Book: How to Invest in Real Estate

howto_inevest_in_real_estate“How to Invest in Real Estate: The Ultimate Beginner’s Guide to Getting Started” by Joshua Dorkin and Brandon Turner
  • “Even if you can only spare a few minutes each day, but you are consistent with it, you can invest in real estate.”
  • “The key to investing in real estate without any money of your own is simple: Bring something to the table.”
  • “Many investors use little or none of their own money when investing in real estate by applying one of several methods that include:
    • Partners
    • Lease option strategies
    • FHA 3.5 percent down payment loans
    • USDA or VA no-down payment loans
    • Home equity loans or lines of credit
    • Seller financing
    • Private/hard money
    • Wholesaling”
  • “If your market is incredibly expansive, you have four real options:
    • Don’t invest, but simply wait on the sidelines for the market to change. I don’t recommend this one, but it’s a possibility.
    • Look harder. Oftentimes, the market might be overheated, but good deals can be found for those willing to look harder for those deals. Luckily, we’ll look at 27 unique strategies for finding real estate deals in Chapter Six.
    • Change your strategy to something that your expansive market does allow (like flipping or development).
    • Invest someplace else. This might mean driving 60 minutes outside the expensive city to find deals in smaller, more rural markets, or it might mean building a team at a distance and invest 2,000 miles away.”
  • LLC: “People often open these entities to limit the liability that they would encounter in the case of a lawsuit.”
  • “But LLCs and corporations have one major downside, especially for new investors: difficulty in obtaining loans.”
  • “This entire situation is swapped, however, when it comes to flipping houses or buying larger commercial real estate properties like apartment buildings.”
  • “Having a real estate license can come in handy for an investor, for a few reasons:
    • Speed: In a competitive real estate market, the early bird often gets the worm. As a real estate agent, you can get first knowledge of real estate deals that are listed.
    • Access: A licensed real estate agent can get into almost any property that is listed for sale with a special key and lockbox. In other words, you don’t have to wait for someone else to go with you or give you permission to see property. If the home is vacant, you can head over any time, assuming the home has the special lock-box present. If the home is not vacant, you can set up a time to view it without having to fit into another agent’s schedule.
    • Commissions: When a home is sold, the seller usually pays around 6 percent to the agent who made it happen. This fee is typically split 50-50 between the agent who listed the home and agent who brought the buyer. Therefore, as a real estate agent, when you buy a property, you can represent yourself and use that commission toward your down payment or repairs, or to take a trip to Jamaica.”
  • “So, what’s the downside of getting your license? There are a few:
    • Time: First, becoming an agent is not as easy as just signing a document. You have to take an extensive class (depending on the state, the class could be up to 190 hours long) and you must pass a difficult test, which may require long hours of studying. This takes away time from actually investing in real estate.
    • Money: Then, once you become an agent, you’ll find yourself paying several thousand dollars in fees each year just to hold on to your license.
    • Paperwork: Finally, as an agent, you’ll find yourself responsible for additional paperwork and disclosures in every deal. If you are representing yourself, you can’t simply let your agent do all the heavy lifting, because you are the agent!”
  • “Knowing where you stand comes down to three factors:
    • How much you currently have
    • How much you currently earn
    • How much you currently spend”
  • Using two Financial Spending Plan (FSP): “In other words, take a look at your expenses from last month (your bank statement will work great for this, or access the data from your online portal through your bank) and put each into one of the five categories. Then use the second FSP to declare what you want your expense to look like in the future, starting now.”
  • “Buy the right duplex, triplex, or fourplex; rent out the other units; live for cheap or free.”
  • “Renting out a room in your single-family home could also help reduce your load, as would choosing to live in a cheaper location or downsizing to a smaller home. Yes, it might be a temporary sacrifice, but by reducing your highest expense, you can plug the largest hole in your bucket, giving you more income to save or to spend on real estate investments.”
  • “It had been a while since I had last done this, and I was shocked to find $200 of monthly expenses for things I no longer used. Thirty minutes later, I was $200 per month wealthier.”
  • “Keep in mind, subscriptions might not be the only expense you can reduce. Look at your car insurance, health insurance, home insurance, and other regular fixed expenses, and find ways to reduce those costs.”
  • “Mindsets are changed slowly, and there are three primary ways in which a mind-set is changed:
    • Through Story: Humans love a good story. Not only does it grab attention, it also changes the way a person thinks. A good story has the ability to change one’s mind-set. Tell your spouse a story that can illustrate your goal. For example, the story we told you a moment ago, about Brandon finding $365,402 hidden in his account–what did that do to your mind-set? Did it shift it, just a little bit?
    • By Aligning Goals: Few people enjoy working out and eating super healthy. Instead, we make these small sacrifices in our day because we want the results. Every result you desire in life involves some sort of sacrifice. Therefore, a great way to get on the same page with your spouse is to define and align your goals. Once your spouse understands the mission–financial freedom–he or she will likely join you on the quest, as long as it’s a goal they can get behind.
    • Through Media: After 300 different interviews on the BiggerPockets Podcast, isn’t it interesting that 90 percent of the guests say the same book when asked, ‘What is your favorite real estate book?’ The answer: Rich Dad, Poor Dad by Robert Kiyosaki. Why? Interestingly, the book hardly mentions real estate. But this book is continually brought up because it changes one’s mind-set in a powerful way. In addition, movies, podcasts, blog posts, and other forms of media can make a big impact. Therefore, a great way to help your spouse’s mind-set change sis by suggesting books or media.”
  • “But in reality, frugality is simply making conscious choices to control your spending, rather than letting your desires control you.”
