Fixer Jay’s Mom & Pop Millionaire Blog

In order to acquire properties at bargain prices - or prices that will allow you to make a reasonable profit, you must first determine if the property can actually be purchased for a reasonable price!   Okay, I hear you thinking to yourself — Boy, this don’t seem so tough!  Why can’t I just ask the seller?  Certainly he can tell me in a minute.  Friends, here’s a bit of advice –Sellers may not understand why they have problems, especially if they paid too much themselves.
Many times I’ve found very desirable properties for sale, but they’re seriously over-financed. Owners (sellers) who have over-financed properties are often extremely anxious to sell and many times for little or no cash down payments. The reason is to stop their negative cash flow! You must beware of these kinds of properties.  An over-financed property can spell big trouble, no matter how small the down payment is. Once you determine how much you can afford to pay for a property and still make money for yourself, you must drop the whole idea if it looks like the purchase price will exceed your estimate!  Sellers with too much existing debt have very limited flexibility for negotiating the price downward.  Conversely, sellers with lots of equity also have lots of room to reduce their asking prices.  These are the sellers you’re looking for.

FORGET SELLERS WHO CAN’T MAKE YOU A GOOD DEAL

Quite often you’ll find sellers who have over-financed their real estate by paying too much in the first place or by adding additional loans during their ownership. Regardless of the reason, and it don’t matter much, these sellers are simply not in a position to make you a very good deal! The only way they could, would be to pay down the existing debt - or to pay you money to take their property!  Obviously, those are not very attractive options for most sellers.  The simple truth is, when too much money is already owed on the property, it can seldom be a good deal for you.  Don’t waste your time fiddling with deals that don’t show you a clear plan for making reasonable profits!

GETTING STARTED ON THE RIGHT FOOT

The very first thing I do when I hear about a property that becomes available, assuming I’m interested, is to begin what I call “detective work”!  Sometimes my broker, Fred, will perform this task, but it took him four years of my coaching before he became snoopy (skilled) enough to suit my taste! Brokers and sales agents typically don’t do the exhaustive research or “snooping around” like I insist must be done.

The biggest difference between me and most agents is that they accept the word of sellers as being mostly true! I accept it as mostly exaggerated and often untrue! It’s never considered true until it’s proven to me. I’m not trying to be overly critical here, but you must never forget this important fact of investment life. Once the escrow closes and everybody gets paid, it’s you, alone, by yourself, who must live with the deal you signed! If somehow you’ve failed to uncover the true property expenses and it turns out they’re considerably higher than you were led to believe, guess what? It’s you alone who is now the stuckee! That’s the reason I learned to become a very snoopy house detective early in my investment career.

 THE MORE YOU KNOW - THE BETTER YOU CAN NEGOTIATE

Motivated sellers are not generally “dorks or dummies” like many late night infomercials would lead you to believe.  Mostly, they’re just people who have gotten themselves in a financial bind.  Also, high on the list of motivated sellers are folks who for whatever reason are lousy landlords. The tenants are driving them “bonkers”.  I’ve purchased several properties from sellers who were actually afraid to take me to their property for a showing.  Their own renters frightened them!  Knowing this kind of information is extremely helpful to me when I’m negotiating.

When I snoop around a property that I’m trying to acquire - And I discover that the tenants are basically running the place without much supervision.  There’s an awful good chance that poor management or lack of landlording skills is really the motivation for selling.  If I’m right, I know that sellers experiencing this kind of problem are often more than willing to give me very favorable terms in exchange for immediate “pain relief’.

Problem tenants who are out of control are worth big bucks to investors like me who know how to establish law and order!  Many sellers who find themselves in this predicament are willing to forgo traditional cash down payments in order to rid themselves of this unpleasant situation!  I have long emphasized the value of solving problems in all my training materials.  People-problems pay big rewards to investors who can straighten out the mess.

DON’T FIDDLE WITH SELLERS WHO HAVE NO EQUITY

Properties that have been owned by the seller for a substantial period of time, 6 to 10 years or more, will offer far greater opportunities for negotiating the selling price downward.   The reason is because the existing mortgage debt has most likely been paid down over the years. It’s always to your advantage to negotiate a purchase price when only the seller’s equity is at stake! For example: Let’s say the seller is asking $250,000 — You can assume the existing mortgage of $195,000.  The balance or the seller’s equity to $55,000.

Let’s assume you’ve done your homework and concluded that $210,000 is the right price to pay.  If the seller accepts, he will receive $15,000 for his equity.  He mayor may not like it, but he still gets something from the sale.  Now consider the situation if he had purchased the property only a year ago for a price of $235,000.  The down payment was $20,000, so he still owes almost $215,000 on the mortgage!  Your chance of buying this property for the right price of $210,000 just flew out the window!  To do it, the seller would need to pay you $5,000 to buy his property.  Even if it would help the seller financially, emotionally it’s almost too much of an obstacle to overcome.  In short, this seller is not in a position to make you a good deal!

TAKING OVER (ASSUMING) EXISTING MORTGAGES

Many buyers are hesitant to purchase properties with multiple mortgages and promissory notes on them.  I am exactly the opposite!  The more notes I can assume or take over, the better I like the deal!  In fact, I am constantly on the look-out for properties with multiple notes.  Quite often I’m even willing to pay a bit more for them.

First, let me explain that private party notes or mortgages are the kind I’m looking for - not mortgages from banks or regular institutional lenders.  My detective work involves finding out who is owed the money on the notes (called the beneficiaries).  I want to know if they are rich, poor, out of work, live out of the area, young, old, do they have children who might need money for college and if so - how soon from now. People always ask me at seminars — Why do you care about that stuff? I’m trying to determine whether or not I’ll be able to buy the note back at a discount price once I become the owner of the property.  Beneficiaries who need cash - or think they do, are the ones who will sell for big discounts.

