employment numbers suggest that real estate will have a long hard slog to get out of the slough it’s in. In variably, there will be calls for yet another homebuyer tax credit to stimulate the market. But should we have one?

I would argue that we’ve had enough federal intrusion into real estate. The market is now verging on being in the same position as retailers during the Christmas season. Consumers have been trained to wait as long as possible to buy becuase there will be yet another discount that will save them money. So they hold out in expectation that the best deals are yet to come. This is what the homebuyer tax credit is doing to the housing market. Buyers will wait, knowing that the industry will lobby for yet another tax credit and that will come on top of even lower prices. So why buy now when you can save more by waiting? Consumers are not dumb; they see what’s going on and they act accordingly.

As a final note, consider the degree to which the real estate market has been nationalized. Between the mortgage interest tax deduction and the recurring tax credits, the government is underwriting massive portions of the cost of becoming a homeowner. I’m amused when Realtors rail against creeping socialism when they are in a sector which is a the head of the chow line.

Success Summit Drawing Winners: 2011 Swanepoel Trends Report

Tinus Swanepoel — Fri, 03 Sep 2010 18:17:22 +0000

On behalf of Swanepoel team here at RealSure, Inc., we would like to congratulate all ten of the winners of the 2011 Swanepoel Trends Report Free Drawing at this year’s Tom Ferry Success Summit. This year’s winners include:

Chirag Shah of Gateway Realty in Mamaroneck, NY
Dave Ashley of Keller Williams in Mission Viejo, CA
Deborah Bremner of the Bremner Group in Los Angeles, CA
Jackie May of First Team Real Estate in Anaheim Hills, CA
Jennifer Pritchett of Coldwell Banker Presidential Brokerage in Newport Beach, CA
Karie Lacy of Prudential in Yorba Linda, CA
Ken Gunderson of Century 21 Ambassador in Whittier, CA
Lynn Whitaker of Gibson International in Los Angeles, CA
Robert Jenson of Re/Max Central in Las Vegas, NV
Sean La Rue of Franklin Loan Center in Palm Desert, CA

For any further information regarding any of our products including the 2011 Swanepoel Trends Report, you can visit us online at http://www.retrends.com.

We wish you all the best in your career and life endeavors.

In Friendship,
Tinus Swanepoel
Publications Manager | RealSure, Inc.

About the Author
A big dreamer and problem solver, Tinus spends his time expressing his creativity in publication research and design. His background includes two Bachelors of Science and minor a in Management. He currently serves as the Publications Manager at RealSure, Inc. For more information on products he’s involved in, go to http://www.retrends.com.

Editors Note
The 2011 Swanepoel Trends Report is expected for a February 2011 release. Winners will be notified individually as the report becomes available.

Green logic, Bertrand Russell and a Girl Named Meka

Jim Simcoe — Fri, 03 Sep 2010 14:51:15 +0000

When I was a freshman in college I took an Introduction to Logic Class. As a business major I thought that taking the class would be a good idea; plus the girl I had a serious crush on was a philosophy major so I figured I’d see her in class.

The first 2 months of class were brutal. We studied proofs and theorems and no matter how much I studied I could not figure out how to decipher them. Proofs like this:

(A ∨ B) ⊃ (C • D)
(C ∨ D) ⊃ (A • B) / ∴ A ≡ C

My professor, Billy Joe Lucas, was very patient with me. I’d visit him during his office hours and we’d go through the proofs and he’d explain the logic (sic) behind the logic. I never got it. It was completely different language and after 2 months in and countless hours studying I had made zero progress. (You’ll see how this relates to green real estate in a minute).

One night after a typically bad cafeteria dinner I resigned myself to more proof studying. I was at it for about 2 hours when something happened. Somehow I started seeing the proofs in a new way and they made perfect sense. I flew through the proof I had just spent an hour working on and solved the next one in under a minute. At that moment it just clicked for me. Here’s what happened after that:

I got straight A’s in all of my logic classes over the next 3 1/2 years.
I never studied, never prepped for tests and did all of my homework on my 2-minute walk to class.
I ended up minoring in Philosophy (with a concentration in Logic).
I dated the girl (Meka) I had a crush on for 2 years.

