Archive for July, 2015

Have You Ever Thought You’d Like To Buy And Sell Houses But Didn’t Know How Or Where To Get The Money? – Part 2

Last month, I taught you about two ways to make money in real estate. I covered retailing and wholesaling. Those two methods generally involve buying houses that are in need of repairs at a deeply discounted price. This month, I will teach you about the other two ways to profit in real estate that is considered to be the Pretty House Business.

Lease-Options – Many people are not aware you do not have to buy a property to profit from it. In the case of lease-options, we lease it from the seller with an option to buy it at some predetermined price and term. Our objective then is to install another tenant-buyer in it, sublease it for a higher price and monthly payment, then collect a non-refundable option deposit from our buyer. In my case, the minimum is usually $10,000 except on a few very low end houses where I’ll accept about $5,000. This deposit never gets returned to the buyer if they do not close. It does, however, get applied to their down payment. But if they move out of the house and don’t close on it they lose the deposit. That’s made real clear up front, and since all of our transactions are closed with an attorney, it’s made clear at the lease-option closing as well.

I might point out, this same technique can be used to acquire one’s home to live in without actually buying it. About 25% of all the For Sale by Owners available in this country would consider a lease-purchase or other terms if asked. I know this because I have a whole floor of virtual assistants who call them daily for our students, and consequently we’re able to provide the reports and the math on the percentages based on the number of calls.

Of course this will require scripts, which I furnish to all of my students, but someone untrained in this industry may be shocked at how many people there are who will gladly take terms to get out of their house rather than sit around and wait for that almighty, qualified cash buyer that all builders and developers are fighting over.

Just so you know, 80% of the people looking to buy a house today cannot qualify at a bank. That leaves them all to us. Our whole industry in this side of the business revolves around people who can’t qualify right now but can, given a little time. So, the objective is very simple. Put them in the house, help them get their credit clean and fix whatever is broke so you can ultimately get them to the lender to get everybody cashed out.

Owner Financing – This is one of my favorite techniques because it simply means we buy the property with owner financing, the seller taking back monthly payments with a predetermined time to pay it off. This can be done on free and clear houses as well as houses that are leveraged, always with a personal guarantee over anyone pulling your credit report. About 1/3 of the people trying to sell their house will sell with owner financing if properly asked, much to the surprise of most folks. About 1/3 of those will sell with nothing down when properly asked. Of course, our scripts perfected over the years have taught us how to properly ask.

Let me give you an example of a property I just purchased with owner financing and then lease-optioned out to a tenant-buyer until they can get financing. It was a young couple that was leaving town in two weeks. They contacted us and upon visiting the home I learned they had a loan for $351,000 with a $1,925 a month principal, interest, taxes and insurance payment. They clearly said they’d sell the house for what they owe on it because a Realtor had it listed for the past six months and couldn’t sell it at $385,000, which was about its market value.

I agreed to buy it with owner financing, which means I had an attorney create a mortgage back to them for the exact amount they owed with the exact amount of principal and interest payment every month they were paying until the debt was paid off. They had no equity in the mortgage, and they will not receive any money, ever. However, their monthly payment is made every single month. So, what did they get out of it you ask?

They got debt relief and stress relief.

About a week after I met them we closed the purchase with my attorney and they knew they could leave knowing the house was no longer a problem. Yes, the loan will stay in their name until the loan is paid off, but there was no other way for them to get out of the house.

My exit strategy was very simple, but also very profitable. I advertised the property on a lease-option and located a tenant-buyer who had $50,000 to put down as a non-refundable option deposit, and I gave them two years to buy. Their credit was a little bit below the required score, but, they will get that credit up very quickly and be eligible to qualify.

In the meantime, they pay me $2,500 per month in rent, and I’m paying out $1,925 thus creating a $575 a month positive cash flow. In addition to that, they accepted all the responsibility for the repairs, as all my lease-option tenants do the day they move into the house. I don’t fix anything, it’s a condition of their purchase. I was in and out in 45 days with no risk or costly entanglements.

I sold the house for $395,000 when the Realtor couldn’t get $385,000. Why you ask? Because of one five letter word—Terms. When you make the house easy to buy, it becomes easy to sell. I have a five times better chance of selling the house on terms than anyone does selling it for cash. I look at terms as simply a delayed cash out. My buyers put up $50,000 so they have that credit coming toward the $395,000 price when they buy.

Everyone wins here. No one loses. A buyer gets a beautiful home they can call their own. The seller will get the debt paid off in time and the payments made until then. The bank will continue collecting payment until they’re cashed out. And, I made $50,000 on a house I got for free plus $575 a month.

