Beginning Real Estate Investing - "Subject To…" Investing

This is another in a continuing series of articles on beginning real estate investing. Today, we’ll tackle the basics of “subject to…” investing. There are a lot of questions those who are just beginning real estate investing often have about “subject to…” investing, and this article should answer many of your fundamental questions.

First of all, it’s important for those who are beginning real estate investing to know what “Subject To…” investing is. “Subject to…” means that you buy a property “subject to…” the existing financing staying in place in the seller’s name.

Say that you get a call from a motivated seller. He tells you he must sell his house immediately. He also says he owes around $100,000 on his mortgage, his payments are around $900 per month, including principal, interest, and taxes. Even though you are only just beginning real estate investing, you know the estimated market value of his home is about $130,000.

You head on over to his home. It doesn’t matter in the least that you are just beginning real estate investing. After all, he needs to sell now. You tell him that you will take over his mortgage payments, and keep on making them until you get the house sold. You don’t know how long it will take, but the mortgage will stay in his name until you get it sold.

He asks if you can give him some cash to help him move. Even someone who is beginning real estate investing can negotiate an item like this. After going back and forth a couple of times, the two of you agree on $3,000, which you will pay to him the day he moves out.

Now, what have you got? A house with an estimated value of $130,000 that you will wind up paying about $103,000 for, and a payment of $900 per month. Since you are just beginning real estate investing, there is something you must do right away… market for a tenant buyer.

So, you place an ad in your local paper, and put up a few signs in Mr. Seller’s neighborhood: “Lease to Own – Bruised Credit OK.” Your phone starts ringing and you find a young couple with good jobs and good income who went through a brief period of financial trouble a year or two ago. You explain to them that even though you are just beginning real estate investing, you think you can help them.

You offer to lease them the home with a 12 month option to buy it. Their monthly lease payment to you will be $1,200, and their purchase price will be $135,000. They will also give you a non-refundable option fee of $5,000. It doesn’t matter that you are only beginning real estate investing- you can certainly see what you have just accomplished.

You’ve got monthly positive cash flow of $300 - the difference between the $900 you are paying and the $1,200 the young couple is paying you. You have also put $2,000 cash into your pocket right now – the difference between the $3,000 cash you gave the seller and the $5,000 cash the young couple gave you. When the young couple exercises their option to buy, you will also pocket $32,000 - the difference between your purchase price of $103,000 and the price they pay you, $135,000. Not too bad for someone beginning real estate investing!

We’ve barely scratched the surface of “subject to…” investing, but I think you’ve got the idea. I’ve got more great ideas for you at Beginning Real Estate Investing.

Now, go make more offers!

Short Sale Real Estate Investing

Short sale real estate investing is defined as purchasing a property from a lender for less than the balance owed on the mortgage. Many books and courses have been written about it, but can short sale real estate investing be simplified? It can!

There really are only two types of short sale real estate investing. First, when you purchase a property that a lender has foreclosed on and listed with a Realtor, you can offer less than the balance that was due on the foreclosure. This type of short sale real estate investing requires that you have a good relationship with the right Realtor.

Look for the Realty office in your town that handles the majority of foreclosures, and look for the agent in that office who works with investors and short sale real estate investing. When you find that agent, you’ll want to impress upon them that you intend to follow through on all your offers. Then, do exactly what you say you will. That’s your ticket to the short sale real estate investing gravy train!

The second type of short sale real estate investing involves you negotiating directly with a motivated seller’s lender. You’ll need to be determined in your negotiating, first of all to reach the right person at the lender’s REO (Real Estate Owned) department, and then to get the price you want.

Stick with it, and take lots of notes. Once you’ve worked with a few lenders that allow short sale real estate investing, you’ll have the tactics you need to enjoy on-going success.

Would you like more information? How about a more in-depth article? You can get both at Short Sale Real Estate Investing.

Now, go make more offers!

Beginning Real Estate Investing – Understanding Market Values

Another in a series of articles on beginning real estate investing. A crucial step to becoming a wise real estate investor is getting to know your local market, and learning to put a value on the properties within your target neighborhoods.

Beginning real estate investing involves learning a new set of skills, one of the most important of which is valuing property. For the limited scope of this article, we’ll limit our discussion to residential single-family and duplex homes.