Here’s how this relates to green:

Real Estate Investors want to go green just like I wanted to solve those proofs.
They will waste time and money going about it the wrong way. Just like I did by staring at the same proof for hours.
Investors don’t have many sources for expert advice. I had only had one person, Billy Joe, who, while he could cook a mean chili, couldn’t help me much in solving proofs.

What’s most important here is not the process of going green or becoming a Philosophical RainMan. The RESULTS are the key. Once I figured out the way to think about proofs, it became effortless and my results (grades) were excellent. It is the same thing with green real estate investing. Once you get it, you get it.

I have seen this time and time again with clients. In the beginning of our work, they count on me for everything green. We work hand-in-hand on their projects and they begin to experience success. After we’ve worked together for a while, they’re able to see how I think and begin to think differently about all of their projects.

It is then that they become true green CEO’s. It becomes an effortless process for them that is highly profitable and puts them light years ahead of their competition.

Put simply, once you learn how to ‘think green’ in your business it’s hard to stop. Going forward you can’t help but think green because you are conditioned to see that green is the clearest and easiest path to your success.

The key is to take that first step. While most people sit staring at the pool the truly successful jump right in. They take that chance and find that they have the whole pool all to themselves.

Is it time for you to jump in?

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

Green logic, Bertrand Russell and a Girl Named Meka

The SAFE Act: Most Confusing Legislation of 2010?

Shae Bynes — Thu, 02 Sep 2010 21:09:03 +0000

Today marks my 40th post for the BiggerPockets blog and yesterday I realized that up to this point I am yet to write a commentary. That changes today.

Pardon my rant, but I think the responses to this post will help a lot of people.

Ok, seriously? I can’t think of anything that has been more confusing as the Secure and Fair Enforcement Mortgage Licensing Act (aka SAFE Act) in the real estate investing community this year. The Act was first put in place in 2008, but recently there have been some updates made to the legislation (some of which won’t take effect until October 1). Depending on your strategy it may not mean anything at all to you, but as someone who leverages private money lenders and makes offers to homeowners that include owner/seller financing options, the SAFE Act has been a bit of a mind boggler.

I’ve spoken to real estate professionals and have also scoured the web for answers. A Google search on “S.A.F.E. Act and owner financing” or even a BiggerPockets forum search on “SAFE Act” will send your head spinning. So many different thoughts on the legislation.

I still have more questions than answers. For example,

1) How does it effect seller financing for properties my company wants to purchase? We make cash and terms offers all the time! If a homeowner wants to sell a property (one that is NOT his primary residence) to me and hold back a mortgage, does he need a license?

I believe that my fellow BiggerPockets blogger Clint Coons has addressed this in his recent post “Are You Safe to Sell Under the SAFE Act?” and my take from that post is that the sellers I’m making offers to do not need to have a mortgage license in order to provide seller financing to me as a buyer. I think we’re relatively clear on this issue. However, I’m much less certain about the following:

2) How does it impact how my company works with private money lenders? Do they now need to have a mortgage brokers license to lend my company funds to purchase properties for long term hold? If so, is there a reasonable workaround?

3) Does each state have its own separate version of how this works and how it will be regulated?

I’m also unsure of how the federal and state governments will enforce all of this. There seems to even be confusion among attorneys at the title companies regarding what’s ok and what’s not. Thanks in advance to anyone who can shed some light here on what may be very well be the most confusing legislation impacting real estate investors in 2010.

So? Your Thoughts?

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

The SAFE Act: Most Confusing Legislation of 2010?