For example, let’s say I purchase a property and assume or take over a private note with a balance of $45,000 - with monthly payments of $435 per month.  The note was originally a 20 year term, but still has 14 years of payments left!  Mrs. Smith, a 36 year old divorcee, holds the note.  She received it from her divorce.  Her only son, Johnny, is now 15 years old, a junior in high school.  He has his heart set on attending college in a couple of years from now!  As I see it - there’s an excellent chance I’ll be providing for Johnny’s “higher education” when I make an offer to purchase the note for $26,000 cash - - - two years from now.

AL WAYS VERIFY INCOME KNOW THE MARKET RENTS FOR AREA

I have found tenants who are paying $500 rent for a $400 house.  When you see the tenants, you’ll often understand why.  In one particular case, only four occupants were listed on the rental agreement, but I counted 12 people coming out the door one morning, about 9 A.M. while snooping around on the property.  Sometimes you can get a good idea about who lives there by checking out the cars after dark.  When I sense that negotiations to purchase a property are going my way, I spend more time driving by and observing what goes on at the property.  The best word that describes how I conduct these observations is “sneaky”! No calling ahead like most real estate agents do for a “staged visit”. You can’t really learn what’s happening unless you sneak around a bit!

If you plan to rent your properties to regular everyday tenants at prevailing market rents, you must find out exactly what those rents should be.  You can do this by matching the rents in classified ads to comparable properties in the same neighborhood as yours (or soon to be yours).  Some valuable information can be learned by this exercise! First, you will learn if the rents are too high or low for the property you are negotiating to purchase.  Hopefully, they’re low so you’ll be able to raise them.  Equally important for your education — You will discover the right amount of income for the property.  When you know exactly what the true market income should be for a particular property, it becomes a whole lot easier to figure out what you can pay for it and still make a profit on the deal!

Tags: Develop a Business Plan First by FixerJay
No Comments »

Buying real estate can be easy as pie - but becoming financially independent doing it is another story! To begin with, many wanna-be investors simply don’t understand where pro­fits come from and what must be done to produce them. Many are of the opinion that timing and tough negotiating are the most important ingredients for making real estate million­aires! Purchase good properties in an appreciating market and you can’t go wrong, they say — That’s all there is to it!

PLAYING THE APPRECIATION GAME

The biggest problem for real estate investors who bet the ranch on appreciation is clear! What if there is none? Worse yet, what happens if property values drop? Real estate is a cyclical business. Prices and values go up and down! Betting on short-range appre­ciation is like shooting craps — You can sometimes double your money overnight, but you can lose the whole shootin’ match just about as quickly. Substitute “stock market” for real estate investing and you’ll see what I mean!

Reaping the benefits of appreciation without being on a rigid time schedule is by far a much safer strategy. Real estate almost always increases in value over time. For ex­ample: A 3 bedroom, single bath house in Sacramento, California cost $20,000 brand spanking new in 1968. It reached a high value mark of $181,000 in 1992, then dropped back to $160,000 in 1994. For short-term profit investors, selling between 1994 and 1999 was not a profitable strategy! However, true to form, when the five year down turn ended, prices shot skyward again! The amazing fact is that since the house was built, 40 years ago, its average value has increased more than $7000 every year.

APPRECIATION IS A BONUS FOR INVESTING

Appreciation should be the wealth builder’s helper, not the whole program! If you view it as a bonus or the gravy, then you don’t have to worry about the short-term up and down cycles. Instead, you can concentrate on how the serious long-term money is made. To start with, you need to understand that most wealthy real estate investors purchase lots more property than they sell! Selling properties, especially when you’re just starting out is a lot like digging a big hole and filling it back in! The reason for this is because the very minute you sell a property, your investment vehicle stops earn­ing money. Worse yet, any gains or profits you might make are immediately exposed to the tax-man. Obviously, paying taxes and building wealth don’t work too well together.

COMPOUNDING IS THE BIGGEST WEALTH BUILDER

The power of compounding comes from leaving your investment alone! In other words, if it’ money in the bank, leave it there - don’t touch it! If it happens to be four rental houses, don’t sell them for a short-term gain. I will assure you - the short-term pro­fits you take now will never be enough to make up what you’ll lose in the long run if you break up the compounding cycle

Compounding real estate equities works exactly the same way it does putting money in your bank account, only better. That’s because you can use a tool called LEVERAGE to speed up the money-making process. We’ll talk more about leverage in a bit, but first I want you to grasp just how powerful a force compounding really is!

Compounding means earning interest on both the principal amount and on the accruing in­terest. As it keeps adding on to itself over time, the results are simply astonishing! Most wealth builders are amazed to discover how quickly money multiplies. The follow­ing example serves to illustrate the power of compounding. Here’s how it works:

Let’s say you were to invest $1000 per month in your bank account for 20 years, without drawing any money out. Let’s assume you are earning 12% compound interest on your account. Did you know that would be enough to make you very close to a millionaire! It’s true — You would have $989,255 in your bank account by the end of 20 years.

$1000 per month might sound like a ton of money if you’re just barely making ends meet. But, $12,000 a year is not really a big pot anymore. Many folks have mortgage payments on their house twice that amount and monthly vehicle expenses that often equal it.

How is in the world can just 20 years of saving $12,000 a year make anyone a millionaire, you ask? After all, 20 years times $12,000is only $240,000. Where does all the extra money come? The answer my friend – it comes from the compounding — And, all you have to is leave it in the bank to continue earning with your monthly payments. In 20 years the interest alone adds up to $749,255. Obviously, this compounding is upper powerful stuff — And the real beauty of it is it can do a whole lot more for you if you’ll invest the same amount of money in leveraged real estate.