When you are just beginning real estate investing, it’s helpful to set a goal for yourself to become the market value expert in one or two select neighborhoods. When choosing these neighborhoods, look for locations close to your home with a good selection of homes in the lower-middle to middle price range for your market. This is where you’ll find the best combination of working-class homeowners and what I call “aspirational” renters- those renters who aspire to homeownership. These will become your best customers.

Once you’ve found one or two of these neighborhoods, start driving through at least twice a week, looking for all real estate activity, including listed sales, For Sale By Owner, auctions, estate sales, vacant property, even moving van activity. As someone who is beginning real estate investing you should get tuned in to the pulse of the neighborhood.

Look for and get to know the local Realtors. Stop in to the Realty offices and introduce yourself. Find out who the most active listing agents are, who sells the most houses, who deals with the most foreclosures, and who works with the investors. These are the best Realtors to work with as you are beginning real estate investing.

Also, beginning real estate investing means getting to know local service people, especially contractors. Talk to as many of these as you can, and find the ones that do a lot of work in your target neighborhood, especially plumbers. Ask them what kinds of recurring problems they see. They will provide you a wealth of information.

Give yourself a timetable to learn property values in your target neighborhood. Three to six months is probably realistic. When you are just beginning real estate investing you will need to work closely with a Realtor. Ask for all the listings in your target neighborhood, and try to see them all. Ask also for the listings of comparable sales (Comps) so you can see what similar properties have sold for recently.

Build a spreadsheet, database, or even just a handwritten notebook so you can refer back to it from time to time. This will become a valuable resource for you as you progress beyond beginning real estate investing. Slowly but surely you will become an expert on property values in your target neighborhoods. You will be able to look at most any property and know, within a few hundred dollars, exactly what it’s market value is. This knowledge will serve you very well as you progress in your real estate investing activities.

For more in-depth information, visit my website and read more about beginning real estate investing.

Now, go make more offers!

Socially Responsible Real Estate Investing

There are many ways to practice socially responsible real estate investing. In this article I will outline what I believe to be the best way to invest in real estate in a socially responsible manner.

I run into all kinds of people, many of whom are less than charitable when they find out I own rental property, and that I also flip houses and mobile homes. I frequently find myself disagreeing with those same people about just what socially responsible real estate investing means. For some strange reason, many people are predisposed to look down on those who engage in such capitalistic endeavors. Often, these are the same people who benefit from one or more of the many government programs that my tax dollars support.

Here’s what I mean when I talk about socially responsible real estate investing.

I am a man of my word, so when I say I’m going to do something, I make every effort to do it. This applies to offers I make on properties, promises I make to tenants, and agreements I make with contractors and service providers. In my mind, there is no more powerful way to engage in socially responsible real estate investing.

Being a landlord and property investor makes me a productive member of my local economic community. I strongly support and add to the tax base, and help provide a healthy living to several Realtors, contractors, and service providers. I also bank locally, and contribute to my local Real Estate Investor club. These are all great ways to pursue socially responsible real estate investing.

In addition, I provide clean, safe, affordable housing to several tenants, including children and senior citizens. I also provide housing to those in the lower income brackets through HUD’s Housing Choice Voucher Program, also known as Section 8. Providing this type of housing is another powerful way to practice socially responsible real estate investing.

There are those who believe that in order to practice socially responsible real estate investing, one needs to provide free housing to the deserving poor. I do not agree with that assessment. The Bible says, “The laborer is worthy of his hire,” and certainly that applies to property owners. I commend those who choose to be charitable, but I do not believe it should be legislated. It needs to come from the heart, and be supported by a consistent practice of sound business principles.

That attitude, and the underlying economic practices, are reasons why the United States of America has been, and continues to be, the most charitable nation on the face of the earth. Practicing socially responsible real estate investing isn’t the result of some feel good nonsense, but rather the application of wise investing habits and moral consistency.

Now, go make more offers!

Tom
DealFiles.com

Top Real Estate Investing Sites

There are literally thousands of real estate investing websites on the internet today, with dozens more being added each and every month. How can you possibly weed through them all, and determine which have real value, and which are a waste of your limited time? In other words, how can you discover the top real estate investing sites?