Introduction to Internal Rate of Return (IRR)

J Scott — Thu, 02 Sep 2010 12:09:01 +0000

Today’s Quiz:

What is my return on the following investment:

I bought my first investment property back in August 2008. I paid $63,500 for the house using my own cash. I spent the next two months rehabbing it with $34,000 of my own cash. It sat for about 5 months before I lease-optioned it for $1000/month in rent, starting May 2009. In August 2010, I refinanced and pulled out $66,320 in cash. It cost me about $2300 to do that refinance. I spent $1400 on property taxes in August 2009 and another $1200 in property taxes in August 2010. I’m expecting the tenants will be able to purchase the property for $120,000 in July 2011, and I’ll end up netting about $50,000 after all fees, commissions and loan payoff.

If you don’t know how to calculate the correct answer to that question – and as a real estate investor you SHOULD know – I highly recommend you keep reading…

Anyone who reads my BP blog posts or my blog probably knows that I’m a hard-core numbers guy. While I don’t discount “gut feel” when it comes to investing, if the numbers don’t work, it doesn’t matter how excited my gut might be. I like to examine the financial aspects of a deal before I buy, while I’m holding and then after it’s done. That way, I can mitigate the risk of financial surprises as much as possible.

Seeing as how I’m such a numbers guy, I find it very surprising when I speak to investors who don’t seem to have clue how to analyze a deal or how to determine how profitable a deal was after it’s completed. It’s not that most investors are stupid (far from it!), but many investors have never spent any real time learning the basics of analyzing investment numbers.

I’ve spent many of previous BP blog posts discussing how to analyze a deal upfront to determine if – in theory – the deal is a good one; today I want to tackle the other end of the deal and discuss how to determine whether a specific deal was profitable after all is said and done.

First, let’s clear up some common misconceptions. I’m sure most investors have heard terms like “cash-on-cash return,” “total return,” “return on investment,” etc. These are all terms that indicate in some way, shape or form how successful a particular deal is. The most common I hear people referring to is Return on Investment, or ROI. For many investors, this is the one number that summarizes the entire success or failure of a particular investment.

For those not familiar, ROI is calculated as follows:

ROI = (V1 – V0) / (V0), where V1 is the ending balance and V0 is the starting balance.

A simple scenario for using ROI to calculate an investment return would be as follows: On January 1, you put $1000 into a bank account. On the following January 1, you cash out the account for $1100. Your ROI on the investment is:

ROI = (1100 – 1000) / (1000) = .1 (or 10%)

You start with $1000 and end up with $1100 after a year for a return of 10%. Seems pretty straightforward and even the most non-mathematical among us should be able to do that type of calculation.

Now what if I give you the following scenario: On January 1, you put $1000 into a bank account. On February 1, you put another $500 in the same account. On September 1, you removed $250 from the account. And then on October 1, you removed another $250. On the following January 1, you cash out the account for $1100. Like the first example, you started with $1000 on the first day of the year, and you finished with $1100 on the first day of the following year.

So, is your return still 10%? At first glance, you might think so. In fact, using the ROI formula above, the ROI on this investment appears exactly the same as the previous investment. But, given that you had $1500 invested for several months of the investment period (from February through September), you’d think that a 10% return should have resulted in a higher ending balance. So, in actuality, your ROI is probably a good bit less.

As you can see, the ROI formula has two big limitations:

For any investments that involve sums of money going in and coming out through the life of the investment, ROI will pretty much ignore every in-come and out-flow other than the first and the last;
ROI doesn’t take into account the amount of time an investment was held. For example, let’s say in that first example, the $1100 was cashed out after 5 years instead of one – according to the ROI formula, the return is still calculated at 10%.

This is where Internal Rate of Return (IRR) comes in. IRR is the much more powerful cousin to ROI, and while also more complicated than ROI, it’s an essential tool that all serious investors need to understand. I’m not going to go into the nitty-gritty of how IRR is used (and yes, there are some downsides to using IRR that I won’t go into here), but I do want to review the basics…

First, you may hear IRR referred to by different names – on your mortgage truth-in-lending statements as annual percentage yield (APY), as the “effective interest rate” of a loan, as the discounted cash flow rate of return (DCFROR), or sometimes even as the generic rate-of-return (ROR). All of these things essentially mean the same thing, and serve to underscore how important and versatile the concept of IRR is when it comes to investing and finance.