  • “If your money is still driving your life around, no amount of extra income is going to make a difference.”
  • Principles to consider to start a business
    • Do something you enjoy
    • You don’t know everything
    • Finish what you start
    • Partner carefully
    • Learn to manage
    • Do what is important
    • Get obsessed
    • Don’t quit your job too soon
    • Focus on your higher-paying tasks
    • Keep the main things the main things
    • Read… a lot
    • Wake up earlier
  • Lease out your home/car
  • “We can never see the top or bottom while in it, so the most important factor for investing in a property is to make sure the numbers work. ‘You need to make sure that the money coming in is greater than the expenses, even if the market is down'”
  • “Develop a plan and work that plan everyday–just like you would get up and go to work every day for a paycheck.”
  • “However, you don’t need to learn about every single niche buying technique, and you don’t need to be an expert before getting your hands dirty. You should focus on one area of investing and become an expert in it, and then move on to the other techniques and areas.”
  • “They purchased a small three-bedroom, one-bath home for just $21,000, and after a small rehab, rent it for $800. They then refinanced it for $70,000 and used the money to buy another property in the same neighborhood, utilizing BRRRR strategy (which we’ll cover in Chapter Five) to rebuild their empire.”
  • Your Real Estate Team
    • Your Mentor
    • Your Partner
    • Realtor: “Either way, having an agent who is punctual, a go-getter, and eager, is important. Real estate agents are paid from the commission when a property is sold. Simply put, for the buyer, an agent if free. The agent can be an excellent resource for contract real estate work, which may include the following activities: referring buyers, showing properties, open houses, broker price opinions, etc.”
    • Property Manager
    • Mortgage Broker/Loan Officer: “Many loan officers have a pipeline of buyers (or future buyers); real estate investors can use the help of local loan officers to build a list of buyers and lease purchasers for their properties.”
    • Real Estate Attorney: “Having an attorney who is skilled with real estate investing is very important for the success of your career. Keep in mind, attorneys can also be compensated through fees collected at acquisition or disposition of a property.”
    • Escrow Officer or Title Rep: Having a good one on the team helps to close deals that much quicker.”
    • Accountant: “Your numbers person should also be aware of the ins and outs of real estate, and preferably own rental properties of their own. Come tax time, this is the person to help you through the write-offs. A good tax accountant will save you more than they cost.”
    • Insurance Agent: “Be sure to shop around for both the best rates and the best service. Do not skimp on getting insurance; you never know when you’ll need that policy.”
    • Contractor: “A good contractor seems like the hardest team member to find, but can often make or break your profit margin. You want someone who gets things done on time and under budget. Be sure that your contractor is licensed/bonded/insured to protect you. Don’t simply hire the cheap person.”
    • Supportive Family and Friends
    • Great Handyman
  • Factors to consider about a teammate:
    • “Are they really experts?
    • Do they interact well with everyone?
    • Are they a pain to contact?
    • Do they return calls/emails quickly?
    • Do they hit deadlines?
    • Do they produce as promised, when promised?
    • Can they communicate clearly and efficiently?”
  • “Make sure your real estate attorney helps you draft any partnership agreements to help protect your interests.”
  • “When it’s just you alone, your taxes are much more straightforward than if you’re working with partners. The more members you bring on as owners, however, the more complicated the bookwork becomes and the more time-consuming (and costly) tax season is.”
  • Tips for successful real estate partnership:
    • “Don’t be a jerk: treat your partnership with care and have a giving spirit.
    • Learn to compromise: There will be disagreements and conflicts in a partnership–and there must be compromises.
    • Talk daily: Talk every single day, when possible. Discussing daily events as well as future goals will keep the relationship stable and validates the reason you are partners.
    • Plan ahead: Do not start a partnership off the wrong way. Make sure the arrangement to detail the roles and responsibilities, capital contributions, profit splits, and exit strategies.”
  • Tips for building relationships with a mentor:
    • “Focus on relationships: Concentrate first on establishing relationships with seasoned investors whom you would like to learn from. A mentor doesn’t need to be an internet celebrity. A mentor can be the investor down the street who owns half a dozen rentals and works a full-time job, or an active BiggerPockets member who donates his or her time to answering questions in the forums. The key is finding an individual you want to learn from in the field you want to enter.”
    • “Become valuable: Make yourself valuable in a way that is meaningful (profitable) to the other person. What can you offer the other person you want to learn from?”
    • “Don’t expect anything in return: You don’t build your early mentorships (parents, grandparents, etc.) by expecting something in return. You built them because you were simply going through life. Provide value, and in return, you may receive something back–but don’t expect it.”
    • Always think win-win
    • “Work hard: Most successful investors are willing to help, but only after you have proven that you are worthy of their involvement.”
    • Start small: “So rather than approaching a stranger with a huge request (like, ‘Will you be my mentor?’), start small: Ask a simple question about something you honestly need help with or clarity on (preferably a question that could easily be solved by searching Google). For example, when I (Brandon) found my real estate mentor Kyle, I simply asked him, ‘So how did you buy all these rentals?’ Later I asked, ‘Do you have any local banks you like working with?’ And still later, ‘What do you think of XYZ neighborhood?'”
  • “When you invest in flips or other real estate that you hold on to for less than one year, in the eyes of the IRS, you are not ‘investing’ in real estate, but rather you are ‘self-employed’ in the business of real estate. As a self-employed business owner, you are responsible for paying ‘self-employment tax’ (currently 15.3 percent) on the money you earn.”
