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5 Critical Questions For New Real Estate Investors

There several ways to invest in real estate with single family homes, condos, multi-family and commercial. But before you can invest in real estate, you must answer a few questions.

5 Critical Questions For New Investors
Do you have cash or access to cash to buy real estate?
Are you looking to replace your current income?
Do you have great credit?
Are you just looking for cash flow?
Are you looking to build long-term assets?
If your answer to question number 1 was No, then you can only focus on a few strategies like wholesaling, lease-options and seller financing. Once you generate some income, you can move into other real estate strategies.

If you answered Yes to the second question, I would be focusing on wholesaling, lease-options, and seller financing.

If you answered Yes to question number 3, I would be focusing on the real estate strategy retailing.

If you answered Yes to question number 4, I would be focusing on lease-options and seller financing.

If you answered Yes to question 5, I would be focusing on seller financing and retailing.

How Should You Invest in Real Estate?

How to invest in real estate really depends on your goals and finances. First write down how much money you could use to invest in real estate. Second, write down a list of people that have money and would like to invest in real estate. If this equals $0, then you cannot focus on retailing/fix and flip.

You will find yourself running in circles doing nothing. If you do have some money to invest, start with the foreclosures since there everywhere and you may wind up finding a great deal.

Answer the questions above truthfully and you can’t say yes to all of them. I want you to pick one or two to start. This will ultimately determine how you should invest in real estate.

7 Essential Deal Evaluations Tools

Here is some basic real estate investing information that walks you a deal in 7 steps. These tools are all great for evaluating leads.

1) Location:

The location of the property will usually determine what techniques you can use. Generally, Ugly Houses = Wholesale or Retail. Nice Houses = Options, Lease-Purchase, or Owner-Financing. Here’s what to look for:
Ugly homes in need of repair.
Properties in appreciating areas.
Properties that have easy terms.
Properties with seller financing.
Properties located in high rental markets.

2) Real Estate Bargains:

No matter what technique you use, you want to find good bargains. The better the bargain, the more you profit. Real estate bargains are usually the result of highly motivated sellers.

3) Motivated Sellers:

Motivated sellers are sellers that are in situations they need help with. Usually their property is the problem. Motivated sellers make good real estate deals for us. Be sure to write down all real estate investing information about the home

4) Gathering Information:

Gathering information will help you stay organized and give you the best possible analysis of a property. Be sure you have a Property Research Form, Property Inspection Sheet, and an All Cash Offer worksheet. Other information you will need is Repair values, qualifying the seller, and financing. Use all necessary information that can help you with your buying decisions. You will profit when you buy and realize it when you sell.

5) Contracts:

Your contracts must be bullet proof. You should always consult your attorney before using generic forms found online. There are several factors to consider when using contracts, for example, state laws.

6) Use Other People’s Money (OPM):

Whenever you can use someone else’s money, you have tremendous leverage. The seller will still receive what you have agreed upon. Here are some ways to use other people’s money:
Banks
Other Investors
Friends
Subordination Technique
Substitution Of Collateral Technique

7) Closing:

As the buyer, you can choose a Title Company to close your real estate transaction. A Title Company researches the title for any defects. They will then close your deal and give you title insurance.

There’s a lot of real estate investing information out there but follow these 7 basics steps to get you started in real estate.

Position Realty
Office: 480-213-5251

How To Retire Early Investing In Commercial Real Estate

We all work hard at our J.O.B., don’t we? We work hard each day and hope to retire when we’re 65, that’s the American dream, right? Many of us are looking for something better, maybe a scenario where we can retire earlier or perhaps enter a state of semi-retirement. The answer: investing in commercial real estate.

Imagine working really hard to find a good building at a fair price, putting the financing together, and hiring a property manager to run the whole thing. Was that a lot of work? Of course. But don’t you work hard anyway? Here’s the difference….

Commercial Ownership – What’s It Really Like?

Imagine the day you close on the building and your property manager takes over. Ask most commercial building owners, and they will say they spend anywhere between 2 and 5 hours per week on their building if it’s managed by a professional management company.

What have you done? You went from a job that took 40-50 hours of your time each week to one that takes a fraction of that. And you replaced part or all of the income of your job with that from the commercial building.

You’re working less while maintaining your income.

What would this mean to you? Maybe you could spend more time with your family. Maybe you want to travel more. Pursue a hobby. Give back. Or maybe do more deals.

How is something like this possible with commercial buildings? The answer is in how commercial buildings are valued.

How Do you Make Money On Commercial Investments?

The value of a commercial building is driven by its net operating income, the amount of income left after all expenses are paid. The more money the building spits out after all expenses, the more it’s worth.

In many parts of the country, a building is worth 10 times its net operating income. This “10 times multiplier” is referred to as the “capitalization” or “cap rate” for short. Don’t worry about this for now – it’s not important to the point I’m trying to make. Let’s just use a cap rate of 10 for our discussion.

