Archive for July, 2015

Get More Private $$$

Unless you are already rich and have all the cash you need to build your real estate empire, you will probably need to explore the world of private money. Private money can come in many different forms such as investor’s capital, private loans, and hard money loans. Most real estate entrepreneurs start with capital from friends and family. This may be the best place for you to start raising money for your deals. Depending on the relationships you have with your friends and family will determine if this a good place to start or not. They may be willing to join you in your deal or they may still see you as the person they remember growing up and not the new real estate mogul you are now. Regardless of their opinion the best way to start raising money from your immediate contacts is to focus heavily on your real estate education. Friends and family will know you are new to the business and may be hesitant to jump in. If they see the amount of education and work you are putting into your new business then that attitude may change.

When you are ready to start farming cash from new sources then you need to start by networking. Networking is one of the best business skills you can learn. In the beginning most people are nervous about networking. I have found that this is usually because the person is not comfortable enough discussing the subject of real estate. Again you need to be constantly working on your education. This will lead you to be able to network confidently, discuss and answer questions, and to start building trusting relationships with new investors. If you are not comfortable and confident in your ability to discuss real estate investing they will not likely be confident in you.

Next step is to create a business plan. This plan does not need to be and should not be about a specific property. You need to be able to show what your plan is for buying real estate. Focus on the market, the type of properties, what you will use the money for and roughly what your exit strategies are for your future deals. After creating your business plan, show it to people close to you for feedback before you take it out to the public. As you begin to network and share your business plan with potential investors, make note of common questions or objections that you run into. Incorporate these questions and concerns into your business plan. This will show future prospects that you are keenly aware of their needs and concerns before they even ask about them. Besides the obvious benefits of a business plan there is one that is not so obvious. By creating a great plan you take a lot of the focus and pressure off of you and your experience and put it on the business plan. This is a great way to help you be confident when approaching investors before you have done a bunch of deals. Whenever you get asked too many questions or the focus shifts to you and your experience you can always use the plant to shift that focus back to it.

Now that you know the need for networking and a great business plan, you need to focus on the next step. Marketing to potential investors. Again this step starts with an education. This time your education needs to go in the direction of securities law. I know that doesn’t sound like fun at first read but it really isn’t that big of a deal. What is a really big deal is doing it wrong and not knowing that you are doing it wrong. The Securities and Exchange Commission doesn’t seem to have much of a sense of humor these days (if they ever did). Learning how to raise money safely and legally makes the entire process much more fun and if you are having fun in your business, well…it’s just more fun. There are a ton of great websites and live events that you can go to and get this education without having to become a lawyer first. I highly recommend going to live events on this subject for one reason. The networking is great. Here is a room full of people that have come together for one reason…to learn about raising cash. This can be a great place to find potential partners and people who may be interested in joining you in your business.

Raising private capital can really make your real estate business fun and get you going much faster. You need to get your education, get confident and get networking. It’s that simple.

Good Luck!

Bill Ham

Bill HamBill Ham has been investing in real estate for 8 years and has created a portfolio of nearly 400 apartment units in Macon, GA. He created his entire real estate investing portfolio using creative and seller financing.

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Are You Planning Poorly or Positively Profiting on Your Deals?

Calculating costs to purchase, fix and resell a house has always been a downfall for many Investors. At a recent Real Estate Investor Meeting, I heard a great explanation of how people come up with their numbers. You all need to be sure you don’t fudge your numbers and fool yourself into thinking you are going to make a profit. This Article focuses on all the things you must consider when purchasing a property, such as holding costs, cost of the money, and closing costs that you will incur on properties.

When a student contacts me on a property and says “This is a great deal,” I always ask “Why do you think so?” Their response is “because.” Well….”because” is not a good enough answer. This is how I analyze a deal. First, I look for the Sold comps in the same subdivision that have sold in the past 90 days. I will then look at a total of 6 months in that subdivision. I look at square footage, garages, bedrooms, bathrooms and pools. I then look for the Active, Active with Contract and Pendings which all affect the value of my property. I budget accordingly as if I am going to hold it for at least 4 months, which is required in order to sell to a retail buyer with FHA funding. Depending on the price point, about 80% of our buyers have FHA funding. I look at the Active, Active with Contract and Pendings and note what ‘type’ of listing they are. If they are short sales, I really give weight on these sales because it’s very possible they would not be bank-approved and could sell lower or higher than list price. If they are Pending sale which is a straight sale, I can assume that they are close to list price; however, until they sell, I can’t be sure. I will then look on MLS or REIFAX and search a half mile radius to see what other comparables I can find. Based on all the comps and the repairs in which I plan on doing, I will determine if I believe the value of the home will be close to the middle value of the comparables or the high value of the comparables.