  • “Corporations can issue ‘dividends’ to their shareholders anytime they like. It’s basically a way for the company to distribute profits. This income is not subject to the FICA or self-employment tax (though some state/federal/local taxes probably do apply).
  • “If you invest in rental properties and hold on to them for many years, you are obviously not self-employed. It’s an investment. There aren’t a lot of reasons to put your properties into an S corp, but rather a lot of reasons why you shouldn’t. However, if you buy and sell real estate while holding the properties for less than one year, the government considers you self-employed, and now an S corp could save you a lot of money.”
  • “He often starts by contacting the county office of his preferred location to buy in and requests a list of property owners who are close to losing their real estate due to unpaid taxes. He then mails these individuals, asking them if they would like to sell their property. If they respond to his inquiries, and the property looks like a good opportunity, he will make an offer to buy their property for pennies on the dollar.”
  • “Once he purchases a property, he will turn around and sell the vacant land as quickly as possible. Not wanting to be stuck with a property for a long time, he often prices it well below market value to ensure a quick sale.”
  • Single-family houses
    • Benefits
      • “High inventory: You can find single-family homes in almost every location on earth.”
      • “Easy to understand:… No one looks at a house and says, ‘But… what is it?'”
      • “Easier to sell and rent: Because so many people want to lie in single family houses, these types of investments can often sell or rent much faster than other property types.”
      • “Financing is simple: Most banks can finance a single-family home without a lot of trouble because they do so many.”
      • “Cash flow and appreciation: If you buy right, renting a single-family home can provide great monthly cash flow and tend to climb in value over time, resulting in your equity climbing higher and higher.”
      • “Simple to manage: A single-family home can be fairly simple to manage because there is just one tenant living inside. Generally speaking we’ve also found that single-family houses tend to attract a higher caliber tenant who takes better care of the house.”
      • “Simple to rehab: Most contractors can handle remodeling a single-family house, and there are few surprises inside (despite what the flipping TV shows would have you believe).”
    • Downside
      • “scalability. A single-family home is just one property that will require its own financing, its own rehab, its own management. And one single-family house is unlikely to make anyone rich or provide true financial freedom. Therefore, if you buy single-family houses, it may take a large number of them to reach your financial goals.”
      • “competition. Because everyone wants to own or live in a single-family house, when you shop for homes you are competing not only with other investors but homeowners who are willing to overpay for properties because they are emotionally attached to the deal.”
  • Small multifamily
    • “Small multifamily properties are any residential property that has between two and four units.”
    • “These property types are slightly harder to ind than single-family houses, but exist in almost every residential area of the world.”
    • “To a bank, small multifamily properties are no different than single-family houses.”
    • “Furthermore, small multifamily properties can cash-flow quite well, assuming you don’t overpay.”
    • “And because fewer homeowners are looking to buy a small multifamily property to live in, there is often less competition than you’d run across bidding on single-family homes.”
    • “Another perk of the small multifamily property is the ability to take advantage of ‘economies of scale,’ as only one loan is needed to buy the two, three, or four units in the property.”
  • Large multifamily
    • “While small multifamily buildings are made up of between two and four units, large multifamily properties have five units or more.”
    • “However, these apartment complexes typically require a larger down payment and net worth to purchase, and the loans can be difficult to obtain for those without significant real estate experience.”
    • “Instead of being priced based on the average amount that other apartments have sold for, the value of these properties is based on the income they bring in.”
    • “These properties are a great place to utilize on-site managers who manage and perform maintenance in exchange for free or decreased rent.”
  • “Andrew chose to go with syndication–a group of people who are willing to pool their money to obtain a property that they normally wouldn’t be able to get alone, and then sharing the benefits.”
  • Commercial
    • “Although larger multifamily properties can also be considered ‘commercial,’ what we’re really talking about here is nonresidential commercial investments.”
    • While commercial properties often provide good cash flow and consistent payment, they also may carry with them much longer holding periods during times of vacancies; commercial property can often sit empty for many months or years. Therefore, commercial investments can require more experience and a stronger position of wealth to begin investing.”
  • Mobile homes
    • “the tenants own their own homes and simply rent the land. This encourages the tenant to stay longer while decreasing the repairs required on the homes.”
  • Private notes
    • “Rather than investing in a piece of real estate, you are investing in a piece of paper. Essentially, you are creating an IOU–officially known as a ‘promissory note’–to someone else, and each month that person (usually an investor, but sometimes a home-owner) pays you instead of a bank. So basically, with note investing you are the bank!”
    • “A note (combined with a document known as a ‘dead of trust’) gives you, the leaner, the right to receive monthly payments from the borrower until the loan is paid off. The note states all the terms that were agreed upon, and also gives you the legal right to foreclose on the property if the borrower stops paying.”
    • “Private notes can be one of the most passive ways to invest in real estate as, ideally, your job is simply to collect a monthly check.”
  • REITs
    • “REIT stands for real estate investment trust.”
    • “A large number of individuals pool their funds together forming a REIT, and allow the REIT to purchase large real estate investments such as shopping malls, large apartment complexes, skyscrapers, or bulk amount of single-family homes. REIT then distributes profits to individual investors”
    • “If you invest in a REIT, you’ll find it very similar to investing in a stock or mutual fund.”
  • Buy and hold
    • “Cash flow: When you buy and hold real estate, most investors want to see a monthly profit, known as cash flow.”
    • Appreciation
    • Loan paydown: “Essentially, if you have a loan on a property, the balance is being paid down each and every months by the money your tenant are paying you.”