(For the other hard-core finance geeks out there, IRR is most specifically defined as the discount rate that makes an investment’s net present value (NPV) equal to 0.)

Second, and most importantly, I want to do a quick summary of how to calculate IRR for a given investment. Unlike ROI, you can’t calculate IRR in your head. In fact, even doing it with pencil and paper is practically impossible. But, calculating IRR using Microsoft Excel (or any other financial software) is a piece of cake.

In Excel, list the monthly (or annual) dates of your investments in sequential order in one column. Next to each date (month or year), list the aggregate in-come or out-flow for that time period (in-comes are positive and out-flows are negative). Then use the XIRR function in Excel to calculate your IRR. Using the example above where we deposited $1000 into a bank account on Jan 1, deposited another $500 on Feb 1, removed $250 on Sept 1, removed another $250 on Oct 1, and then removed the remaining $1100 on following Jan 1, our Excel calculation would look as follows:

As we suspected above, our return was a good bit less than 10% (almost 25% less!), despite our ROI calculation of 10% return. As you can see, doing a quick ROI calculation in your head would left you feeling a lot better about your investment than it probably should have.

If there is enough interest, I’m happy to go into more complex uses of IRR in future posts, and am also happy to discuss some IRR nuances that sometimes affect the ability to accurately determine returns of some types of investments. In the meantime, if you’re interested in learning more about IRR and how to calculate it using Excel, there are some good online tutorials.

Real Estate Investing Rules from Richard Branson

Julie Broad — Wed, 01 Sep 2010 20:10:53 +0000

“Even after careful research, not all ideas are good; sometimes your competitors have better ideas or they’re faster than you. The modern entrepreneur takes failure in his or her stride and moves on.” ~ Richard Branson, Screw It, Let’s Do It

Sir Richard Branson made a cameo appearance on the HBO show Entourage this week and it got me thinking about him and the life he leads. I actually had the pleasure of listening to him speak last year in a room of only a few hundred other entrepreneurs and the thing that stuck with me the most is how simple he keeps things. With hundreds of companies to run, I don’t think you could live life any other way. And a few nights ago as I contemplated what to write today, I thought about the life lessons he shared in one of his books, and how those can be applied to real estate (and should be applied for successful – and simple - investing success!). I mean – think about it – every house you buy is essentially a small business with it’s own target market of customers to rent or buy from you, it’s own expenses and it’s own marketing needs. So if you have hundreds of houses then it’s, in a smaller way, like Richard Branson owning hundreds of companies.

Now – not to worry – I’m not going to relive each and every lesson in an effort to motivate you to get off your duff and start taking action towards your real estate investing goals. I did think I would share my favourite five lessons from the book and apply them to real estate investing … but guess what … lesson #1 is basically just that:

Lesson #1: Just Do It

I really can’t say it any better than Sir Richard does:

“If you really want to do something, just do it. Whatever your goal is you will never succeed unless you let go of your fears and fly.”

Lesson #2: Be Bold but Don’t Gamble

As a real estate investor you have to take some bold steps. There is always uncertainty as you can never really know exactly what will happen but there is a big difference between gambling and taking calculated risks. Calculated risks are things you’ve thought through and mitigated in whatever way possible. A gamble is just taking a leap of faith that it will all work out. If you aren’t sure what the difference is or how to mitigate risks there are some great posts kicking around BiggerPockets that can give you a good basis of real estate investing fundamentals like:

Lesson #3: Have Fun! Life is Too Short to Be Unhappy

I guess his passion for fun is why they featured Sir Richard Branson sandwiched between two beautiful blondes on Sunday night’s episode but I don’t think you have to find two beautiful people to go bowling with to make your life complete. I think that as a real estate investor you have to make sure you take time out for your family, your friends, and your fun time. This probably sounds a bit silly for people who are getting into real estate for the free time it gives you – but the reality is that many investors that are working to really get their business rolling also find themselves working all the time to keep up with everything they are trying to do.