The answer to those questions can be summed up with one word- content. When you search the internet you’re looking for information, right? Information is another word for content, so it’s reasonable to assume that the top real estate investing sites are the ones with the most high-value content.

As you begin your search for the top real estate investing sites, you can start by weeding out those that are simply link farms. You’ll recognize a link farm right away- it’s just a page filled up with links to other websites and pages, with no other content or information to be found anywhere. Link farms are there only to serve the purposes of the site owner. They provide you with nothing worthwhile.

Next are those sites that are just a rehash of other people’s content. The only thing you’ll find on these sites are reprinted articles and reports that someone else wrote. While a few reprinted articles don’t necessarily mean a site is useless, if that’s all the website has to offer you should look elsewhere for original and useful content. When looking for the top real estate investing sites you should bypass those that only provide reprinted content.

The next type of site are the sales page sites. Those are the web pages that are only trying to sell a product. Now please don’t misunderstand me- everyone has to make a living, and webmasters are no exception. There is a legitimate use of the sales page, as long as the site is also providing plenty of useful information. But far too many sites offer only sales pages, without giving you anything you can sink your teeth into. These will never be among the top real estate investing sites.

Finally, there are those websites that offer unique, engaging, and helpful real estate investing information. They tend to have resources for investors, articles, reports, forums, blogs, and useful product offerings. In a word, they have content. When you find a site like that, you know you’ve found one of the top real estate investing sites. You should bookmark it or add it to your favorites, because you’ll want to return time and time again.

For a page of links to the top real estate investing sites, visit the DealFiles Links Page.

Now, go make more offers!

Tom
DealFiles.com

Deedless Real Estate Investing - An Overview

Are you looking to increase the number of real estate deals you can do without significantly increasing your risk and without increasing the amount of cash or credit you need? If so, then deedless real estate investing may be just the strategy you’re looking for.

Deedless real estate investing is a collective term used to describe a group of tactics that do not involve an immediate transfer of ownership of a piece of property. Among these tactics are straight lease option, sandwich lease option, and subject to.

The first of these, the straight lease option, describes an agreement between you the investor and the seller in which you lease (or rent) their property for a monthly payment, and you have a guaranteed option to buy the property at a predetermined price within a fixed period of time. Ownership does not change hands unless and until you exercise your purchase option, making this the first type of deedless real estate investing.

The second type of deedless real estate investing, the sandwich lease option, starts out as a straight lease option. You then, as the tenant buyer, would find a second tenant/buyer to assign your interest in the property to. They would lease the property from you, with the option to buy it from you. When and if they exercise their option, you would in turn exercise your option to buy from the original seller. This puts you in the middle of the sandwich, where you stand to profit with little or none of your own money at risk!

Finally, the third tactic for deedless real estate investing is the subject to, which means you buy the property subject to the existing mortgage or deed of trust remaining in place in the seller’s name- you simply start making the payments. Some investors actually do insist that they get the deed when doing a subject to deal, but they don’t record the deed until they resell the property and cash out the seller’s loan.

Other subject to investors don’t get the deed, waiting instead until they find a buyer who exercises their option and cashes them out of the seller’s loan. Doing it this way makes this a true deedless real estate investing tactic, but significantly increases the risk. I don’t recommend it!

We have barely scratched the surface of what could be said about these three tactics for deedless real estate investing, but now you have an overview. Add these tactics to your real estate investing toolkit, and more deals will be available to you.

Now, go make more offers!

Tom
DealFiles.com

401K and Real Estate Investing – An Overview

Is it possible to combine your 401k and real estate investing? Wouldn’t it be great to invest in real estate with a maximum amount of pre-tax dollars, realize the huge gains possible only with real estate investing, and then re-invest those dollars in your tax-free 401k?

Of course it would, and there are ways for the savvy investor to combine their 401k and real estate investing.

First, you could borrow funds from your 401k. This is not necessarily the best way to combine your 401k and real estate investing, but it might be worth looking into if you have no other available funds for investing. Realize that there are limits on the amount you can borrow, and the interest you pay won’t be deductible, as it would with a typical mortgage. Choose this option only after doing your homework.

