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What Is The Wrong Way To Invest In Real Estate?

“Real estate fever” . . . it’s hit the Country like a plague. Zillions of “newbies” are hitting the bandwagon, trying to make a profit where they lost in the stock market. I meet them all the time, and many are making big mistakes!

Mistake #1: Stock Market Mentality

You’d think after losing $7 trillion in the stock market people would have learned! Nope, they are making the same mistake, which is assuming what happened yesterday will happen tommorrow. Nine of ten new investors I meet say they are interested in real estate because they saw someone else make money from the rapid appreciation of the market over the last few years. But, buying real estate solely for short-term appreciation is often a big gamble! If you buy real estate to hold for 15 years or more, the chances are you will come out on top. If you buy a property and flip it in within a year, you probably are fine, too. And, despite the risk, many people can intelligently time the “boom” of a local market (or subdivision within a market) and make a profit. But, if you buy a rental property for full market price with break even or negative cash flow, you’d better have a backup plan if the market doesn’t keep going up. Investing is a lot like surfing… if you don’t know how to ride the wave, you will drown!

So, should you refrain from investing if you think the market has peaked? Absolutely not! You can find bargain-priced properties in every real estate market, even the hottest. You can find low-interest rate financing that will increase your cash flow so if values drop, you still are covered. You can plan short-term (six to 12 months), because real estate markets rise and fall slowly. And, if you keep a cash reserve for your business, you won’t sweat when the market tanks, because you know that in the long run, real estate markets virtually always come back.

Mistake #2: Investing Blind

You’d think after losing $7 trillion in the stock market people would have learned! Nope, they are making the same mistake, which is blindly buying real estate based on bogus advice or complete lack of education. Real estate is one of the few investments in which risk is directly proportional to knowledge. True, it has a higher learning curve than investing in the stock market, but there’s no proof that having knowledge of the stock market reduces risk (just ask your mutual fund manager).

I read a comment on a real estate discussion group on the Internet. In response to an inquiry as to whether a particular seminar or training program was worth the money, someone answered, “Why waste your money on that stuff? Just use your money as a down payment and learn as you go.” This is probably the worst advice you could ever give a beginner. Money for real estate deals is easy to find if you can find good deals. But, you won’t know what a good deal is without having first invested in your education!

The more knowledge of real estate investing techniques, financing, acquisition, negotiating and, of course, your local marketplace, the less risky your investments will be. A bargain real estate purchase will generally always be a safe investment; a bargain stock purchase isn’t – after all, who says the company you bought into will be in business next year?.

Mistake #3: No Cash Reserves

Ask anyone in real estate long term (or any other business, for that matter) and they will tell you the two most important words for survival are: “cash flow.” Heck, even K-Mart failed to learn that valuable lesson!

In order to stay in real estate long term, you need cash reserves. Buying real estate nothing down is easy; handling negative cash flow, repairs and other expenses in the meantime is the trick. In fact, if you can handle the bad times, real estate will always make you come out on top. Lack of cash reserves puts unnecessary pressure on you to do substandard repairs, accept less than qualified tenants and give into tenants’ demands for fear of vacancy.

When you have a sufficient cash reserve, you act rationally. You hold out for a higher sales price. You hold out for a qualified tenant. You leave properties vacant rather than rent to low-lifes. You call a tenant’s bluff when they threaten to leave. You take care of necessary repairs and improvements on your properties. It’s a whole different ballgame than operating from a lack of cash. Like I said, buying properties with no money down isn’t hard; it’s handling the cash flow. In other words, you can buy real estate without money, you just can’t survive in business without cash reserves. Thus, consider accumulating cash reserves before investing in rental properties.

Mistake #4: Being Greedy

Many investors get started flipping properties to other investors, which is a good idea to generate cash reserves. However, you must be realistic about how much profit is in a deal. If there is a potential for a $20,000 profit in a rehab project, you can’t expect to make $10,000 flipping that property to a rehabber. A rehabber has a huge risk in embarking in such a project and wants a large enough profit to justify the risk.