    • Tax benefits: “Depreciation is, essentially, the government requiring you to ‘write off’ a certain portion of the properties, even though you never actually spent that money. Depending on your current income level and tax situation, this ‘paper loss’ might help you pay less taxes from your day job, but be sure to consult with a CPA for more specifics of your situation.”
    • “The largest downside with this plan, however, is that it takes time.”
  • Annual Return = (Ending Investment / Beginning Investment) ^ (1/# of years) – 1
  • Cash on Cash Return = Annual Cash Flow / Total Investment
  • 1 or 2 percent test
    • “Essentially, this rule of thumb looks at the monthly rent divided by the value, in a percentage form.”
    • “The 1 or 2 percent test gives us a quick view on whether or not the property will produce positive cash flow.”
  • 50 percent rule
    • “The 50 percent rule states that, on average and over time, half of the income a property generates is spent on operating expenses.”
    • “Operating expenses are all of the expenses involved with running a rental property–except the loan payment. It includes taxes, insurances, utilities, repairs, vacancy, and other metrics that leave the landlord’s checking account each month or year.”
    • “Of course, that 50 percent estimate on operating expenses can vary wildly, depending on the property. In some areas, taxes and insurance might be incredibly high, but in other areas, they might e much lower. Some properties require that the landlord pay all the utilities, where other properties allow the tenant to pay their own. These and other property-specific details demonstrate the weakness in the 50 percent rule.”
  • Metrics
    • “Cash flow: For a single-family house, I try to achieve $200 per month in cash flow; for multifamily property, I aim for $100 per month, per unit (so a fourplex should make at least $400 per month in cash flow).”
    • “Cash on cash return: Over the past 100 years, the stock market has averaged a return of 6 to 7 percent. I decided to almost double that and aim for around a 12 percent cash on cash return.”
    • Equity: “Therefore, I aim for a minimum of 2- percent in equity in any deal I do. If the property is worth $100,000, I don’t want to owe any more than $80,000. This can be done in one of two ways:
      • I could find a really good deal that I can purchase (and rehab) for 80 percent of the value.
      • I could put up a down payment of 20 percent, giving me the required equity.”
    • “Total return on investment: Finally, I try to average around 15 percent per year, or more, over the life a real estate deal.”
  • “The most popular type of property to flip is the single-family home, and one of the key actors in flipping a house is speed.”
  • How to flip houses
    • Research
      • “How much are average home selling for?
      • How much are bank real estate owned properties selling for?
      • How fast are properties selling?
      • What area seems to be selling the fastest?
      • What property types/sizes/layouts seems to be selling the fastest?”
      • “Walk through as many open houses as you can, and meet with local experts to discuss the  state of the local economy.”
    • Financing
      • All cash
      • “Conventional financing: Some people utilize a normal bank loan to flip houses, but this can be difficult if the house is not in great shape (most banks won’t lend on unfinished homes).”
      • “Home equity loans/lines: If you have a large amount of equity in your personal home, you may be able to tap into this equity in the form of a home equity loan or line of credit.”
      • “Hard-money lenders: A hard-money lender is a private individual or company that lends on high-risk loans (like flips), and charges high fees and interest to get the money. Hard-money loans are ideal on flips because they typically have a one-year-or-less maturity date.”
      • “Partners/private money: If you know people who have money to lend, they may be interested in partnering or lending their cash at a certain interest rate. Private money can be one of the cheapest sources for funds, though raising private money can be difficult and legally cumbersome.”
      • “Finalize whatever source you plan on using before shopping for your investment property.”
    • Analysis
      • “‘ARV’ — after repair value”
      • ARV – Rehab – Fixed Costs – Desired Profit = Max Purchase Price
      • “In this case, fixed costs are items like the costs associated with holding on to the property, purchasing the property, and selling the property.”
    • Find a deal
    • Fix and flip it
  •  70 percent rule for house flipping
    • “The 70 percent rule states that the most you should pay for a potential flip is 70 percent of the after repair value (ARV)–what it would sell for when it’s a all fixed up–minus the repair costs.”
    • “This rule of thumb assumes that 30 percent of the ARV will be spent on holding costs, closing costs (on both the buyer’s and seller’s side, such as commissions, taxes, attorney feeds, title company fees, and more), the flipper’s profit, and any other charges that come up during the deal.”
    • “For example, the 70 percent rule doesn’t work as well for a property with a low ARV, such as $50,000… However, 30 percent of $50,000 is $15,000, so following the 70 percent rule, all the fees, costs, and profit add up to only $15,000. If the fees and holding costs were to total $10,000, that would leave just $5,000 in profit for the house flipper–and I don’t know any house flipper  who will take on the risk of flipping for just $5,000.”
    • “A similar problem with the 70 percent rule would dictate that a home with an ARV of $700,000 that need $50,000 worth of work should produce a maximum allowable offer of $440,000. In most markets, however, finding a $700,000 property for $440,000 is simply not feasible.”
    • “In this case, 80 percent or even 85 percent might be good enough.”
  • “Wholesaling is the process of finding great real estate deals, writing a contract to acquire the deal, and then selling the contract to another buyer.”
  • “This fee is typically between $500 and $10,000 or more, depending on the size of the deal. Essentially, the wholesaler is a middleman who is paid for finding deals (although practicing real estate without a license is illegal in all 50 states, so be sure to double-check that you’re within legal boundaries when wholesaling).”
  • “Most wholesalers sell their contracts to other real estate investors–usually house flippers–who are typically ‘cash buyers’ (which means they don’t need to take out a loan from a bank, with all the baggage that accompanies loans, to buy the property.)”