The second method of combining your 401k and real estate investing is the IRA roll-over. If your 401k allows you the benefit of rolling over into an Individual Retirement Account, this may be the best way for you to go. Select a specific type of IRA- called a “Self-Directed IRA” to roll your funds into.

The Self-Directed IRA is a very powerful investment vehicle that allows you to direct exactly how your money is invested, within certain limits. For instance, you could direct that the money be invested in a REIT (real estate investment trust), an apartment complex, or a strip mall. When you sell and realize a profit, the increase in the IRA is tax-deferred. This is a huge benefit, and you should really consider this method of combining your 401k and real estate investing.

One downside to the roll-over - you would be giving up the employer contribution portion of your 401K deposits, if any. Another reason why you should weigh this option carefully before deciding to use it to combine your 401k and real estate investing.

Finally, and the simplest method of combining your 401k and real estate investing, is to ask your 401k account manager if they allow the funds to be invested in REIT’s directly. Some do, and this is a low risk, high return strategy for a lot of investors.

Whatever you do, don’t make a hasty decision to combine your 401k and real estate investing. Each of the above methods has a different risk/reward ratio, and you should familiarize yourself with them first, before risking your hard-earned money.

Now, go make more offers!

Tom
DealFiles.com

Real estate investors MUST choose "better" over "bitter"

I got an email from a subscriber the other day.

Here it is, slightly edited for readability:

Tom,

This is a great business especially if you have great credit or large amounts of money, or better yet a good friend at the bank. I have none of the above.

So I keep trudging along looking for deals to wholesale. "Investors" in my area think you're rude to ask for a "birddog fee" for a good contract. Finding money is the most exciting adventure. The last hard money lender I talked to wanted me to show up to closing with 18k in hand. I told them if I had 18k "why would NEED THEM!"

So I keep trudging along, one small deal after another, trying to make ends meet. Thanks for DealFiles- talking about people with money making more money- where's the challenge.

Thanks again.

And here's my reply:

Thanks for your letter.

Was I wrong, or did I sense a tone of bitterness?

I'm glad you're reading DealFiles, and I'm thankful for your email. Your words tell me a lot about you, and you're not so far from the attitude I used to have toward those who were successful.

I always felt like if I just had the same kind of breaks they had, if I had the same resources available to me, then I could be successful too.

I agree with your opening statement. This IS a great business. Not only if you have gobs of cash or great credit or a good friend at the bank. When I started out in 1999 I had NO CASH, BAD CREDIT, and NO FRIEND AT THE BANK. My wife and I prayed and scraped up $1000 or $1500 and bought a mobile home, which we screwed up on and sold to the wrong people and lost our shirt on. Then we bought a mobile for $200 which needed so much work we couldn't afford to fix it up.

We wound up paying somebody $1000 to haul it away. So the end result after our first two deals was a net loss of over $3000. We were broke and struggling to pay the monthly bills and feed our three young kids. We could have become bitter because we were poor and others had so much more experience and so many more resources than we had.

But we were learning, and we bought one more mobile home, applied the knowledge we had gained from our mistakes, and made a nice little profit. So we did it again, and then again, and then again after that!

I could go on all day, but I don't want to bore you. I think MOST people's success stories are like ours. A series of three steps forward, two steps back,until they get over the hump. Your story will be like that, too, if you stick with it long enough to find out. Or you could just quit in bitterness. Lots of people do.

My advice? Keep moving forward, one positive step at a time! Don't give up- those little deals you're struggling to do today are building the foundation of the larger deals you will be able to do tomorrow. Every mistake you make becomes your teacher if you let it.

Read, read, read and learn, learn, learn. The information is readily available to you. Never before in the history of the planet has it been it so easy to find out
ANYTHING you want to know. Instead of feeling sorry for yourself, pity the poor folks who lived BEFORE the internet age. How do you think they learned about how to invest in real estate? If they couldn't get a local mentor, they were sunk. You've got it all over them.

You're going to make it. I can sense it. You've got a tenacious, bull-dog spirit that won't let you quit. Find it within yourself to take the energy that's being wasted on bitterness and envy, and channel it into moving yourself forward, one positive step each day, in the direction of your goals. I'm praying for you!

Blessings,

Tom Dunn
DealFiles.com