For example, if a house needs $10,000 in repairs, the rehabber investor wants to make at least a $20,000 profit. If you find a deal with $20,000 in profit potential, how could you expect to get $10,000 for flipping the property if the rehab investor you flip it to is only going to make $10,000? You should be happy making $2,500 and moving on to the next deal. If you want to make more than $2,500 on such a deal, then you must find and negotiate a better bargain that has more profit potential.

Mistake #5: Treating Real Estate as Anything Other Than a Business

People are lured to real estate because of the quick buck that it promises. Don’t hold your breath, you won’t get rich quick. An “overnight sensation” usually takes about five years. More than ninety percent of the people who take a real estate seminar quit after three months.

Why the high fallout rate? Lack of action and unrealistic expectations. Real estate investing should be treated with the seriousness of a career. It takes months, even years for a business to cultivate customers and have a life of its own. You need to treat real estate like any other business. Give yourself at least six months to see if real estate works for you. It may even take a year before you buy your first property. Maybe in the second year you will buy three or four properties. If you work hard at it and keep your eyes and ears open, you may even find your first deal in 30 days. Certainly, you will not make money by talking or thinking about it; you must go out and take action.

Position Realty
Office: 480-213-5251

Top 10 Buying Rules & Mobile Applications For Commercial Investing

These 10 rules might seem elementary at first glance, but you’d be surprised at how many of the 10 rules are REGULARLY broken by real estate investors every day. With the, so called, gurus around the country preaching “more”, “bigger” and “quicker”, new real estate investors have gotten themselves into trouble by not following sound business principles outlined in this tip.

Top 10 Rules to Buying a Great Commercial Deal

1. Find a property to which you can add or create value that solves a problem

2. Don’t fall in love with the property

3. Research everything about the market and property

4. Crunch the numbers using a realistic financial model

5. Plan for unexpected happenings

6. Create a business plan with investment goals

7. Purchase with 20% or more equity to keep debt load down (Raise equity from investors)

8. Have more than adequate capital reserves

9. Have a good team in place

10. Be flexible to change

Commercial Mobile Apps For Investors

With commercial real estate professionals always on the go, the advancement in mobile apps has helped many professionals meet more people and close more deals. While new mobile apps have been slow to reach the commercial real estate industry, it has really taken off in the last year or so.

As Smart phones and computer tablets have grown in popularity, mobile apps have been a huge driving force for busy and active commercial real estate professionals. These mobile apps helped commercial real estate professionals in many areas of their business such as:

—->Contact Management —->Document Management

—->Financial —->Listing Search

—->Mapping —->Marketing

—->Photography —->Research

—->Surveys —->Virtual Assistant

Recently, I came across a website, run by top commercial real estate professionals, that has reviews on the most popular commercial real estate mobile apps. The name of the site is CRE Apps. You can check out their website by going to cre-apps.com.

CRE Apps is a great place to learn about all the new CRE apps that are helping people like you and me to make their business easier and more convenient. Here’s where you can find out the most popular CRE Apps: www.cre-apps.com/2012/04/most-used-cre-apps/.

Here’s just a small sample of the types of mobile apps you can use in your commercial real estate investing business:

Loopnet: www.loopnet.com/mobile

Yardi: www.yardi.com/product/MobileApps.aspx

Costar: www.costargo.com

Argus: www.angus-systems.com/?q=products/mobile

REOptimizer: www.reoptimizer.com/solutions/web-app
These real estate investing mobile apps are great in helping you find and close profitable commercial real estate deals. I’ve created a Top 10 list to use as a guide when researching properties on these mobile apps.

The Commercial End Game

Real estate investing is a long term game. Make good business decisions using these 10 rules as a guideline so that you can have long term success with your investment business. Focus on buying GREAT deals not big deals.With time, big deals will come.

Whether you are a real estate investor, broker, manager, lender, consultant or contractor, you should spend some time learning about new technology that can help grow your business, and, make life a little bit easier. I hope this tip serves you. I look forward to it helping you reach finding and buying great commercial deals.

Position Realty
Office: 480-213-5251

Common Legal Mistakes Real Estate Investors Make

You can’t expect to reduce your risk of getting sued to zero, but you can take steps to reduce your risk as much as possible. In any situation where your money is at risk, ask yourself, “Is there a better way?”