LEVERAGE ALLOWS YOU TO SOAR WITH THE EAGLES

Safe leverage can make you wealthy faster than any tool in your money-making kit. The idea is to borrow as much money as you can to put with your own small down payment (some­times none) to purchase income-producing properties, which you will own and control 100%. For example, 90% leverage is where you would purchase a $100,000 building, using a $10,000 down payment and signing a $90,000 promissory note for the balance. If the property earns $10,000 annual rents, that means the return on your down payment is 100%! The problem is - that can be both good or bad. If expenses are $4000 and the mortgage payments are $7000, you’ll be earning 100%, but still losing your shirt!

Leverage is a double-edge sword! Safe leverage is the kind you want! In this particular example, if you can increase rents to $12,000 or negotiate a mortgage that costs only 5000 annually - you’ll earn a $1000 on your $10.000 investment. 10% cash flow with 90% leverage is a very respectable return. The key to making this strategy work extremely well is to add value and increase the income! By doing this, you’ll reduce high leverage (90%) down to safe leverage without waiting for appreciation to help. You’re in control!

FORCED APPRECIATION PUTS YOU IN CONTROL

Appreciation or inflation comes in 2 different flavors! First, there’s the kind that comes from natural causes. Everyone gets it automatically if they happen to own properties in an area where it’s happening. Sometimes it’s 2% a year, but I’ve seen appreciation jump to 25% for a short period of time. I’ve even watched properties double in price within a two or three year period of time. The problem with this natural appreciation is that there’s no guarantee it will happen! And of course, that’s why I recommend you treat it like a bonus or the extra gravy. Don’t build your investment plan on the basis of anti­cipated appreciation - just be ready to take your bows when it comes.

FORCED APPRECIATION is my specialty and you certainly can bet the ranch on it. The reason is because the investor can control it almost 100%. When I buy rundown ugly houses to fix up, I force them to appreciate in value. The higher value comes because I turn the ugly houses or apartments into nice units where good paying tenants will choose to live. My goal is to double the property value and increase the rental income by 50% in a period of 24 months. When property values double and 50% rent increases begin to compound. it won’t take long before you can add a couple extra zeros to your net worth, believe me!

One of the biggest reasons so many inexperienced “Mom & Pop” investors flop is because they invest in looks rather than the books (FINANCIAL DETAILS). If I could somehow wave a magic wand and turn every beginner investor into a little beady-eyed, tight-wad account­ant for about a month or so before he was allowed to buy real estate - chances are he’d end up buying ugly houses as I suggest. But, he’d also have cash flow! Circle this sen­tence for future reference — Ugly houses are a walk in the park compared to hemorrhaging bank account. If you have experience, you know what I mean!

KILLING THE GOLDEN GOOSE

Disturbing the cycle in the early years will cost you dearly. For example: At the end of year 2 in our 20 year investment plan example the accumulated amount of principal and interest earnings would be approximately $27,000. If you were to take out (as in sell) or borrow $10,000 of that amount, the result would be a $230.000 loss at the end of year 20. Your accumulated total would be reduced to $757,860 because you took out $10,000 in the early years of compounding.

In later years as compounding builds the account and the dollar amounts get bigger, $10,000 will be insignificant in terms of slowing down the earning power. Consider in­vestment year 17. The account balance would be $661,300 - it will grow to $757,800 by year 18. If you were to borrow $10,000 at this point, it would hardly be missed! That’s because the annual earnings have nearly reached $100,000. In year 20, the account will earn a total of $123,000, which doesn’t seem too shabby when you consider that’s over half the amount you’ve invested during the entire 20 year period!

Buying properties to fix up and sell for quick turn-over profits might seem like a good idea to many! But, it does not lend itself to building the lasting kind of wealth most investors are seeking. The reason for this is because selling does not allow long-term compounding to work at full strength! When you constantly buy and sell properties for short-term gains, you wind up losing a ton of money over the long haul like the example of borrowing $10,000 in year 2. Remember that small take-out loan will cost $230,000.

INVESTING - THE NUMBER ONE PRIORITY

Very early in my investment career, I made a searching and fearless examination of my financial situation. It didn’t take me very long totaling up my assets. I determined rather quickly that what I needed most from my investment plan was cash flow. Whatever else I thought I might need would have to line up behind cash flow. It’s very simple –­With cash flow you survive — Without it you don’t!

Over the years, investing for cash flow as first priority has paid big dividends for me. Cash flow is what I always advise new investors to think about first. It’s the basic rule of investing the way I see it. When you have cash flow (money) coming in, you grow fin­ancially. I call this “Green and Growing”. When you are green and growing, everything is possible, investment-wise. Without money coming in, nothing grows except discontent­ment and the constant worry about going broke.

Investing for cash flow as a first priority is one of the most important differences bet­ween investing, which is what most of us think we’re doing — And speculating, which most of us should not be doing. Certainly I’ll be the first to admit; investing is not near as exciting as speculating. But it’s much healthier financially. Folks who intend to stay in business (investing) for the long haul have got no good reason to speculate unless their bank account is stout enough to sustain a sudden jolt — That means a loss.

GUARANTEED WEALTH WITH MINIMUM RISK

I have several close friends who purchase expensive houses when they think prices are appreciating rapidly. When their timing is right, they make a killing. When it’s not, they get killed themselves. They get stuck in a holding pattern because the economy takes a dive (similar to stocks). Mortgage payments and expenses quite often add up to double the rents they can collect. It’s not only that, but all their capital is tied up. That means they are effectively shut down. One good friend of mine has been a millionaire six times already, but he always loses it somehow. That’s what I don’t like about speculating. When I get the money, it’s my plan to keep it for myself!