  • Issues with wholesaling:
    • Difficulty: “you have to find great deals before anyone else does and you have to pay less than others because you need to work your own fee into it.”
    • Constant marketing: “Wholesalers must continually seek out the best deals in order to have inventory to sell to others, and they must have a well-designed marketing funnel (you ‘ll read more about this later) to continually attract these leads. Wholesalers also must continually seek out buyers for the deals they acquire.”
    • Often illegal: “Those who argue that real estate wholesaling is illegal claim it to be so because the wholesaler is acting as a broker in the deal without being licensed. Those who defend wholesaling without a license say that wholesaling is not brokering, but simply signing a contract and then assigning that contract to another, and therefore the law doesn’t apply to this situation. They are not selling a property, but simply selling the ownership of a real estate contract.”
  • Right way to wholesale:
    • Get your license
    • Buy the property and then sell the property
  • Real estate development: “In a way, it’s similar to house flipping, where someone buys a house, fixes it up, and then resells. But development usually is done to raw land (or to land where structure is demolished and made to be just land).”
  • “When developing land, there are five distinct stages:
    • Land acquisition
    • Permits and planning
    • Site preparation
    • Building the structure
    • Property management or sale”
  • “The risky part of real estate development comes in the length of time it can take to work through all five steps.”
  • “Turnkey real estate investing is an investment strategy in which a particular company finds, buys, rehabs, and manages a property, and sell the ‘finished product’ to (usually) out-of-state investors.”
  • “Turnkey investing can be an exciting option for some, especially those who live in real estate markets where cash flow is difficult to obtain (as most turnkey providers focus on cash-flow heavy locations, mostly in the U.S., Midwest and Southwest).”
  • “First, turnkey companies often buy the property at a discount and sell it to you, the out-of-state owner, for a higher amount, essentially ‘flipping’ the property to you for a hefty price.”
  • “Additionally, the turnkey provider brings in monthly revenue by managing the property for you, but that’s a charge you are likely going to pay no matter where you buy (unless you buy local and manage yourself).”
  • “Many turnkey companies are ‘soft’ on the math when they present the deal to you; they often ignore important metrics in their math (like repairs or management fees) in order to make a deal look better. Before choosing to invest with a turnkey company, always do your own math and make sure the deal really is a deal.”
  • “Do your due diligence on both the numbers and the property itself, and make sure it’s truly a deal worthy of purchasing.”
  • “House hacking is the strategy of purchasing a small multifamily property–usually a duplex, triplex, or fourplex–using one unit to live in and renting out the other units.”
  • Benefits of house hacking:
    • “Low (or no) down payment financing: When you plan to live in a property for at least one year, financing becomes much more friendly for the borrower. For example, and FHA loan allows for just a 3.5 percent down payment, and the USDA (United States Department of Agriculture) loan allows for $0 down if you are buying in a rural area.”
    • “On-the-job training: House hacking is a great introduction to the world of landloarding.”
    • “Can keep an eye on your investment: When you live in your investment property, keeping an eye on the property and making sure it’s running at peak performance is easy.”
    • Saves money: “First, depending on the deal and your market, you may be able to live for free, or far cheaper than normal.”
    • “Additionally, because you live on the property, you can manage the other tenants yourself and can save on the cost of property management, increasing your cash flow even more.”
  • “Short-term rentals are usually privately owned properties where the owner leases out a furnished home or condo (or yurt, boat, tent, … seriously) by the night, much like a hotel.”
  • Downsides of short-term rentals
    • Extra work: “There are managers who can handle the day-to-day interactions. Software exists to help automate a lot of communication with guests. You can improve your listings and slowly raise your rates. But it takes time and diligence, as with any strategy.”
    • Taxes: “a short-term rental property’s income (especially when guests stay fewer than seven days) may be seen as business income, not investment income which would require you pay self-employment taxes on profits (15.3 percent). In addition to federal taxes, you may also have state and/or local taxes, including income tax and/or hotel tax. In some areas, this could add up to 25 percent more in taxes.”
    • Legality: “Whatever the reason, just know that you must learn the laws related to short-term rentals and abide by them (or find a friendlier area to own them in).”
  • “Perhaps the greatest benefit to the ‘live-in flip’ is the potential tax benefits, thanks to the ‘home exclusion’ loophole in the tax law. Essentially, this IRS role allow an individual to pay zero taxes on the sale of their home, as long as they’ve lived in the home two of the past five years, and the profit is no greater than $250,000 for single homeowners or $500,000 for married (and filing jointly) homeowners. (There are a few other requirements, so be sure to do some research before jumping into this strategy.)”
  • “BRRRR is an acronym for a popular investment strategy that involves buying fixer-upper rental properties, repairing them, leasing them out to great tenants refinancing to get your money back, and then repeating the process over and again.”
  • “Specifically, BRRRR stands for:
    • Buy
    • Rehab
    • Rent
    • Refinance
    • Repeat”
  • “You need to find a great one. Great location, great neighborhood, bu a fixer-upper house.”
  • “The key to rehabbing a BRRRR property is to make the property as ‘tenant proof’ as possible, using materials that will last a long time and won’t need to be redone later. And it’s important to rehab with the goal of getting the highest property value and the highest rent possible.”
  • “So the fourth step in the BRRRR strategy is to refinance (meaning: pay off the first loan with a brand new loan) into a nice conventional mortgage after the property has been fixed up.”
  • “Sure, at some point the bank will stop refinancing the properties for you. And maybe you’ll need to find another solution, like a portfolio lender or a partnership. Or maybe it’s time to venture into bigger commercial deals (like apartments). But it can be done, and it is being done, over and over, by investors across the world.”