Know the legal and financial risks of the situations in which you place yourself, your business, your family, and your assets.

Without covering every issue involved, here are a few common mistakes that investors make, novice and experienced alike.

Poor Legal Forms

It’s amazing how short-sighted novice investors can be when it comes to shelling out money for good legal contracts. They often buy contracts at discount office supply stores, from Internet web sites, or borrow them from friends.

However, a real estate deal is only worth the paper it’s written on. Like the old expression, “every tax strategy works until you get audited,” it can also be said that “every contract works until you have a dispute.”

So invest in a good set of legal forms that apply to your practice and ask a local real estate attorney to review them. Also, make certain you fill in the forms correctly—a good real estate attorney will review contracts for just a few hundred dollars.

Too many people rely on real estate brokers to fill out contracts, which is fine for a “standard” deal. However, most brokers aren’t trained in legal matters and often create long contract addendums that are insufficient to protect your interests.

Illegal Discrimination

The Fair Housing Act of 1968, as amended, prohibits discrimination on the basis of race, color, religion, nationality, familial status, age, and gender. Many state and local laws also forbid discrimination on the basis of sexuality or source of income and the Americans with Disabilities Act makes it illegal to discriminate against disabled people.

If you harbor any such prejudices and would allow them to come into play when renting a housing unit, then you’re probably not cut out to be a landlord. However, many sincere real estate investors make honest mistakes that result in discrimination lawsuits. The best way to avoid these lawsuits is to be informed.

The Fair Housing Act may appear to be common sense and most people would never think of discriminating against people of different races or religions or on the basis of gender. However, it’s important to note that the Act extends beyond the screening process and into advertising as well, so watch the wording on your ads.

This is where many landlords and property managers make critical mistakes. Some people scour the classifieds looking for inappropriately worded ads so they can pounce on them and threaten a lawsuit. While someone must have standing to bring suit, these scoundrels often work in coalitions to ensure that all of their bases are covered.

For example, if you own a rental property in a predominantly Jewish community, its proximity to the local synagogue could be a major feature. But if your ad says “within walking distance of the synagogue,” you could be sending the message “gentiles need not apply”—even though this wasn’t your intent.

And keep in mind that you may not discriminate on the basis of whether a couple is married and whether children are to live in the unit. You may also not discriminate on the basis of age. Often, novice landlords aren’t aware of these areas of concern. And while it’s good that citizens are more aware of their rights today, it can create a bad situation for well-meaning landlords who are out of step with the law.

Be aware of your local laws and use good business sense. State law and local ordinances can extend similar protections granted under the Fair Housing Act to other groups. For example, California, Minnesota, and North Dakota prohibit discrimination based on source of income. In other words, landlords can’t discriminate against would-be tenants who rely on public assistance. Putting the political perspective of the landlord aside, such discrimination makes little business sense because people on welfare or social security are virtually assured of a fixed income.

The Americans with Disabilities Act (ADA) prohibits discrimination against the disabled and also requires landlords to make “reasonable accommodations” to disabled tenants. Who decides what’s reasonable? Typically, judges, if it comes to that. But while most landlords are aware of the ADA and would never stoop to discriminate against a person in a wheelchair, many are unaware that the ADA also protects mentally disabled tenants. A mental disability could also include recovering alcoholics and drug addicts. On the downside, these people can relapse; if they do, this can cause serious problems for you and other tenants. Everyone deserves a second chance and many recovering addicts become productive members of society. Those unable to recover typically have other problems and, thus, if you decide to reject their rental applications, it’s vitally important that you document additional reasons for rejecting their applications.

Improper Disclosures

Improper disclosures are a common mistake for investors. It’s critical to be aware of the federal and state requirements for disclosures. For example, federal law requires a lead-based paint disclosure on the sale or rental of properties that were built before 1978. State laws may have additional regulations.

It’s become common practice for real estate brokers to use a property disclosure form as a general-purpose sell disclosure for all aspects of the house. Even if you’re selling your house on your own, be sure to use one of these forms. Whenever in doubt, disclose what you know, especially something the buyer or tenant may not know about, such as dangerous conditions, water damage, electrical issues, or plumbing problems.