Buying a property, fixing it and then selling takes a terrible toll on annual compounding. Money must stay invested and remain working continuously in order to achieve high com­pounding rates. It’s my opinion you must earn 30-50% annually if you expect to be finan­cially independent within a reasonable period of time. This is very difficult to do if you don’t stay invested. Folks who buy and sell properties also lose tax shelter benefits and more often than not, they suffer sizable equity losses due to the selling expenses and personal draws. Flipping properties greatly stymies average wealth building plans.

Most folks who invest in real estate and become wealthy don’t get that way from buying and selling or doing anything fancy or slick! They do it with straight forward deals that make good sense from a cash flow standpoint. Also, they simply hold onto the property. Owning cash flow properties can make you wealthy over a relatively short period of time — Natural causes, I call this! You simply let your investments compound like you would your bank account!

Tags: Building a Cash Foundation, Fixing For Money by FixerJay
No Comments »

Operating rental properties and dealing with your tenants are not separate jobs. The fact is, they’re inseparable parts of landlording. I owe a great deal of my real estate success to my landlording abilities. Some folks disagree with me on this issue — They argue that professional property managers are paid a decent percentage of the gross rental income to relieve owners of this thankless task. I’ve known many folks who ended up relieved of their property instead! Now the good news — Landlording is a profession that can help you to achieve financial independence and a quality of life second to none if you choose to learn it well. A long-time investor friend of mine says it like this — “If you are comfortable with the role of ownership and management, and do not allow yourself to be intimidated by the responsibility for setting down the rules by which tenants may live in your properties, you will find as many others have — That owning and operating small rental properties can provide a vehicle for self-employment and sense of freedom that’s difficult to match in our society today.”

Besides making money, being a successful landlord provides many sought-after personal benefits. For example: you can have a better quality of life for yourself and your family. You can live anywhere you choose and set your own work schedule. You can spend additional time with your hobbies and do those personal things that never get done when you work for someone else. Being your own boss is the envy of every W -2 wage earner. Almost everyone dreams of making a big money working for themselves.

A 10% JOB CONTROLS 100% OF THE INCOME

I know many small-time property owners who consistently earn $100 per hour or more operatin their own income properties. Landlording is a major ingredient for making big bucks for the do-it-yourself investor. Owners I know many small-time property owners who consistently earn $100 per hour or more operating their own of small income properties who don’t bother learning the landlording part often throwaway a fortune because they allow the tenants to run their business and control their buildings. That’s a very unwise decision for property owners. Folks who have heard me lecture or attended my landlording seminars already know I consider landlording and people management the $10 job that earns me $90. Those numbers come from the fact that I charge 10% for managing properties. Naturally when you manage your own properties, you can’t pay yourself - but saving 10% is almost like earning it! Many small-time “Mom & Pop” investors pass up the opportunity to earn a lot more money with their investments simply because they fail to see the importance of learning to become a skilled landlord. You don’t become a skilled landlord because you acquire houses. You only become the owner. Skilled landlording will require both education and practice. Basically there’s only two ways to learn landlording! You can learn from people like me who have many years of experience - or you can learn from your tenants! I can tell you right now if you were to pay me 10 times more than I charge for seminars - it’s still much cheaper than learning the job from your tenants. Every landlord should know and understand the landlord-tenant laws for his particular state. Once you know and understand the laws, your fear of tenants (being intimidated) will vanish. An overwhelming number of property owners incorrectly assume these laws favor deadbeat tenants. I will assure you this is not the case, although sometimes it may appear that way! Laws are mostly about equity. It’s well to remember — There are unscrupulous landlords same as naughty tenants!

PERSONAL CONTROL KEY TO SUCCESS

I can tell you from my experiences that many small-time real estate owners fail too often because they don’t see the need to learn about landlording. Almost all investors I deal with are owners of houses and small apartment buildings. All can benefit. Even if your basic investment strategy is to buy and sell - tenant’s will generally be involved in the process. Tenants can make or break a property. Owners who pay little attention to landlording skills are basically allowing property managers - or their tenants to have control over their investment dollars. I will assure you based on my own personal experiences — Dumb landlords are absolutely no match for the liberated “Rock-N-Roll” tenants today. You gotta know your stuff now because the tenants know theirs. Never lose sight of this important economic fact — Tenants are the life blood for landlords. Tenants are the owner’s customers. Almost every profitable business has customers. Tenants are the most important part of owning and operating rental properties because they supply the money. Obviously a landlord’s problem would be down-right serious if he or she did not have tenants who can pay timely rents. One of the major advantages that small operators have over limited partnerships or syndications is the personal involvement. Owners who are personally involved are much more sensitive to what is going on at their properties. They can act quickly when the need arises. There’s no front office approvals, no voting, and no “red tape” or politics. It’s strictly a single party control. Eventually, you’ll begin to understand why complete, control - or as complete as possible is a most important part of making big money with real estate. In the meantime, you’ll just have to take my word for it.

ALWAYS TAKE CARE OF TENANT BUSINESS PROMTLY

Good landlords always act first - as opposed to re-acting later! Don’t fight and argue with your tenants anymore than you would fight and argue with your boss over the work requirements at your job. Obviously discussions are fine, but fairness must always prevail. Landlords are the boss of houses. They make the rules for the tenants who live there. Never compromise on the issue of WHO’S IN CHARGE. When tenants get the upper hand while living in your rental properties - you’ve got some serious problems. How would I know this, you ask? At least half the properties I own today were purchased from extremely motivated sellers who wanted more than anything else to get away from their tenants. I made that possible for them ­ but at a greatly reduced price of course! Most beginners don’t fully understand the true dollar value of learning to be a good landlord. As you may have guessed by now — It’s very serious business. Not only does it involve the daily management of your tenants - but it also has a great deal to do with your long-range real estate profits. Landlords who learn to act before small problems become big ones - will control most tenants. This strategy works very well collecting rents - also, enforcing your tenant rules. Speaking of rules; many landlords have far too many rules! It’s best to keep your list of rules short and enforceable, rather than long-winded, without any teeth.