EXAMPLE: All Comparables Range from $100,000 to $120,000 on the property – Safely you should take the middle value of $110,000 as your ARV – After Repaired Value.

I am going to give you examples of 1) when you are the buyer and 2) when you are the seller. Remember, every deal will have 2 transactions which each have its own set of closing costs even though it’s the same property.

When you are the BUYER, you can expect to pay 2% of the purchase price for your closing costs which include the closing costs charged by the title company. This figure should be added to the cost of your purchase. Obviously this is a high number, for the State of Florida taxes are paid in advance and you will receive a credit at closing. However, the standard of 2% for closing costs seems to work well when taxes are paid in arrears where you will be responsible to pay for them at closing.

So what formula do you use when you purchase a property?

ARV ($110,000) x 65% – Repair Costs = Maximum Allowable Offer – MAO

Example $110,000 x 65% = $71,500.00 – Repair Costs of $10,000 = $61,500.00

Obviously many Investors say “my house will be fixed up better than the rest so I can sell it for more, which allows me to sell it for $120,000, making the ARV and the MAO more.” I would recommend that you are conservative with your figures due to calculation errors on additional costs i.e. holding costs, repairs, cost of the money, contributions towards buyer closing costs, and of course…”the unexpected.”  

When you are the SELLER, as a rule of thumb, depending on if taxes are paid in advance or in arrears, the average closing costs can be 8% to 9% that you would have to pay.

Example: $110,000 sales price – 8% closings costs (6% for realtors, title work, closing fee, title search, recording fees and tax proration) which would be $8,800.00. This amount needs to be subtracted from the sales price of $110,000 – $8,800 = $101,200.00. Please Note: We have not yet deducted from this amount the original purchase price, closing costs on purchase, cost of the money, repair costs, insurance, utilities, marketing fee, code violations, concessions towards buyers closing costs, homeowner association dues, a projected profit of $20,000.00 and taxes. You will definitely want to create a form which has all the above information on it so that you will be able to keep the numbers straight in order to make a profit on the home.

When you borrow money to buy, fix, hold and then resell the property, it is better that you obtain more than what you need, unless you are able to pay for unexpected items out of your own pocket. With our Purchase Price of $61,500 plus 2% for closing costs ($1,230.00) will be $62,730.00. Add $10,000.00 for repairs, then holding costs and then a miscellaneous number for overages. I would suggest on this transaction it would be $75,000.00

So… If you followed the above information here is how your deal will turn out…..

As the BUYER:

Purchase Price = $61,500 + 2% for closing costs = $62,730.00

Money Borrowed – $75,000.00 to cover cost of purchase, repairs and miscellaneous

Cost of Money – 2 Points of $75,000 = $1,500 plus 12% interest yearly ($750.00 mo for 4 mths = $3,000)

As the SELLER:

Rule of Thumb percentage of all the above costs = 8% of SALES Price = $8,800.00

Sales Price of $110,000 – 8% closing costs = $101,200 – $75,000 (cost of purchase, repair and misc), – 2 Points for money $1,500 – 4 months of monthly interest of $750.00 per month = $3,000 (2 points $1,500 = interest $3,000 = $4,500 plus money of $75,000 = $79,500.00) leaving the balance of $21,700.00 profit for you at closing.

Obviously, if you exceed your cost budget or sell it for more, all of these numbers change. I hope that you will apply this information immediately to a deal, as we all want to purchase real estate with BIG PROFITS! As such, we can always say that our house is worth more than the middle price range and convince ourselves; however, the buyer makes the decision on what they will pay for a house. If they only think it is worth $110,000, then that is the highest offer you will receive and you will need to close and Enjoy Your Paycheck!

Thank you so much to all of you who continue to send me your questions and topics that are most helpful for you to read about. Your Success is important to me, so let me know how I can help!!!    

Happy Negotiating!

Kimberlee

Kimberlee FrankKimberlee Frank is a Master Negotiator who has closed over 600 deals since 1998. She is a Mentor, Trainer, Author and Real Estate Broker teaching Investors and Realtors how to creatively purchase and sell short sales with her Step-by-Step System. She has helped Investors and Realtors earn hundreds of thousands of dollars.

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