Illegal Solicitation of Money

Many novice investors try to solicit money for investing via public advertising or mailings. This is commonly referred to as syndication. You may inadvertently cross over a variety of federal and state securities regulations when trying to raise capital. Chatting with friends over the dinner table about a real estate deal is one thing, but advertising to the public in mass may be considered a public offering. Before soliciting money from strangers, review your marketing, paperwork, and solicitation strategies with a local attorney well versed in this area of law. You may be able to get away with a good set of written disclosures if you solicit money on a limited basis, but it’s better to be safe than sorry.

Independent Contractor Liability

The IRS and your state department of labor are on the lookout for employers who don’t collect and pay withholding taxes, unemployment, and workers’ compensation insurance. If you have employees that are “off the books,” you’re looking for trouble. If you get caught, you’ll have to pay withholding taxes and as much as a 25 percent penalty. Intentionally failing to file W-2 forms will subject you to a $100 fine per form. The fine for failing to complete the Immigration and Naturalization Service (INS) Form I-9 varies from $100 to $1,000 per form. Your corporation or LLC won’t shield you from liability in these cases, either. All officers, directors, and responsible parties are personally liable for the taxes.

If you hire people to do contract work for you on a per-diem basis, they may be considered employees by the IRS. If any workers fail to pay their estimated taxes, you may still be liable for withholding. If these workers are under your control and supervision and work only for you, the IRS may consider them employees, even if you don’t. If this happens, you may be liable for back taxes and penalties.

To protect yourself, you should:

  • Hire only contract workers who own their own corporation or get the business card and letterhead of any unincorporated contractors you may use so you can prove these workers aren’t your employees.
  • Require proof of insurance (liability, unemployment, and workers’ compensation) in writing.
  • Get written contracts or estimates on workers’ letterhead that states they’ll work their own hours and you don’t have direct supervision over the details of the work.
  • Have letters of reference from other people for whom the contractors worked to show that the contractors didn’t work solely for you. Keep these in your files.
  • File IRS Form 1099 for every worker to whom you pay more than $600 per year.

In addition to possible tax implications, an independent contractor can create liability for you if a court determines the contractor is your employee. For example, if your independent contractor is negligent and injures another person, the injured party can sue you directly. If facts show that you exercised enough control over your contractor, a court may rule that this contractor is your employee for liability purposes. As you may know, an employer is “vicariously liable” for the acts of his or her employees—the employer is liable as a matter of law without proof of fault on the part of the employer. Make certain you follow these guidelines when hiring contractors and pay particular attention to the issue of control.

Finally, under your state’s law be aware which duties are considered inherently dangerous, such as providing adequate security for tenants in a multiunit building. These duties can’t be delegated to an independent contractor without liability on your part, regardless of whether the person you hire is considered an independent contractor or an employee.

Position Realty

Office: 480-213-5251

Strategies To Increase Apartment Investing Cash Flow

Want to increase your real estate investing properties cash flow? Have any apartment buildings you would like to improve? I’m going to show you how to increase your monthly cash without spending a dime and start putting more money into your bank account each and every month.

You can do this by uncovering hidden marketing assets within your properties. Once you learn where to find these assets and how to use them, you will be able to increase your sales and cash flow by 10%, 20%, 30% or more.

Step back and look at all the possibilities your property offers its residents and marketplace. These strategies will help you optimize and leverage your marketing assets so that you have a stronger operating property. Here are few areas for you to find hidden assets:

Get Inside Your Property

That’s easier then you think. Take an hour and contemplate on the following:

•Uncover hidden assets
•Reveal over-looked opportunities
•Find under-valued relationships
•Expose under-performing activities

What did you come up with? Most investors, does not matter the size of the property will be able to think of a least one example for each.

Areas To Optimize & Leverage Hidden Assets

Now that we’ve identified a hidden asset of your apartment building or cash flow investing property, the following examples are great ways to put the asset in play:

•Past residents
•Current residents
•Under-promoted property competitive advantage
•Unique service or amenity
•Sub-par leasing performance
•Relationships with other business
•Big property strengths
•Current sales & marketing process
•Up-selling additional services
•Lifestyle promotion
•Resident retention
•Community relationships

4 Strategies to Optimize and Leverage Your Assets

1. Differentiate Your Property: What makes your property unique? Find your properties uniqueness by conducting a property and market assessment. There’s a great book out that you should read. It’s called “Differentiate or Die” by Jack Trout.