FAIRNESS SHOULD BE YOUR GOAL, BEING POPULAR IS NOT

One of the most important questions all landlords should ask themselves is — What would I rather be ­popular or profitable? Don’t let your mind wander here! You don’t have to be a greedy tight-wad or steal candy from babies to become a wealthy landlord! What you must be, however, is a fair-minded business person. Fair-minded business means that accounts receivable (rents) are collected in a timely manner and that your business assets (HOUSES) are maintained properly by you and the tenants who lease them. See how simple this stuff is! Collecting the rents should be your proudest moment! It means you selected a tenant who can pay you! Collecting your money is first priority and you need never defend the reasons why! Many new landlord­owners feel they must explain to their tenant why they need the rent money! Have you ever heard the supermarket manager drop by the check-out register to explain to you why he must be paid for his groceries? Sounds silly - but many landlords still feel they must do it! Landlords will not be hated or disliked anymore than the supermarket cashiers or bank tellers when they demand timely rents. Everyone knows that cashiers will not allow groceries to leave the store until they collect the money. Customers expect this and they don’t feel hateful toward cashiers or bank tellers for following the rules! Landlords who insist on timely rent payments are no different than cashiers in the supermarket!

ALWAYS BE FAIR BUT DON’T GIVE THE RANCH AWAY

Several years after I became a “Full-Fledged” landlord, I found myself trying extra hard to make my tenants happy to live in my houses. I didn’t realize it then, but this won’t likely happen! It seemed -the more I tried to please, the more my tenants wanted from me! For example, some tenants who rented my economy units that didn’t have carpets in every room (several of my least expensive houses have carpets in only the living room) started asking for carpets in the bedrooms too. However, none of these conversations included any mention of paying extra rents. Several of these requests involve considerable expense. Tenants would sometimes ask for rear yard fences where none existed when they moved in. What generally happened - they would acquire a dog or decide to babysit small children in the backyard for added income. Don’t misunderstand what I’m saying here — I’m very much in favor of rear yard fences, front ones too for that matter. But what’s missing in all of these requests is “CONSIDERATION’. That’s the contract term for the money. The question arises - who should pay for these special add-on requests? I agree that houses without carpets are like cheeseburgers without fries. But as you probably already know — Burger King charges extra for fries - and so do I if you want more carpeting or a rear yard fence.

As the owner-landlord, it’s your business to see that rents are collected and that rules and regulations set forth in your rental AGREEMENT/CONTRACT are followed and obeyed. You must never allow a tenant to intimidate you! It will almost always lead to poor landlord decisions. I believe the most serious mistake the new landlords can make is to allow a tenant’s urgency to become their urgency. Let me explain this a little better so you don’t think I’m a cold-hearted monster-landlord!

COMMONSENSE SHOULD ALWAYS PREVAIL

After many years of responding to various tenant call-outs, I’m hard-pressed to think of any situation so compelling that I wouldn’t have enough time to think it through! If a water pipe breaks, certainly I’ll act quickly, but I’ll still plan what I need to do. If there’s a fire at my property, the community fire department will handle everything. As for me, I’m protected by my insurance policy on the building. Should someone die in one of my rental houses, what could I possibly do? I’ve yet to meet a landlord who’d be of much help standing over a dead tenant. The county coroner is the person you need the most! In short: leaky pipes burned down houses and expired tenants are no more urgent to a landlord than dying patients are to a doctor - or raging fires are to a fireman. People will die on the doctor’s table everyday and you can’t listen to the evening news without hearing about another fire in the neighborhood. These are everyday events we deal with. Pipes will always be springing a leak, people die everyday - and of course, buildings will burn to the ground. That’s just normal management stuff! Your job as the landlord is to be as responsive to your tenants as you possibly can. But, never should you allow yourself to be stampeded into rushed decisions simply because your tenant says you should! In short, don’t allow your tenant’s urgency to become yours. Do not take what I just said the wrong way — You must always give the best service you possible can and treat your tenants fairly. In fact, at my seminars and in my training materials I recommend investors use my 60/40 RULE. What it means is - I try and give my tenants 60% of my efforts and assistance in exchange for only 40% from them. Here’s the way I see it. My tenants are making me a wealthy man! I buy real estate­ they pay for it. I take expensive trips, they pay my bills. I drive expensive cars and live in an expensive house - and again, they pay all my bills. Without my tenants, I wouldn’t own very much real estate, my trips would be a whole lot shorter and I’d likely be living in a house much like the ones I rent. I don’t believe 60/40 is too much to give, do you? Landlords often find themselves in serious “hot water” with tenants because they try to force too much logic and commonsense into managing their tenants. Logic and common sense have their place alright, but they seldom count for much where lots of restrictive rules are involved. For example~ it is nearly impossible to effectively force your own personal living standards - or ideals on your tenants - a very common mistake for many new landlords. I would seriously advise any owner-landlord to think about what I’m telling you here, because it has a great deal to do with sanity — YOUR SANITY. What earthly good would it do you to make a million dollars from your rental properties if your tenants drive you to the “nut house”? My advice - stay away from them as much as possible and when temptation becomes more than you can bear - pray for them instead. Save your sanity - you’ll need it for collecting rents. You don’ have to agree with me about any of this. You don’t even have to like it — Just keep an open mind. Someday if we meet, you may even thank me for the help. Hands-on operators, the do-it-yourselfers, can put the big guys to shame in terms of building net worth. Call it tender loving care if you wish or whatever name you choose - just try it ’cause it works! There is indeed a great deal of truth to that old Chinese proverb which says — “The best fertilizer in the world comes from the owner’s shadow.”