Let’s say a building has a net operating income of $100,000, which would make it worth $1M. If you could somehow make the building generate $10,000 more each year, maybe by increasing rents or decreasing expenses, you would have generated $100,000 in value (a cap rate of 10 times the additional income of $10,000 is an additional $100,000 in value).

Let’s look at a more specific example, so that you can start visualizing how this “math” could work for you in real life.

Assume you bought a 10-unit building for $540,000, and you had to put 30% down. The building was bought at a “10-cap” based on our formula we’ve used so far. Which means its net operating income (or NOI) is $54,000 per year, times our cap rate of 10 is $540,000. The income per unit is $1,000, and the expenses are 55% of the income. The building is in great shape and has been managed by the owner himself.

So far there is nothing special about this deal.

However, suppose you found out that the average market rent in the area is actually a $200 higher per month. Suppose further that you meet a property manager who manages two similar buildings in the area, and he tells you that his expenses are only 45% of income.

Let’s say it takes us 3 years to get the building to where it should be, i.e. with each unit bringing in $1,200 per month and lowering our expenses to 45% of income. Here’s how this would impact our financials:

By making small improvements each year, we have added $25,000 to our Net Operating Income. What is our value now?

Our new NOI is $79,000, so our value now is about $790,000 ! That is an increase of $250,000 in three years! Isn’t that incredible?

But that’s not all.

You also had between $2,600 and $4,700 in monthly income from this building over those three years.

That’s still not all. You (emm, I mean your tenants), paid down $21,500 of your mortgage balance during that time, too.

Here’s what you get if you add everything together:

Your down payment was $160,000, and your total profit if you sold this building in 3 years is $284,000. This means you nearly doubled your investment!

In the meantime you enjoyed an average of $3,500 per month in cash flow.

Maybe you need more than that each month to quit your job. No problem. Buy a bigger building. Or get a second or third one. Three of these buildings will give you $10,000 per month in income and almost a $1M of profit in 3-5 years.

Retirement Possible In 5 years After Investing In Commercial Real Estate?

Would it be a lot of work? Absolutely. Do you work pretty hard right now? Probably.

Imagine working just as hard for the next 5 years and being able to retire. Imagine. 5 years.

And then you can do whatever you want. Keep working. Keep finding new deals (why stop?). Travel. Family. Give back. Whatever.

You don’t have all the answers, and you probably feel overwhelmed. That’s to be expected. The point I’m trying to make is, make sure that whatever you’re working hard at gets you to where you want to go.

Give the professionals at Position Realty a call to discuss your investment goals and objectives.

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

The Truth About 4-Family Investment Properties

Many of 4-family properties sell at a price where the purchasers will not see a dime in positive cash flow for 10 years or more. Why? In my humble opinion, there are several reasons. First, 4-families are very much in demand among newer investors who, in all honesty, don’t have the first idea how to properly evaluate cash flow. These buyers fall into the trap of determining the value by looking at what other people have paid for comparable 4-families to determine value, rather than doing a cash flow analysis to see how much money they’ll make at a particular purchase price. As a result, they pay what everyone else is paying—which, as you’ve already seen, is often more than one can pay and make any money!

Compounding the problem is the fact that many 4-families are sold by agents who also have no investing expertise. I’ve had many an agent “prove” to me that a 4-family is a good deal because it has a positive cash flow after mortgage payment, taxes, insurance, utilities, vacancy loss, and maintenance fees are taken out. What they don’t seem to understand is that, as the owner, I would also have to pay for extermination, evictions, mileage and wear-and-tear on my car, bank fees on my business account, accounting fees to keep my taxes straight, turnover and advertising costs associated with those vacancies, and the all-important replacement reserves for items that wear out slowly, such as boilers, roofs, and so on. When I show an agent that my real, true-to-God expenses on a particular building will outstrip income by 25% or more, they invariably tell me that I’m exaggerating—after all, the CURRENT owner makes money hand over fist! (Sure he does—he paid $20,000 for the building in 1954!)

Another reason for the gap between selling price and price at which a buyer could make money is that 4-families seem to be a favorite of super-conservative investors, many of whom pay all cash or a very hefty down payment, and, as a result, are able to get cash flow out of even the most overpriced properties. Think about it: if you didn’t have a mortgage payment on these properties you’re looking at, would they make money? Of course! Would they make a decent return on your investment? Heck no! But some investors aren’t looking for double-digit returns; they’re looking for an attractive, easy-to-manage property where they can sink their money and get a (more-or-less) guaranteed return.

My suggestion is this: leave the 4-families to the under-educated and over-conservative, and focus on the slightly larger properties that small investors like yourself can both afford and actually make money on. Five to 12 unit buildings give you the benefits of size plus eliminate the competition from over-paying amateurs and the better-funded corporate investors (who want much larger properties. And as an added bonus, it’s much easier to negotiate owner financing on these properties!

PositionRealty.com
Office: 480-213-5251

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