That’s exactly what landlords need to do with their properties to be successful. We have to differentiate your property so that you stand out among your competition.

2. Optimize Your Current Marketing: Optimize your current marketing by integrating the competitive advantage that makes your property different into all of your marketing.

3. Optimize Your Current Customer Base: Build a solid customer relationship marketing program. This program will be centered on building a consistent resident referral system. If you are successful at implementing the first two steps, building a solid and consistent resident referral program will be the very bedrock of your financial success and generating more cash flow.

4. Building Marketing Alliances: There are many ways for your property to partner-up with local businesses. Think about it. People that live, work, shop and play in your local market stay within that market. Building alliances within that market will help you get referrals. And guess what? Referrals are as good as gold because there’s very little selling when they come to your property to rent.

Start optimizing and leveraging you properties hidden marketing assets so that you can increase your occupancy, reduce unit turnover, and reduce concessions. These four strategies will help you drive more cash flow to your bottom line.

I hope this tip serves you. I look forward to helping you reach for the stars!

Position Realty
Office: (480) 213-5251

How To Buy Real Estate in Your IRA

Here’s the big question that confuses many: Can you have real estate investments in your IRA or Keogh? YES. You can. So that was easy, now what?

The next question arises about leveraged real estate and how is it done. Yes. You can leverage real estate in a retirement vehicle, but it is so important to do it right, and all too often it isn’t. So rather than go into the details of how it’s been done wrong, let’s just get it right.

Always Vest in the Name of the Trustee

IRA’s have custodians or trustees, as do Keogh’s and other qualified plans. Vesting must always be in the name of the custodian or trustee. IRA’s never have individuals as custodians or trustees, unless an individual is properly certified under IRC 401 12(n) as a person who qualifies as a non-bank trustee. If you are one of those, you already know all this. If you are not, read on.

If you decide to buy property for the benefit of your account, and somehow the title or escrow company got your name on it rather than the trustee, that needs to be changed, even if it means starting the title/escrow work over. If you are the trustee of your qualified plan, the title must be in your name as trustee for the appropriate type of plan you have. If you are a co-trustee, yes, everyone has to be on title.

The Plan Must Make the Payments

Now back to leveraging. Your IRA or plan makes the payments. The payments are made from your account or plan, from whatever available cash there is to pay for the underlying debt. Remember that the property that you bought is the collateral for the loan your plan is paying for. So if title is vested properly, and I now am sure no one will make the improper vesting mistake, who makes the payment? The owner.

Yes, many times third parties make the payments, many of us have been there, but in this case it’s serious. The plan has to make the payments. If that means making contributions, or selling other assets in the plan to make payments, so be it. If you don’t, you’re in default, and that means that the asset will be departing from your portfolio unless it’s cured.

Should Your Retirement Plan Invest in Real Estate?

So that was easy. Now the part that becomes a little more interesting: Should you have real estate in your IRA, SEP-IRA, Keogh, or other qualified plan? The answer is yes, no, maybe so. OK, it’s not a good answer as such, but let’s examine the real situation.

IRA’s

If it’s your IRA, it’s your retirement. You should be a savvy real estate investor, or really know your way around real estate and notes. Also, remember your beneficiaries. Many times we have seen beneficiaries holding notes and property that the spouse had not necessarily paid real close attention to. In some cases the information left behind was not in the condition it should have been in to leave behind to anyone. Our suggestion and opinion is that real estate investments in an IRA should be made by professionals. If you fit in this category, in our experience has been great for many as part of a balanced portfolio or investment strategy.

Keogh’s and Qualified Plans

Read IRA’s directly above. If you are alone it’s one thing, but when you affect the retirement and lives of others it becomes somewhat more complicated. If you are making decisions in a pool for your employees, the quality and type of deal you are making is significantly important. Your employees, (including spouses and children) will be impacted by the type of portfolio you put together. Usually a retirement portfolio is composed of stocks, bonds and money markets. If you use mutual funds, it works similarly, a stock fund, a bond fund and a money market fund. Within those classifications one can diversify. If you make the investment decisions, you need to be very careful about diversifying. If you want to include real estate, you certainly may, but balance it in terms of risk and proportion in your portfolio. Be certain that the investment is arms length, and well considered.