  • “To prevent this refinance denial, visit a few local banks before you buy a property and make sure you are qualified to get a loan. Have them run your credit and check your income, and then have them give you a preapproval letter.”
  • “Many student rental owners also ensure positive behavior on the part of the student by requiring the parent to cosign on the lease.”
  • Student rentals: “When done right, it gives you very high rents, no vacancy, and no loss of rents”
  • “By focusing on multiple desires at the same time, we often destroy the opportunity found in both.”
  • “A Home Run Deal is simply any deal that is good enough to fit into your financial freedom strategy–and every property out there, no matter what, has a number that makes it a Home Run Deal.”
  • “LAPS is an acronym that stands for:
    • Leads
    • Analysis
    • Pursue
    • Success”
  • “First, you can try searching one of the third-party property portfolios, like Realtor.com, Zillow.com, Trulia.com, or Redfin.com. These websites have negotiated with the various MLS lists around the country to give you access to listings. The problem with using these sites is twofold:
    • Their information might be dated.
    • Their information is incomplete.”
  • “Additionally, some of the portals might e better or worse than others. In my area, Zillow.com has almost no listings, yet Realtor.com has hundreds.”
  • “The second option you have for searching the MLS is through a real estate agent directly.”
  • “You should definitely do this, because when it comes to getting deals on the MLS, speed is key. Once you find a deal on the MLS, you’ll need a real estate agent to get the deal in your portfolio. A good agent will help you negotiate or help you find similar deals. But don’t worry, that’s the easy part, because the agent is typically paid by the seller.”
  • “Driving for dollars isn’t just about driving. It’s about driving with a purpose. Your purpose? Looking for potential deals.”
  • “For the purpose of driving for dollars, you are looking for any property that looks distressed, damaged, vacant, or has other signs that owner might not want to own it anymore. This could include:
    • long grass
    • newspaper piling up
    • legal notices on the door/windows
    • tarps on the roof
    • old For Sale or For Rent signs that have been left behind
    • or really anything else that makes you say, ‘Huh.. I bet they don’t live there anymore.'”
  • “Walking for dollars is almost identical to driving for dollars, except for one thing, Yep, you are walking.l Walking for dollars will accomplish two things:
    • It’s a free method to find deals.
    • You’ll get in better shape.”
  • “By walking, you’ll have more time to really look at the properties.”
  • “Additionally, by walking, you’ll be able to strike up more conversations with locals. Tell everyone you meet that you are looking to buy a property in the area and ask if they know anyone who would want to sell. Bring a stack of your business cards and hand them out to anyone you meet.”
  • “Make sure people know what you do–wherever you go. People want to help you achieve your goals when they know what you want.”
  • “Of course, direct mail marketing is a good way to lose a lot of money fast. There are many moving parts, and you’ll need to constantly monitor, test, and tweak your mailing campaign. You’ll need to find the right people to send to, find the best material to send (postcard versus letter, handwritten versus typed, etc.), and you’ll need to find the right system for handling all those calls. Plus, you’ll need to know how to talk to people and negotiate a great price.”
  • Courthouse Steps
    • “First, understand that you must pay cash–that’s right, no bank financing available here. Typically you will need to bring multiple cashier’s checks to the auction. You’ll pay for the property the same day, so cash is required.”
    • “However, you could also use a hard-money lender if your lender is willing to work with you to make it happen.”
    • “In addition, when buying on the courthouse steps, you are usually unable to get inside the property, which means that sometimes you don’t really know what you are getting. Although you can get a decent idea by looking through windows, surprises are bound to pop up.”
    • “Therefore, if the bank that is foreclosing on the property is owed $150,000, yo likely won’t get the deal for any less than that.”
    • “For example, if the former owner was sued by a contractor, and that contractor placed a mechanic’s lien on the house, that lien may be transferred to your responsibility. Therefore, it’s important to do some title research before bidding on any courthouse-steps auction house.”
    • “However, the former owners may still live on the property and will need to be formally evicted in order for you to get the house.”
  • “If you’ve ever had to do an eviction, you’ll understand the frustrations involved. It’s stressful, it’s expensive, and it’s depressing. Most landlords hate the process–so much so that they might be willing to sell.”
  • “How do you go about contacting landlords who are going through an eviction? The eviction records from your local county area a matter of public record, which means you can get a list of all the current eviction filings. You can discover the name of the tenant being evicted and the address of the property, and probably the name of the owner as well (though it might be the name of the property management company). If you don’t get the owner’s name, a simple search at your county assessor’s office will tell you the name and the mailing address of the owner.”
  • “With millions of people using Craigslist every single day, why not post a simple ad that says you are looking to buy a house?”
  • “Contacting landlords who post ‘For Rent’ ads. Not every landlord wants to sell, but would you imagine some of them would?”
  • “The point is, by calling the mom and pop landlords on Craigslist, you are accomplishing two major goals:
    • Networking
    • Deal Finding”
  • Craigslist automation: “You can sign up to receive an automated email of ads that contain keywords yo specify, such as:
    • FSBO
    • Fixer
    • Needs work
    • Handyman special
    • Handyman
    • Priced to sell
    • Repairs
    • Quick
    • Cash only
    • Cash offer only
    • Reno
    • Motivated
    • Will not qualify
    • Unpermitted
    • Upside
    • TLC
    • Teardown
    • Sold for land value
    • As is
    • Lots of potential
    • Needs work
    • Lot of work”
  • “Or for those who are more computer savvy, you can use Ifttt.come to set this up as well, with its more advanced automation options.”