They would have a hard time understanding this on Wall Street. It’s called leverage to the max. I had no risk, no money invested, needed no credit, no contractors, no Realtors, no short sales, no costly entanglements. I got in, I got out and I got paid as much on one simple little real estate transaction as many people make working an entire year.

The first two techniques I discussed, retailing and wholesaling, I call the Ugly House side of the business. Ugly houses that need to be rehabbed. The second two, lease-options and owner financing, I call the Pretty House side of the business. Beautiful homes in beautiful neighborhoods with absolutely no upper price range too high, once you learn to reverse the risk and not take on debt, guarantee debt or risk a lot of money and hope everything is going to work out okay. In my world today, we totally reverse the risk and make a lot of money by using our brains, not our wallet or our credit.

By the way, everything I just described can be done inside your IRA and never pay taxes. That’s right! I have students getting very wealthy, tax free, inside their Roth IRA, so when they retire they won’t be able to count their money, they’ll have to weigh it.

At this point, I’m reasonably sure you are loaded with questions that I won’t be able to answer here. If you would like to explore this real estate strategy a little more and find out how you can make this money for yourself, you can contact me at RonsWholesalingCourse.com and try out my program for a measly dollar.

Ron LeGrandRon LeGrand is the world’s leading expert in residential quick turn real estate and a prominent commercial property developer. Ron has bought and sold over 2,000 single family homes over the past 30 years, and currently owns commercial developments in nine states ranging from retail, office, warehouse, residential subdivisions and resorts.

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Prices Sure Are Rising, But Maybe Not For the Reasons We Think

Really good real estate investors know and rely on the valuation of their deals as the key to success and profits. The economic slump that richer countries have suffered during the past seven years can be blamed on a runaway housing bubble that started right here in the U.S. All the market areas covered by REIAComps, insure when pricing changes happen you are not caught off guard.

When it comes to the tic of the housing bubble, there were other issues like poor oversight of the broader financial system which led to the crash. But without the real estate bubble, there would likely have been no financial crisis.

Which is why the fact that similar-looking bubbles inflating in countries from Canada to the U.K. have economists worried that there might be other catalysts of future crises laying wait for us in the weeds.

Last week, in a Forbes article, IMF economist Min Zhu published an article called “Era of Benign Neglect of House Price Booms is Over,” in which he sounded the alarm over rising global home prices. Zhu explains how he determines whether home prices in a particular country are overpriced.

“Theory asserts that house prices, rents, and incomes should move in tandem over the long run. If house prices and rents get way out of line, people would switch between buying and renting, eventually bringing the two in alignment. Similarly, in the long run, the price of houses cannot stray too far from people’s ability to afford them––that is, from their income. The ratios of house prices to rents and incomes are thus often used as an initial check on whether house prices are out of line with economic fundamentals.”

Okay, that was nice high end financial speak, but what does it mean to us as investors who want to buy right to make a profit? The problem is, it’s difficult to do anything about a growing asset bubble while it’s in progress. Congress can work to make sure that credit isn’t too widely available and lending standards are tightened, but sometimes the logic of a bubble can overcome even these measures. The only reliable way to eliminate a bubble in my opinion is to let it just burst.

Here is something to think about, what if real estate isn’t overvalued? What if there is something happening in the economy that’s causing real estate to become more valuable? As developed economies become less reliant on agriculture and manufacturing, and more reliant on creative industries that thrive on close collaboration, land is becoming once again very important. These factors are merely another clear indicator of the importance in having access to solid valuation data through REIComps.

Wrapping up, we can see the close collaboration in industry happening in the U.S., where rents in cities like San Francisco, Washington D.C., New York and other innovative cities are skyrocketing along with salaries. In an environment where the most productive workers are seeing rapidly rising property values, it makes sense that people would want to buy a home rather than rent.

Using this explanation, I have reason to believe the recent run up in real estate prices has both a rational component (the evolution of the economy is making location more important) and an irrational component (people think that nothing will stop this trend). It’s difficult to say which force could be a bigger factor pushing real estate prices higher, but it’s important to realize that just because prices have always behaved a certain way in the past doesn’t mean it will continue that way in the future.

Of course, use REIAComps to determine the best acquisition and ARV for every deal you look at. Don’t for one moment let someone tell you the value of a deal. Let REIAComps show you for yourself.

Mark JacksonMark Jackson is an appraiser, real estate investor and property valuation specialist who teaches others to get more out of their real estate investing business. In 1999, Mark founded an appraisal company and soon found his true gift was analyzing property values for real estate investors. Since 2000, has closed millions of dollars’ worth of his own domestic and international real estate transactions. Mark’s passions are: faith, family, golf and real estate.

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