One thing that you should always consider is getting professional advice. This means all the advice, and be sure it’s documented. Real estate can be an excellent component to a retirement plan, it just has to be done properly. If your plan allows self direction, meaning that you permit your employees to direct their own investments, then you need to make sure that they (and you) receive the proper information about investments and make that information constantly available. Information and education are key to reducing your liability over the long term also.

So can you have real estate in your IRA and Qualified Plan? Yes. But please follow the rules and get good advice, and it will pay back big dividends in more ways than one.

PositionRealty.com
Office: 480-213-5251

7 Steps For A Successful 1031 Tax Deferred Exchange

A 1031 exchange is a tax-deferred exchange which allows an owner of business or investment property to exchange that property for new property without incurring income tax on the gain.

The 1031 Exchange Process

Prior to closing on the sale of the sold property:

Step 1: Consult with your tax advisor for a 1031 tax exchange

Step 2: The Agreement
Contact an 1031 exchange intermediary to reserve an account number to use on all the exchange documents. The owner of the property (“the Owner”) should complete both an Exchange Agreement and a Qualified Exchange Trust Agreement.

Step 3: Assigning the Sold Property Contract
The Owner assigns rights but not obligations under the Sale Contract to a Qualified Intermediary and provides notice of the assignment to the Buyer. At the closing, title for the sold property is transferred directly from the Owner to the Buyer (known as direct deeding). A copy of the completed Assignment of sold property Contract and a copy of the Sale Contract should be sent to your intermediary.

Step 4: Net Proceeds
Net proceeds from the sale must be payable to the Qualified Intermediary. Payment may be in the form of a check payable to them or a wire transfer. It is important that the Owner never have actual or constructive receipt of the funds from the sale. Once proceeds are received by them, they are invested for the benefit of the Owner.

Within 45 days following the sale and transfer of the sold property:

Step 5: Identifying Replacement Property
The Owner completes the Identification of Replacement Property form. Replacement property must be specifically and unambiguously identified. For real estate, this could be a valid street address or a legal description. Identification requirements for personal property may vary depending on the item, but make, model and year are usually sufficient. Delivery of the Notice to the intermediary may be by hand, fax, mail, or over-night courier and must be postmarked by or received by 11:59 p.m. on the 45th day. Prior to midnight on the 45th day, the Identification may be amended or revoked, but after the 45th day, no changes in the Identification will be accepted.

Within 180 days following the sale and transfer of the sold property:

Step 6: Assigning the Replacement Property Contract
The Owner assigns rights but not obligations under the Purchase Contract to the Qualified Intermediary and provides notice of the assignment to the Seller. A copy of the completed Assignment of Replacement Property Contract and a copy of the Purchase Contract should be sent to the intermediary.

Step 7: Disbursements
Owner sends a Direction to Disburse Funds from the Exchange Account. Funds are made payable to the Seller of the Replacement Property or to the Seller’s agent. At the closing, title to the replacement property is transferred directly from the Seller to the Owner (direct deeding).

You can always check out what the IRS says about 1031 Exchanges prior to entering into a 1031 Exchange.

PositionRealty.com
Office: 480-213-5251

Phoenix Cash Flow Today – The Key To Longevity

When you own the houses, you have your own personal money machine! Obviously, you must maintain the property and provide the necessary management- But, in exchange for doing that, you control the money’ It’s yours to spend any way you choose. Owning your own widgets is the surest path to financial independence. The basis for wealth behind nearly every rich person can be traced back to the ownership of a patent, a copyright or a deed! Owning income real estate puts you in with the right crowd.

Well-Financed Houses Are Very Little Risk

In terms of investment risk, I’m talking about the risk of losing your assets – Rental properties, like the ones I own, are about the safest kind of investment you can make. Naturally, you must avoid paying too much and taking on too much mortgage debt. Residential renters are a much easier bunch to attract than commercial tenants. Also, everyone needs a shelter. Houses are considered a basic necessity of life. The danger of anyone taking your investment houses, with any equity, is almost nil! If you buy them right and structure the financing so your tenants can pay them off, you’ll be very well rewarded for your initiative.