Keep things simple. Focus on WHY you are doing what you are doing and remind yourself it’s not about owning more houses than the next guy or being the richest woman in your book club it’s about creating the life of your dreams and then living it!!

Lesson #4: Have Respect

I’m not going to tell you all the times we’ve been cheated by folks in the real estate business but it has been more than once. And it’s been by just about everyone you can think of from the property manager that robbed rent money from us to the tenant that worked the system so well she got three months free rent from us, and of course our joint venture partner that ditched out on a deal at the very last minute leaving us holding on to a pretty big potential problem.

There are people out there that don’t live by this rule but I believe that it’s one of the most important in all your dealings … treat others with respect. Just because a seller is in distress does not mean it’s open season to take advantage of them. Find a good solution for them and for you.

If you are doing something that will haunt you at night – stop – and don’t do it.

I believe what goes around comes around and karma is a big witch.

Lesson #5: Do things with POW/Shazam

To me, no entrepreneur embodies this more than Sir Richard himself – but you don’t have to rappel down the side of a sky scraper to do things a little differently. Real estate investors can take a page out of his book simply by trying to solve problems with a unique approach. Just because a deal has never been done the way you want to do it – does not mean it’s not possible. I can’t tell you how many times a real estate agent has told us “you can’t do that” only to learn that it’s possible and actually pretty easy with the right lawyer. Folks who’ve been in the business for decades aren’t always the best ones to listen to -many of them are pretty set in their ways as to how things are to be done. Come at things with a little pizzaz – try different angles to solve your problems.

“Sometimes when you start from scratch with a clean sheet of paper, with the principle of keeping things simple, you get results that wouldn’t be possible by leaving it to the so-called experts.” ~ Richard Branson, Screw it, Let’s Do It.

Every property you buy can be considered it’s own small business – so maybe these little lessons from the worlds most interesting and inspirational entrepreneur (in my opinion) might help you enjoy your life, find more success and have a little more fun with every single deal.
Image Credit: Ftvkun

The 4 Most Important Things to Remember When Evaluating Real Estate Deals

Ryan Moeller — Wed, 01 Sep 2010 16:34:23 +0000

There are a lot of things to consider when evaluating a deal. As real estate investors, we must find great deals. Not good deals, but great deals where we can minimize risk, maximize annual return and control our success.

Here are the 4 most important things to remember when evaluating deals:

Avoid Speculation as the only way to profit – Appreciation is great, but it absolutely cannot be the only way to profit. The fact is, the value of the market is out of our control. At no point in time should investors buy at market value and speculate for appreciation. Who wants to take a gamble and risk taking a loss when they can control their success by buying 30% below value? Appreciation is an extra bonus, follow the next 3 tips and never speculate as the only way to profit.
Max 70% LTV – The total cost of purchase, fees and any repairs must be a maximum of 70% of the value of the property. If not, pass and get 10 or more prospects like it and cherry pick the best deals.
Rents are 1.5-3% of Purchase – A property that rents for $750/month should be purchased for no more than $50,000 or rents are 1.5% of purchase. Some higher priced markets it is very tough to find this type of cash flow, you are lucky if rents are close to 1%. The best markets with the highest returns there are many deals with max 70% LTV and rents are 1.5-3% of purchase. These markets you not only minimize risk, but you maximize annual return which should be the goal of all investors. Sometimes, you can find really great cash flow deals where rents are $2400 and total cost in is only $80,000 or rents are 3% of purchase. Now that’s some cash flow!
Strong & Multiple Exit Strategies – With equity and cash flow you end up with multiple exit strategies. You can sell at retail, sell to an investor, wholesale, seller finance a sale, lease option, rent and hold, refinance, sell the note, sell the entity holding title to the property, quick claim deed the property to transfer title, etc, etc. Having multiple exit strategies is a must and significantly mitigates risk. You must also evaluate and if possible test your exit strategies to ensure you have strong exit strategies.

Here’s the recap:

Photo: Jacob Botter