Tags: Fixing For Money, Landlording Success by FixerJay
No Comments »

Seller carryback financing is often confusing to new investors - sometimes it even baffles folks with a bit of experience who simply haven’t had occasion to use it. First you need to understand that seller financing is not really like bank financing or a regular mortgage, even though it’s often referred to as a private mortgage.

Seller financing is really an extension of credit given as one of the terms of the purchase agreement. For example: If I offer to purchase your property for $100,000 - and I agree to pay you a $10,000 down payment - and ask you to finance the balance ($90,000) of the sale taking monthly payments of $750 per month, including 07% interest for a period of 20 years — I’m asking for TERMS, not money! I’m simply asking you to extend me credit so I can purchase your property over a 20 year period of time.  

Quite often real estate agents will tell their listing clients, like in the example above - it’s not good for you to become a lender when you sell! Why should you loan Jay $90,000 so he can purchase your property? That doesn’t make sense, they advise! What doesn’t make sense, of course, is their incorrect analogy of what’s going on! I’m not asking for a loan, I’m asking for credit terms. That’s it!

Since many properties are in the hands of real estate agents and because so many agents call seller financing a loan when dealing with their clients - it’s no wonder a novice seller might be confused.

When a traditional mortgage or loan is part of the real estate sale - real dollars are disbursed by somebody, usually the bank! Using my example - the traditional method - I put up $10,000 for the down payment, then I qualify for a bank loan of $90,000 so I can give it to the seller. This is a true loan! I borrowed hard dollars from the bank, then I handed those dollars, along with my $10,000 down payment, to the seller in exchange for his property. The bank placed a lien (1st mortgage) on the property to secure the $90,000 they handed me! Now that’s a real loan!

TRADITIONAL REAL ESTATE - TRADITIONAL LOANS

Most real estate is sold with traditional financing - meaning banks will provide the money. That’s most likely the way it’ll always be. But because terms are far superior to loans in the investment world - terms are what I’m always looking for! To get terms, you must deal with people. Dealing with people is how you create cash flow deals and end up with the benefits you need to build personal wealth. Bank loans are a necessary ingredient for some situations, but you need to try for financing terms first. In my opinion - you give up far too much control with bank loans (mortgages). Remember, I’m talkin’ investment properties, not your personal residence (that’s different).

To start with, most bank loans require personal liability, as well as the property for security! That means with bank loans, all your assets are at risk. Obviously, when I started out that was no big deal ’cause I had nothing that wasn’t heavily mortgaged! I wasn’t nearly afraid of someone suing me to take my stuff. I was more afraid I might have to keep it! Things change when you make a few bucks! Now I don’t want my assets lined up like dominos where tipping one over makes them all go down. To me, bank loans are like dancing with gorillas — The dance ain’t never over til the gorilla says so.

COST OF BUINESS CHEAPER

There’s an old saying that goes — You have to spend money to make money! Many investors go broke trying to accomplish this! A much better strategy might be — Spend the least amount possible! Convincing sellers to finance their investment properties is an excellent place to start saving money!

To begin with, traditional bank financing always starts with an appraisal and obviously they cost money ­usually your money! Who needs one anyway? I certainly don’t! I already know what my property value is! I don’t need any help from an appraiser. In fact, his appraisal might be detrimental to my future selling. What if there happens to be an appraisal on file showing far less value than what I’m asking? Can you see where that estimate might not be very helpful to me? I don’t need documents with someone’s estimate of value laying around. I’ll do all the estimating myself. I certainly don’t want to disclose a “low ball” appraisal!

Costs and expenses don’t stop with appraisals. There are more fees and escrow charges than you can shake a stick at! Where’s the benefit for me? There ain’t none, that’s where.! Also, have you ever noticed that banks will often ask for termite reports - they also insist that any repairs be done before they loan one stinkin’ nickel. Who pays for that? You guessed it - it comes right outta my new bank loan!

FAIR WEATHER LENDERS

There are times when banks will practically beg you to take out loans - but also times when they all but shut down completely. During the time Jimmy Carter was president, you couldn’t find a single banker who would even talk about real estate lending. They were shut down completely! If you’re investment program was dependent upon bank loans and there were none — Can you guess what would happen? I think you’ll admit, there’s probably not enough bridges for investors to leap from!

I buy “beat up” and badly bruised real estate! Years ago, I learned that bank loan officers don’t like my properties. They like new houses and tidiness. New and tidiness are words hardly ever used to describe my properties. That means that most loan officers will most likely run for the toilet if they see me approaching their loan desk! I learned a long time ago that my business must be conducted for the most part without bank participation! As it turned out, that would be a very valuable lesson for me because it forced me to seek alternative financing in order to stay in business!

One of the main reasons I buy the kind of real estate (beat-up & bruised) I do is because it comes with many profit-making benefits not common with most properties. Seller financing ranks near the top as one of the major benefits I’m seeking. Another is the opportunity to immediately change the property from a “pigsty”  to charming income units.  Obviously this important benefit allows me to increase the income much fast than would be possible if the property were already up to snuff when I bought it.  You must understand that quick cash flow and bigger profits are the reasons I’m investing to begin with.  My houses are not keepsakes, they are money generators!  If your investments are not producing profits and cash flow, it might be well for you to re-think why you invested in the first place.

I want you to be crystal-clear about why I’m able to get seller financing for a large percentage of my purchases - while most investors do not! The reason is because I look for sellers who own properties that most banks will not finance. They simply turn their nose up because the property looks ugly - or it’s not up to current building codes. Houses without a concrete perimeter foundations automatically get rejected for loans where I live. These houses have already been in service 60 years or so. Buying for a discounted price and good seller terms should give you the extra money to fix them if the need arises.