  • “Lucky for you, BiggerPockets has made it really easy to setup automated alerts for any term you’d like, so that you’ll be notified instantly when a deal hits the market in your area.”
  • “Signs can be effective because of the mass quantity of eyeballs that read the message, even if only a small percentage ever respond.”
  • “Bandit signs are the small corrugated cardboard or plastic signs, sometimes handwritten, that have messages like ‘I will buy your house for ca$h! Call 555-555-5555.” Investors, especially wholesalers, place dozens (or even hundreds) of these signs all around an area, usually on telephone poles or in lawns near popular intersection. The problem with bandit signs, though, is simple: They are often illegal (hence the name bandit signs).”
  • “Talk to your local governing body and find out what is allowed. Some areas issue permits for signage; others have no problem with bandit signs. But be sure to check first. (And if you are a rehabbing a property and you own the land, why not place a bandit sign in the front yard?)”
  • “A billboard can e a great way to reach a large number of people, and depending on your area, a billboard might be cheaper than you think.”
  • “If you drive around a lot, you could consider placing an I Buy Houses sign on the side of your car, truck, or van.”
  • “Fiverr is an incredible website where you can hire people to do a variety of tasks for you, starting at just $5.”
  • “You can also use Fiverr to create a TV ad spot, but that might take several ‘gigs’ to get something you are proud of.”
  • “Call up your local radio or TV station today and see what they can tell you about ad rates.”
  • For Sale By Owner:
    • “When they go to sell their home, there are many things a homewoner might do to advertise their property, but typically you’ll find they place a sing in the front yard.”
    • “In fact, we’ve found that most FSBO deals are actually priced way too high. People tend to be overly optimistic about what their home is worth and, as a result, they have incredible difficulty selling.”
    • In addition, you can surf websites like:
  • “Many homes on the MLS never sell. Typically, when a homeowner signs an agreement with an agent to sell a property, a listing contract is signed that has a definite start and end date. After the end date passes, the home may become what agents often call an ‘expired listing.”
  • “For that, you’ll likely either need:
    • A real estate license OR
    • a real estate agent who will give you this list”
  • “Once you get the list, either mail letters, call, or simply knock on doors. Strike up a conversation and see if they’ll be willing to sell the property to you. Emphasize that they will not need to pay a dime in real estate commissions, because you are buying the house directly. This can save them thousands, and you can close quickly. No need for showings, no need for them to clean their house, no need for them to struggle through a hard negotiation. Make it simple for them.”
  • “Another type of newspaper you might want to place an advertisement in would be landlord- or real estate-focused industry magazines.”
  • “So how can you use content marketing to get real estate leads? By following a three-step process:
    • Create amazing content (not ‘sales’ content–actually provide value)
    • promote that amazing content
    • Make sure visitors know that you buy houses”
  • “In today’s tech-centered world, a website is a must. Having a well-designed website gives any business a ‘storefront’ to the entire world, and real estate investors are no different.”
  • “How do you get your website to rank high? Two primary rules:
    • Provide great content that actually answers people’s questions
    • Get other websites to link to your website (known as ‘backlinks”)”
  • “It would make sense, then, that if you are trying to buy real estate deals, you need to get to know some great wholesalers in your market, and have them looking for deals for you.”
  • “Many, if not most, so-called wholesalers are actually terrible at what they do and will just waste your time.”
  • “However, when you find a great wholesaler–someone who understands marketing, understands rehabs, understands true value–hang on to them.”
  • “Like their residential counterparts, commercial agents generally get paid by the seller in transaction, meaning it likely will not cost you anything to start getting leads. But unlike residential real estate, there is no centralized ‘list’ of all the properties for sale (though some online platforms gaining ground toward this end, which we’ll talk about next). Instead, leads will generally come from the broker themselves.”
  • “Therefore, you need to be begin building that relationship now. Talk regularly with the broker, take action on what they present, let them know what you want (and what you don’t), and do what you can to prove that you are a legitimate buyer.”
  • online commercial marketplaces:
  • “Some banks and credit unions, however, have the ability to lend from their own funds entirely, which makes them a portfolio lender. Because the money is their own, they are able to provide more flexible loan terms and qualifying standards. Oftentimes a portfolio lender will have funds available with less-restrictive qualifications than a conventional lender.”
  • “Most banks or lending institutions don’t advertise that they are portfolio lenders, but you can find them through referrals and networking with their investors. You can also simply Google institutions in your area, call each one, and ask if they offer portfolio lending.”
  • “The Federal Housing Administration (FHA) is a United States government program that insures mortgage for banks.”
  • “FHA loans are designed only for homeowners who are going to live in the property, so you cannot use an FHA-backed loan to buy a pure investment property. But you can take advantage of the exception to the rule that allows the FHA-financed home to have up to four separate units.”
  • “While the lower down payments the FHA offers are great, the FHA does require an additional payment, called private mortgage insurance. PMI protects the lender and is required when the down payment on the FHA loan is less than 20 percent.”
  • “He vetted these agents by taking the time to sit down with them and ask them questions like this:
    • How long have they been in business?
    • How many properties have they sold?
    • Have they worked with investors before?
    • Are they real estate investors themselves?”
  • “A subset of the FHA loan program, the 203K lets a homeowner borrow money for the house purchased and home improvement with one loan.”
  • “In some cases, the owner of the property you want to buy can actually fund the property, and you will simply make your monthly payment to them rather than a bank.”
  • “Typically the only time property owner will do this is if they already own the home free and clear, meaning seller cannot have an existing mortgage on the property.”
