So You Want to Make Money in Real Estate? I Believe You Do Or Else You Would Not Be Reading This Manual
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A Complete Program that Teaches Anyone How to ii Flip Ugly Houses in Less Than 30 Days. FIND AND ASSIGN How to Make Fast Cash in Real Estate Without Cash, Credit or Risk Joseph S. Kamenar, MBA Includes All Forms and Letters on Disk! FIND AND ASSIGN How to Make Fast Cash in Real Estate Without Cash, Credit or Risk Copyright 2005 by Joseph Kamenar All rights reserved. No part of this book may be reproduced, transmitted by any means, electronic, mechanical, photocopy, and recording or otherwise without written permission from the author. IMPORTANT NOTICE! This paper uses the CopyFingerprint TM process to detect photocopied pages that are returned for credit. You have been assigned a unique CopyFingerprint ID that is encoded on the pages with a special ink and shown at the bottom of each page. The light from copy machines will change the structure of this ink, which can not be seen by the human eye. Thus, you may copy the forms for your own personal use. If this package is returned for refund, the pages will be scanned using a blue-light laser that will show the ID across the page, meaning the pages were copied. No refunds will be issued in this case. Once you decide to keep this book, you can request a copy of all the forms and letters e-mailed to you, allowing you to edit the content on your word processor to use in your business. You can get your copy sent to you by going to http://findandassign.com/acceptance.html. Home Investors LLC. http://HomeInvestorsLLC.com This content is protected by copyright and may not be copied. Your CopyFingerprint TM ID is 4893485. 2 Chapter 1. Ways to Make Money in Real Estate So you want to make money in real estate? I believe you do or else you would not be reading this manual. What makes real estate such a good investment? Well, for one, real estate is always in demand. People will always need a place to live, and as far as I know, the population of this country is still growing. This increased demand means one thing - prices will always go up in the long term. While there will always will be price fluctuations in the short term due to interest rates and tax laws, over the long term prices will rise at a pace equal to or greater than the rate of inflation. Disclaimer Please note that I am not a lawyer or an accountant. I am an investor who also has done a lot of research on the many ways of real estate investing. As of this writing, I am also in the process of getting my agent’s license in Pennsylvania, so I can better serve local investors. Before you get involved in any investment, do your own research or get legal advice. I highly suggest that you use a buyer’s agent in your search for properties for reasons I mention later in this book. While I have provided you with many free forms and agreements you can use, always consult with a lawyer or an accountant before using them. You can pose questions in the various forums listed in Appendix A to get many of your questions answered. Traditional Ways to Make Money in Real Estate There are several ways to make money in real estate, starting with the traditional way of buying a rental property, finding a good tenant, and waiting for a combination of mortgage reduction, positive cash flow and property appreciation to make you money. While many fortunes are made this way, there are several obstacles in this path. The first one is – do you have the stomach to be a landlord? Over the years I have had a few rental properties, and I could write a book about what I went through. OK, maybe not a book, but at least a couple of chapters. I have had a senior citizen tenant once disappear one winter afternoon, never ever to return to his apartment, while leaving all his stuff behind, including his clothes, furniture, false teeth and war medals. I had another unit in a multi-unit building where drug sales were going on at 3 AM. I had a tenant furnish his home with items from one of those rent-to-own centers, only to leave and take it all with him. At this same rental property, their dog carved a hole in the garage door, plus turned the stairway banister into a toothpick. I had a rental property where an underground oil tank leaked, and I had to deal with the EPA and a host of other agencies. $7,000 later, the problem was cleared up. I had a tenant with a split personality who used to fight with herself when she was off her meds, to the dismay of the others in this multi-unit building. I had another tenant in a condo who was not paying his utility bills to the utility management company used by the condo association, and by the time I got his assurances that it was an accounting mess-up on the management company’s fault, I was in the hole $1600, which I had to cover myself once I sold the condo. I did get the tenant to agree to a 16 month payment plan, but now I am in the note business and I have to hound him This content is protected by copyright and may not be copied. Your CopyFingerprint TM ID is 4893485. 3 every month to get the $100 payment! Turns out that on a trip of his to his former home state of Texas, he was picked up on an old bench warrant and the legal costs he had to pay to settle an old offense wiped away any chance I had of getting the remaining $800 he owed me. I could go on, but you get the point. Financially, to invest in the traditional way of real estate, you need to come up with a down payment plus closing costs, and have enough credit to apply for a mortgage on the building you are buying. The “nothing down” approach taught several years ago sounds good in theory, except for that fact that this means you are in a highly leveraged situation, and you are relying on property appreciation to make you money. In the mean time, you will have negative cash flow if your rent does not cover your payments, plus taxes and insurance. The old-school approaches of creative financing worked great when interest rates were 18%, but in today’s environment it is easy to get a mortgage and due to the low rates, the prices for a traditional investment property have given would-be investors a severe case of sticker shock! If you do the math on the typical residential deal, you are looking at a mortgage and property taxes that can exceed $1500 a month. Face it – most people who can make that kind of monthly payment are probably going to be buyers instead of renters. One way to tell if a property will generate the income needed to support a highly leveraged purchase is to use my Property Analyzer workbook for Microsoft Excel. If you enter the purchase price, the low, low down-payment, the current or estimated rent plus the documented expenses, you will see how much you have left to service the debt. If you have negative cash flow, the spreadsheet will tell you how long this will go on, and then you can see if you can handle the negative cash flow. If you are going to invest in a single family home with the intent of renting it out via a lease-option, I suggest that you run a fake classified ad in a couple area newspapers to see if there is any demand for the property at that price. Run an ad as follows (change the text to reflect your target property): Rent-to-own. 3 BR, 2 bath home with yard. Finished basement. $1950/mo + utils. $3000 purchase-option fee. 215-555-1234. If you get no phone calls, then you know you will have a white elephant on your hands, meaning being committed to making payments on a property that will not rent for what you need to cover the mortgage payments, plus taxes, insurance and any private mortgage expenses. In most areas, a 1-week classified ad will cost you less than $30. This investment will tell you whether or not you should be looking at single family homes as an investment. You will find that in many affluent suburbs, the recent run-up in property prices due to the availability of low interest rates has made the concept of renting out a single family home almost impossible to avoid negative cash flow, unless you re putting up a large down-payment. You can get an idea of this by using the Property Analyzer spreadsheet, and entering the values for market rent and typical This content is protected by copyright and may not be copied. Your CopyFingerprint TM ID is 4893485. 4 expenses, including property taxes, insurance, vacancy allowance, repairs, and other miscellaneous fees. If you take the amount of money left to service the debt, you will see that this often falls way short of the monthly mortgage payment. If you were to look at the capitalization value of the property based on net income, you would see that the cap value is far below the market value of the property.