SELLER FINANCING MUST BE CREATED

Sellers will not generally offer financing terms unless there’s some compelling reason - or unless you can negotiate one-on-one and present a convincing argument in favor of non-bank financing. With real estate agents involved, it’s almost impossible because they will normally recommend new bank financing for most deals. The way they see it, with bank funds coming into escrow, their commissions are all but guaranteed!

Under normal circumstances, real estate agents will do everything possible to keep a buyer away from the seller. It’s like they say about attorneys in the mix -loose tongue buyers can also kill a deal. Often they are right! I’ve found you can truly benefit yourself, one-on-one with sellers, if you know what you’re doing ­however; you must be very sensitive to your agent’s feelings at the same time.

Like with my agent Fred - I will always ask his permission to visit the seller with him. I explain to Fred that when it’s time to talk about seller financing, I feel I can be very helpful. That’s all I intend to talk about you have my solemn oath. I further explain to Fred that when the seller financing discussion is over, I’ll butt out! I’ll go outside or whatever, giving Fred the privacy he needs to talk directly with the seller - without me in the room.

If you intend to make this personal visit work for you - and still keep your agent objective about it - you must show courtesy as I’ve described above. You must also keep your promise and not say anything other than what you’ve agreed to. In my situation with Fred - he now trusts me in the same room with the seller because he knows I will not say anything to blow the deal! Obviously that’s very important to him because his commission is at stake.

MAKING THE CASE FOR THE SELLER FINANCING

The number one reason that sellers object to carryback financing is safety - THEIR SAFETY. When banks finance their deals, they get the money soon as escrow closes - it’s done. When they carry back financing for the buyer - it’s not done! They may have to wait 15 or 20 years before it’s done! This is where the seller’s safety comes in. Their big concern — Will they get their money as promised? That’s the big question you’ll need to answer to their satisfaction if you intend to do much seller financing business. Simply telling the seller that you’re an honest, upstanding person won’t likely cut the mustard!

I’m always willing to provide potential carryback sellers my financial information - PROFIT & LOSS STATEMENT and my current FINANCIAL STATEMENT, as well as my property addresses (locations) and a list of mortgage holders. This information gives sellers an excellent picture of my current financial status - plus the opportunity for them to check me out with other folks I send monthly payments to! I don’t hand this information out until we have a signed deal in escrow. It’s one of the provisions in my offer to purchase — BUYER WILL PROVIDE FINANCIAL RECORDS FOR SELLER’S REVIEW AND APPROVAL WITHIN 5 DAYS AFTER ESCROW IS OPENED AT ABC TITLE CO. SELLER WILL APPROVE BUYER’S CREDIT WITHIN 10 DAYS AFTER RECEIPT.

Some sellers will want a bit more assurance that they’ll get their money as promised. One of my favorite techniques is to offer what I call double protection in the form of additional collateral. I’ll pledge equity in another property that I already own, in addition to the security of the property I’m buying. In other words, I explain to the seller — If I should default on the carryback financing with you, you will be in position to not only take back the property you’re selling me - but also, you can take the additional property I’m pledging as well! That gives you the extra protection that I’ll keep my promise to pay you! This additional collateral method works well with many sellers and it saves me down payment money without costing me a dime. 

TALKIN’ MONEY WITH THE SELLER

 Quite often sellers will “open up” a bit if they like you! Naturally, that’s the reason I like to meet the seller in the first place - to present myself!  I’ve found that if the seller likes me - and judges me to be an honest person, he’ll also confide in me. He or she will most likely tell me their future plans and what they intend to do with the money from the sale. When I purchase properties from older sellers who are retiring - I can just about guess the answer every time! They want the money to be part of their retirement income. They plan to deposit it in the bank and supplement their monthly retirement income. That’s pretty much what we all do when we sell out, I think!

Many of these retirement-minded folks are simply not educated when it comes to money matters. They need coaching!  This takes patience and understanding because it’s difficult to change how people view money and its use. For example~ my Mother and Dad both thought saving money was how you end up wealthy. They shared the opinion that investing was too much risk! I doubt seriously if they ever changed their views even when they saw my success. Mom just said I was lucky — I think Dad agreed!

One nice couple I acquired property from wanted $100,000 cash upfront to supplement their retirement when they moved to the coast a couple of hundred miles away. By drawing $700 each month from the account, they could live very comfortably, they said!

How I converted them to carryback financing was quite simple. I showed them that their $100,000 bank account would only last for 12 years by drawing $700 each month. Using my proposal ($100,000 carryback note) - at 07% interest, they would be able to draw $700 per month for more than 25 years before the well went dry! Which one would you take? Always make ‘em secure first - then explain how the money works, and presto, you’ll be doin’ seller carrybacks with the best of ‘em!

Tags: Seller Financing by FixerJay
2 Comments »

 If I asked you to take your pick between being a rich garbage collector or a poor apartment owner, which would you choose? I’m not conducting a survey here, but my “gut feeling” is, you’d pick rich garbage collector. That’s my answer too! Had the choices been between a rich garbage collector and rich apartment owner, than I’d switch back to apartment owner.

If you think like me — Rich is the first choice! My plan to get there has some flexibility. Obviously, I love real estate investing, but I’ll be first to admit, the money has an awful lot to do with my love affair.

It’s been my long-term observation that people who invest in real estate are not much different from those who invest in pizza parlors or buy carpet cleaning trucks. The reason this is so, I think, is because the motivation factors are exactly alike. Industrious folks are constantly looking for ways to get ahead financially and improve the quality of their lives. Many are highly motivated to leave traditional 9-5 jobs for an opportunity to work for themselves. Of course, it goes without saying, most all of us have a desire to end up financially independent after our working days are over.