  • “‘Hard money’ is financing that is obtained from a private business or individual for the purpose of investing in real estate. Whiel terms and styles change often, hard money has several defining characteristics:
    • Load is primarily based on the value of the property
    • Shorter term lengths (due in six to 36-months)
    • Higher than normal interests (8-15 percent)
    • High loan “points” (fees to get the loan)
    • Many hard-money lender do not require income verification
    • Many hard-money lenders don’t require credit references
    • Does not show on your personal credit report
    • Hard  money can often fund a deal in just days
    • Hard-money lenders understand when the property needs rehab work”
  • “Use hard money with caution, make sure you have multiple exit strategies in place before taking out this type of loan.”
  • “Private money is similar to hard money in many respects, but is usually distinguishable because of the relationship between he lender and the borrower. Typically, with private money, the lender is not a professional like a hard-money lender, but rather an individual looking to achieve higher return on their cash.”
  • “Just as with hard money, private money should only be used when you have multiple, clearly defined exit strategies.”
  • “If you are trying to build relationships for private capital, developing credibility is a must.”
  • “Banks and other lending institutions have many different products, such as home equity installment loan (HEIL) or a home equity line of credit (HELOC), which allow you to tap into the equity you already have.”
  • “Home equity lines and loans may also have certain tax benefits, such as the ability to deduct the interest paid on the loan if it’s used for a real estate deal, as allowed by the IRS.”
  • “Finally, even if you don’t have enough equity in your primary residence to fund 100 percent of the new deal you want to purchase, you could utilize your HELOC or HEIL to fund the down payment on the new property and obtain a regular loan for the rest.”
  • The deal delta
    • Knowledge
    • Hustle
    • Money
  • “For example, you might bring the hustle and the knowledge, but partner can bring the money (or some of the cash, which can be combined with another type of loan). Now you have all the parts needed for a deal to happen”
  • “Be sure to take the time needed to find and vet your potential partner. Don’t jump into bed with the first person who wants to work with you. Find someone who fits within your style, your goals, and your ambitions.”
  • “Commercial real estate loans tend to have higher rates and fees, while also offering shorter terms.”
  • “While the terms might not be as friendly as a residential loan, a commercial loan can be significantly simpler to obtain than a residential loan, as the strength of the property is the primary decision-maker.”
  • “When you apply for a commercial loan, the lender will typically look at three things:
    • The profitability of the deal
    • You cash reserves
    • Your track record/financial position”
  • debt service coverage raito (DSCR) = net operating income / total mortgage expense
  • “Each bank has defined what it believes is an acceptable DSCR, but usually that number hovers between 1.2 and 1.3. Below 1.2, and you’ll have a lot of trouble getting a lender to fund your deal.”
  • “The amount required in reserve will differ by lender, but a general rule of thumb is to assume 3-6 percent of your total loan balances.”
  • “Therefore, to use these plans for your real estate investing funding source, the IRA or 401(k) must be self-directed, which means the plan holder can invest in whatever they want (but still must follow the rules).”
  • “In addition to the self-directed 401(k)  and the solo 401(k), there is also the option of the self-directed IRA, which allows an individual to place up to $5,500 per year ($6,500 if you’re age 50 or older) into a retirement account that can be used, when self-directed, to buy real estate or real estate notes.”
  • “Retirement account funds must be used for the deposit, purchase price, all expenses, repairs, taxes, etc. In other words, you can’t mix personal or business money with the retirement money.”
  • “You aren’t allowed to participate in the rehab or management of the property if it is held within your account; nor may anyone considered a ‘disqualified person,’ such as a family member, fiduciary, or plan sponsor who is connected with the retirement plan.”
  • “All income associated with the property must be deposited into the IRA. No touchy until retirement age.”
  • “The property cannot be used for your personal benefit.”
  • “As always, maintain good records and expanses fro the property owned by the retirement account.”
  • FSBO:
    • “One recent tool used by some to sell is known as a flat fee MLS listing service, in which a seller will pay a ‘flat fee’ to a real estate broker to list the house.”
    • “This leaves negotiation, setting up title and escrow, and managing the closing in the hands of the seller.”
    • “Additionally, since a real estate transaction includes both the buyer’s agent and the seller’s agent, a commission is still paid to whatever agent brings a buyer to the deal. Instead of 6 percent, it usually will end up being around 3 percent out of pocket.”
  • “Many investors choose to sell off their properties using seller financing because they want to receive monthly income that doesn’t involve maintenance, tenants, or rentals.”
  • “A seller may also choose to use seller financing in order to offset the taxes due at end of their investment career, as the IRS classifies this as an ‘installment sale’ and allows the seller to spread out any capital gain taxes that may be due.”
  • 1031 Exchange
    • “Oh, and if you simply hold these properties until you die, your uncle forgives the entire debt, and your kids wont’ pay a dime of that tax.”
  • “Have your property inspected before you list”
  • “Clean up you home and keep it clean when it’s on the market”
  • “Make sure you pass the sniff test”
  • “Take great but honest pictures of your house”
  • “Be available for showings”
  • “Be informative”
  • “Know your competition”
  • “Use an agent”
  • “Ask your agent for selling advice”
  • “Price your house right”
  • “List in peak market time”
  • “After the property has been listed, double-check the listing to make sure all the information is correct”
  • “Stage those weird spaces that don’t have an obvious use”
  • “Leave during showings and take your pets with you”
  • “Be prepared to walk away from an offer”
  • “Tell everyone you know that your property is for sale”
  • Most Important Next Step (MINS)

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