Your Own Personal Money Machine

After many years of trying different strategies to make money with real estate, I can tell you without the slightest “hiccup” – it’s not a sound idea to buy houses that don’t pencil out on the day you acquire them or shortly thereafter! There’s only one reason in the world that I know of to buy investment real estate, THAT’S TO MAKE MONEY. If it don’t or can’t, then I don’t want it regardless of whatever else I may like about it.

Buy Properties That Earn Big Profits TODAY

I have been “sucked-in” on FUTURE VALUE, HIGHER POTENTIAL and PRIDE OF OWNERSHIP so many times, I’m embarrassed to admit it! Fortunately for me, I learned my hardest lessons early in my career before I lost the ranch.

If your goals are similar to mine, which are investing for current income and long- term security (at least until I’m senile), with the least amount of daily management involvement, then my strategies will work for you like they do for me. Naturally there are many things to learn and most of it should be accomplished during the early stages of your investing. On-the-job training is most effective! There are several important things you need to consider without delay.

I Have Been ‘Sucked-In’ – Don’t Let Big Mortgage Payments Rob Your Profits

When you acquire properties with financing, which most of us do, you should always insist on long-term paybacks. The longer the better, but nothing less than 10 years.

Be very careful when you agree on the amount of the mortgage payments. In my opinion investment properties that have combined mortgage payments higher than 50% of the scheduled income are a bit too risky, unless of course, you have adequate back-up resources to pay for negative cash flow.

I’m always satisfied when my mortgaged properties earn me a small positive cash profit consistently every month. Little profits allow me to buy more properties, which in turn provide additional little profits! First thing you know, little profits add up to big bucks.

Walt Disney was delighted to draw the first cartoons that moved on a big theater screen. He was paid just $12 apiece for each one, but he kept drawing lots of them, over and over again. Needless to say, his $12 drawings eventually made Disney a very wealthy man. It didn’t happen overnight, by any means, but when you consistently keep the profits rolling in, you have the money to take on bigger and better opportunities when they present themselves.

There Is No Substitute for Cash Flow

There are several good economic reasons why I favor keeping a flock of rental houses but the reason dearest to me is – they furnish me with a pocket full of cash every month, come rain or shine! Over the years, as the mortgages are retired (paid off) I have extra cash on hand to buy discounted mortgages, including buying back my own debt. It’s a very lucrative companion business to my real estate investing.

In my opinion, nothing comes ahead of cash flow! If you have it, you can continue to grow. You can transition from smaller properties to larger ones or fixers to pride- of-ownership. You can use your cash flow to buy mortgages for passive income or take a trip around the world every month when the rents come in. Cash gives you choices!

PositionRealty.com
Office: 480-213-5251

Commercial Due Diligence: How to Find the Stuff You Need

Due diligence is extremely important, regardless of the type of property you’re thinking of buying. In development property and land deals, buyers start the fact-gathering process with their first encounter with the property and it continues until they either bail out of the deal or go to settlement.

Here’s a list of sources of information (people, places & things) that are good starting points if you’re trying to research a property.

Sales & Ownership Data

Tax assessor information is available in several forms. For every piece of data, there is a primary source. The primary source is likeliest to be the most accurate and current source of information. For real estate documents that are recorded, such as deeds, liens, restrictive covenants, easements and subdivision plans, the primary source is the actual record of filings maintained by the applicable governmental department as well as the documents themselves and the recording information shown on them. These are usually kept at the courthouse for the county in which the property is located (Recorder of Deeds or Tax Assessment Dept.). People usually use title insurance companies who send searchers to the various courthouses to look up records. The deed contains the legal description of the property, which sets forth the property’s actual dimensions.