A THIN LINE BETWEEN INVESTOR AND BUSINESS

More often than not, real estate investing and business opportunities are not thought of as being the same thing! Many people think of real estate investing as a long-term savings plan where you buy now, hold the property for many years and eventually sell for a marked-up profit. The major benefit they expect will come from appreciation over a long period of time. Certainly, that’s a big part of most real estate investment strategies — But my plan is many times faster as you shall see!

Business opportunities, on the other hand, often have more to do with buying yourself a job. For example — Buying a hamburger stand, becoming “The Rug Doctor” with your own special built steam cleaner truck, acquiring a franchised “Popcorn” route or buying a silkscreen “T­shirt” operation. Typically these kinds of businesses don’t have much long­term appreciating value and they seldom provide anything more than steady employment for their owners. In several cases I’m familiar with — The operators feel quite lucky to earn what I would simply call AVERAGE WAGES. Quite often their actual take-home pay would be higher if they worked for someone else — Plus, they wouldn’t have all their money tied up in the business.

Let me say it this way — Many folk~ who are dedicated to a variety of small “Mom & Pop” businesses work extremely hard for twice as many hours and earn less money than they would take home as regular employees. This situation can be a big trap for people like me and other entrepreneurs who often become stricken with a blind obsession to be our own boss, doing our own thing!

YOU MUST ANALYZE REWARDS FOR THE EFFORT

If you’re thinking about starting any small business or perhaps you’re already involved in one, it might well be worth your time to thoroughly analyze the payoff. It’s not the least bit uncommon for people to spend abnormal amounts of time, often years, pursuing a dead-end venture that will provide very little payback for all their efforts. After many years they end up with hardly anything left to show for all their hard work!

Here’s a typical situation I see all the time! Let’s say you purchase a “carpet cleaning” franchise. You now own a truck with a special-built steam cleaner mounted on the back. Next, you build up a customer list and work your tail off for the next 5 years or so. Now it s time to ask yourself these questions -­- What do you have to show for your efforts after 5 years? What is your business worth if you decided to sell out? What will your income be if you suddenly stop cleaning carpets? Do the words hardly nothing ring a bell? My guess is, you’ll have a sore back, a worn out truck and a business with no more value than the day you started. Oh yes, about future income! I think you already know the answer to that!

THE BENEFITS OF MIXING WITH YOUR OWN KIND

One of the reasons I enjoy attending real estate seminars and speaking at investment clubs so much is because I enjoy being around the kind of folks who are attracted to such gatherings. They’re mostly my kind of people. I’m sure you’ve observed what I’m telling you here. I enjoy being around people who think beyond the end of their noses. They are people with vision!

Naturally, I meet a few “Seminar Junkies” along the way, but mostly I meet people who have initiative and “get-up”. They’re “long haul” thinkers who are eager and willing to do whatever it takes to make a better “financial life” for themselves and their families.

One word of caution is in order here because we all need to hear it occasionally! THERE ARE NO FREE LUNCHES. “Free Lunch” thinking must be erased from your thought process. Making sound financial decisions won’t happen until you sincerely believe and understand THERE AIN’T NO FREE LUNCHES ANYWHERE!

BEING YOUR OWN BOSS IS FUN WHEN IT PAYS

It’s my personal view that working for yourself is the “ultimate freedom”. It’s extremely exciting when you can make big money doing exactly what you want, when you want and in a business you choose to do it in! Many folks work long, hard hours in a no-future business. Eventually they end up discouraged when they finally realize they could be earning more money and working less hours for someone else.

There are many business opportunities that allow the freedom of working for yourself. However, many fail to provide adequate compensation. There is not thrill being your own boss if you can’t make a decent living for yourself and family. That brings us to what I consider the best business opportunity today, ‘THE HOUSING ENTREPRENEUR”.

HYBRID OPPORTUNITY - HOUSES AND WIDGETS

It’s a very simple concept. Take the best of several ideas and mix them together like one. Every successful business needs short-term cash flow and long-term growth or increasing value. Without this combination, business future is always uncertain. Many businesses have adequate cash flow to meet daily needs, but very little value or growth increase in the long term.

Take selling widgets for example. When everyone wants to buy them, sales are hot! The registers are ringing, but that’s short-term selling. For long ­term, we must look at the value of business assets. Here we find a worn out delivery truck and a broken down “widget maker”. The value is zip! Additionally, when these assets wear out, we now must have money set aside to buy new ones or the business is down the tubes, as they say.

Let’s say we own REAL ESTATE ASSETS instead. Even as houses are wearing out (getting older), they are increasing in value. If sales suddenly drop off, but our business assets are houses, obviously there is still value remaining in the business,

Let’s say we own REAL ESTATE ASSETS instead. Even as houses are wearing out (getting older), they are increasing in value. If sales suddenly drop off, but our business assets are houses, obviously there is still value remaining in the business,

The combination of a cash flow business that owns real estate assets is truly the best of both worlds. In my case, tenants are my customers. I provide residential housing for my customers. My business assets are houses. Rather than losing value the more they are used, instead, they are becoming increasingly more valuable. Let’s say my stream of rental customers slows down from time to time — Will I go broke? Not very likely because my real estate assets have been continually growing in value. That value is easily converted to cash if I need grocery money — Either borrowing on my equity or selling a house or two!

Houses are much better than worn out machines. Since my business assets are real estate, my product is always growing in value. From a practical standpoint, they never wear out if I keep them painted. As the “cocky” ex-­CEO of the Chrysler Corporation used to say, — “Show me a better deal anywhere and I’ll buy it”. I think my real houses are a better deal and that’s exactly why I buy them!

Tags: Develop a Business Plan First by FixerJay
4 Comments »