Real Estate: My Raw Notes
Posted on September 7th, 2005 in Usability | 5 Comments »
I’ve been doing a lot of research about real estate investing. A lot. Many books, many articles, daily email newsletters, newspaper listings, audio books, open houses, conversations with realtors, and more.
What follows is a core dump of what I have learned so far. This is not advice or guidance. Instead, these are notes I wrote for myself and I am simply sharing them. Mileage will certainly vary from reader to reader.
Feedback is encouraged. If you want to talk about real estate, that’s cool with me. In fact, if this posting is popular, I might seriously consider setting up a real estate investing web site or forum.
LEGAL
1. Set up holding trusts (land trust) for property
2. Set up LLC; investigate
3. Take out the loan in own your name, place the property into a trust, and then assign beneficial interest to the LLC — I’ve seen this several times now
4. Variation to idea above: “buying in the name of a land trust for which an LLC is the beneficiary”
5. S Corp vs. LLC
6. Get good liability coverage! Insurance is important!
VALUE OF DEAL
1. Always, always, always pay below market.
2. You make money when you buy. This is a key concept.
3. Find motivated sellers; always
4. Zero to positive cashflow; always
5. Value based on Comps and Cash Flow
6. List out ALL expenses
7. Schedule E will verify the veracity of the current seller’s statements on the rent
8. Find less desirable property in a more desirable location
9. Get in the path of growth
10. 1% rule: Gross scheduled rents must equal at least 1% of the sales price. (BUT: doesn’t take into account the down payment, taxes, the upkeep, interest rate, debt servicing, comps, location etc., etc.)
NOTE: What buyers prize: good school systems, low crime rates. People like three bedroom (plus) homes, and at least two bathrooms. Other important factors: Is it close to main employment centers, and what is the length of the commute.
NOTE: Look for a new roof and siding in brick or vinyl.
LANDLORDING
1. Screen all tenants (ID, credit, employment); always check references
2. Investigate home warranty package vs. random costs
FINANCE
1. NOI Calculation: http://www.invest-2win.com/noi.html
2. Simple Overiew: http://www.remultifamily.com/financialmodel.htm
3. $ cost / sq. ft. and $ revenue / sq. ft.
4. Estimator: http://www.bankofinternet.com/LoanCenter/default.asp
5. Gross Rent Multiplier (GRM): http://www.invest-2win.com/grm.html
6. CREATIVE (subject to, sub2):
http://www.reiclub.com/articles/faq-sub2
http://www.reiclub.com/real-estate-chat-transcripts.php?id=3
SELF NOTE: As you increase down payment, you increase probability of positive cash flow primarily due to decrease cash drawn from mortgage. Also, if 20% is put down, then no PMI is needed. You can get around PMI with two mortgages, but you’ll get hit with higher interest. In any event, think about cash down.
NOTE: Understand Internal Revenue Code Section 1031.
NOTE: Deduct Depreciation!
FIXING UP $ TIPS
Get a contractor’s license so you can buy your home improvement goods at wholesale. Set up a retail account with local lumber yards, tile and carpet stores and just about everyone else to gain discounts on
your purchases.
Register with http://www.homedepotmoving.comand Lowes so you can acquire a few 10% off coupons. Use them to purchase appliances and building materials at a discount.
WISDOM/ GENERAL ADVICE
1. http://www.bankrate.com/brm/news/real-estate/REguide/novice-errors1.asp
NOTE: FSBO good = flexible finance, FSBO bad = want top dollar (For Sale By Owner)
WEB SITES
General Help (** = very useful)
** 1. http://www.fatwallet.com
** 2. http://www.creonline.com/
** 3. http://www.mrlandlord.com/
4. Fat Wallet FAQ :
http://www.fatwallet.com/forums/arcmessageview.cfm?catid=52&threadid=174307
5. http://www.bankrate.com/brm/default.asp
6. Home Price Check: http://www.domania.com/
7. http://www.reiclub.com/
8. http://www.freedemographics.com/
9. http://realtor.com
5 Responses
Investment Property or Rental Home Calculator
“This calculator is designed to provide a guide to possible financial outcomes of the purchase and rental of an investment property. After entering your values, click once in any result box to calculate or update your results.”
Very useful…
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That about covers all of the various ways to control and profit from real estate. Now just add the steps of the process and corresponding definitions: Short sale: Getting authorization from the bank to buy the property for less than is owed. Essentially, establishing a discounted purchase price from the seller, getting them to demonstrate to the bank that they will have a significant hardship in paying and going through the bank foreclosure department to set up the agreement.
-Randy
http://www.4mysales.com
Buying Discounted Paper (NOTES) seems to offer the best of both worlds as far as real estate investing is concerned….FIRST and most important is YOU control the financing, so in effect you operate just the same as any commercial lender, except your terms are usually better for the buyer.
SECOND, during the early years of the loan, most of your income stream will be interest on the note while the principal balance amount will still be very high. This works very well for individuals who buy notes for very substantial rates, many will pay as high as 90-95% depending on several factors.
THIRD, Since you hold the note,hence the mortgage, you can simply foreclose when your mortgagor defaults and re-sell…just like a repo car, boat, mobilehome..etc. If your buyer pays at least 10-12% down, you’ll always be well covered on your expense recovery.
LASTLY, being the mortgagee or private lender, you don’t have to worry yourself about maintaining the property…that is the buyer’s worry.
Consequently the investor who buys property at wholesale, has the problem of maintaining the property himself while collecting monthly rents and he has to cover the costs of debt service, taxes, insurance and hopes the rent will be high enough to cover everything…how much is left over will usually be small….too much work & risk for me!
From all the valuable information I’ve discovered from all the sources of knowledge I’ve drawn from, this is the way to go for me.
I don’t believe a thing real estate agents say. I don’t hate them just the tricky and unexperienced ones. Which in my opinion is most of them. Take the “no obligation market evaluation” for example, the oldest and most unoriginal term you will see advertised. Do they think people are stupid? The real definition should be, “yes I will come over to your home, tell you what it’s worth, then I will bug the hell out of you until you list it with me. In the meantime they will send you some “awesome” fridge magnets, calendars and pencils just so you don’t forget them. I have written at length about this, I’m NOT selling anything, just a frank, real world discussion.
http://www.fsbohomz.com/fsboblog/
http://www.fsbohomz.com