You can also search in free or fee-based databases that allow you to get information on properties nationwide or in a particular geographic area, such as: http://www.searchsystems.net; http://www.realquest.com; http://www.brbpub.com/pubrecsites.asp. These are great tools as long as you remember a couple of things. They should never be used as a substitute for hands-on research and inspection if you need results that are current and absolutely accurate. No database, even a governmental one, is a primary source of information. The governmental database, however, may be the next best thing to the primary source depending on the manner in which it was created and the frequency with which it is updated. When title companies insure property title, they do not rely exclusively on databases. They send people to where the records are maintained to physically search them. Real estate appraisers do not just use databases. They conduct additional due diligence and physically inspect the properties involved.

For several reasons, the farther you move away from the primary source of information, the greater the likelihood that the information may not be current and accurate. There is the time factor. The information has to pass from the primary source down the line through other people or organizations. In addition, there is the “garbage in, garbage out” principle. The integrity of any database, governmental or not, hangs on the thoroughness and competence of the people responsible for compiling and maintaining it. Databases can save you a tremendous amount of time and effort. You can use them most effectively as screening tools and to gather information subject to confirmation and further research if the situation or property warrants it. In addition, they are invaluable in identifying contacts if you need additional details or clarification.

If you want to find out who owns the property but don’t know the address, one way to be able to identify the property is to go to the municipal building and look at the tax maps or tax plats of properties in the municipality. By process of elimination, you should be able to identify the property (thus giving you the owner name, address, parcel identifying number). It’s a good idea to take a copy of the tax map with you when you return to the property since this will help you to pinpoint its location by counting parcels on the map from intersecting streets or other landmarks, particularly if the property is vacant land. Again, be aware that some of the information in the database or on the tax maps may not be accurate, particularly the size & shape of parcel, zoning classification, and whether the property’s serviced by public utilities.

New Construction Communities

If you want to find out who is or will be building in an area, take one municipality at a time and get the list of approved subdivisions and land developments from the municipality (manager’s office, code enforcement or land development offices). Then you can visit the new construction sites, talk with the site agents and get brochures. If the jobs haven’t started yet, you can go to the builders’ websites for preview information.

Municipal Records

You can identify properties that have applied for rezoning or subdivision & land development approval by requesting a list from the municipality of the properties. After you decide which properties you want to investigate further, make an appointment to review the development files and plans at the municipal office. This is public information, and anyone is entitled to review materials relating to actions taken by a municipality in public meetings and hearings. This can be an excellent source of information on owners who may be thinking of selling their properties.

Utility Maps

Checking the street for manhole covers and hydrants won’t necessarily give you correct information about whether a property can be serviced by public water and sewer. Instead, consult the mapping available through the municipal or regional sewer & water authorities, county or regional planning commission and private water companies.

Zoning

Each municipality adopts a zoning ordinance and zoning map for the properties within its borders. This material is available for review or purchase at the municipal office or through private vendors. Always make sure you’re looking at the most current ordinance and map since these are amended periodically. In addition, read the whole ordinance and not just the section on the particular zoning classification because the ordinance contains provisions that apply across the board on issues like definitions of terms used, accessory uses & structures, signage, and minimum frontage requirements.

The zoning officer (a/k/a code enforcement officer) at the municipality is the one to whom you should direct your questions about the zoning ordinance or map or if you want to find out anything about a property that may have happened in the past, like granting of variances, special exceptions or conditional uses.

Proposed Highways & Facilities

Depending on the nature (federal, state, local), you can access information through the municipality, county/regional planning commission, municipal comprehensive or “master plan” and federal or state agencies.

Profile Data of Area or Municipality

Municipalities and county or regional land planning agencies prepare comprehensive or master plans as a primary tool for their land planning. These plans contain a wealth of information pulled from various sources including US Census Bureau, Dept. of Labor, US Dept. of Agriculture soil surveys, FEMA floodplain mapping. In addition, you’ll find data about natural resources, statistical data on housing stock and non-residential developments, existing and proposed roads, transportation facilities, utilities, plants, commercial operations, hospitals and schools. Be sure to check out the proposed land use map and accompanying text. Here you might find clues for future growth areas and even potential for successfully rezoning particular properties. The master plans are available at either the municipal office or the county/regional planning agency.

Floodplain Maps

To determine if the property is in an area subject to flooding, consult floodplain maps. These are available through either the municipality, county/regional land planning agencies, or FEMA (http://www.fema.gov).

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