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January 26th, 2012

5 Keys To Building A Successful Creative Real Estate Investing Business

Why are you interested in the creative real estate business? What is it you are trying to accomplish? These are two questions we all need to answer for ourselves. The bottom line is to recognize that you are in the property investment business and treat it that way. It requires planning, discipline, and execution or else it can be a dangerous and unproductive hobby.

We have been property investors long enough to experience ups and downs, a market boom and bust, changes in target markets, even changes in our own strategy. We have fine-tuned our investment strategies, focused on target markets, built our team and systems and have a pretty good handle on things. Honestly, this is a good start, but we still have to ask ourselves, “What does our business represent and deliver?”

To answer this last question we started by defining what we do and then identifying our goals. We buy properties below market value or with excellent terms in order to produce positive cash flow. We constantly seek to improve operations resulting in greater effectiveness, efficiency and value. We generate profits from rents or the sale of the property.

While this is what we do it isn’t the entire story. There are still more questions to answer. So what are our goals? How do we do what we do? What is the result? What is our real estate investment philosophy? What are the most important things that lead to our success? How will we continue to succeed long into the future? What are the fundamentals that we live by?

These are the kinds of questions that help us get closer to answering the grand question about what our creative real estate business stands for. Here is what we came up with:

1. Minimize risk and maximize annualized return – This is our goal. We first understand and minimize the risk. This includes making sure worst case scenarios are not so bad. We focus on maximizing annualized return instead of your one time return. A 10% return is great. A 5% return in one month is twice the annualized return as 15% in 6 months. That’s a big difference especially when you compound it over the long term.

2. Control and manage our success – We do not speculate, as the market is out of our control. We buy based on solid fundamentals. Appreciation is an extra bonus. The numbers must make sense on every investment.

3. Stick to our criteria – We stick to our criteria of properties with 50-70% LTV, strong cash flow and a decent area. We also seek to upgrade our portfolio by periodically purging weaker properties and replacing them with better performers.

4. Strong and multiple exit strategies – We only do deals with tremendous equity and tremendous cash flow, which results in strong multiple exit strategies. This supports our goal to minimize risk and maximize annualized return.

5. Make informed business decisions – We do not make decisions based on hype, emotion, excitement or by following what everyone else is doing. We justify our decisions with thorough due diligence, thereby making the best informed business decisions.

These 5 keys are the foundation of our business and they help position us to be successful in any market for as long as we are actively investing.

So, if I had to say what our creative real estate investing business represents and delivers in a few sentences it is this, We represent creative real estate investing done the right way. We control and manage our success, stick to our criteria, ensure strong multiple exit strategies and make informed decisions that allow us to achieve our goals of minimizing risk and maximizing annualized return.

Whether you are a beginner or an experienced professional, you should go through this exercise as well. Doing so could establish the foundation for a long and successful creative real estate investing career.

Learn how to jump-start your investing business at www.quickstart.pactprosperity.com

January 17th, 2012

Fed Up – What’s the Fed Thinking?

Federal Reserve Issues Housing Market White Paper

According to the Federal Reserve Board, “There has been much discussion about the pathway forward, and the Federal Reserve has received questions and requests for input and assistance.” As a result the recently published a white paper, “The U.S. Housing Market: Current Conditions and Policy Considerations,” in which they call for increased lending to creditworthy homebuyers, a seeming no-brainer. They also recommend more loan modifications, mortgage re-financings and short sales to reduce the rising inventory of foreclosed homes and help stabilize the housing industry.

By all measurements these seem like reasonable and obvious solutions. Improving access to affordable mortgage financing for qualified homebuyers and investors, while aggressively pursuing more loan modifications and short sales would help reenergize the housing market and spur an economic recovery.”

 I think the same things were said by some local kindergarteners.

The Fed white paper says the current problem with mortgage credit “reflects not only a correction of the unsound underwriting practices that emerged over the past decade, but also a more substantial shift in lenders’ … willingness to bear risk.” However, the Fed says that fixing the current real estate market must not simultaneously repeat the mistakes of the past. I’m baffled as to why they feel the need to re-state the obvious. These are supposed to be some of our best economic minds and they sound like we’re in pre-school.

I agree that banks could prevent further foreclosure inventory increases, by more aggressively modifying loans and keep struggling families in their homes. But the flip side is what happens to the lost equity. Who eats it? Someone has to take it on the chin. Either the lender, the borrower or the tax-payer. I still think the silent second approach while tough on the borrower, will at least help lower their current payment, maintain some cash flow for the lender and promote a recovery and eventual strengthening of values and prices.

Where the Fed paper really goes astray is when it suggests converting foreclosed properties into affordable rentals. Worse yet, there is a hint that banks could actually become landlords. Hasn’t the current economic crisis demonstrated, if nothing else, that banks need to focus on their existing lines of business rather than leaping into yet more unchartered waters from which the taxpayer will have to save them? If you haven’t seen the HBO movie Too Big to Fail, I suggest you find a way to see it!

While it would be nice if banks made it easier for owner-occupants and small investors to get financing, the proposed bulk sales of distressed properties, lead to greater losses for taxpayers and a negative impact on housing values in markets across the country.

“Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery,” the Fed’s white paper concludes. “There is unfortunately no single solution for the problems the housing market faces. Instead, progress will come only through persistent and careful efforts to address a range of difficult and interdependent issues.”

Until the banks are held accountable for their actions, rather than being protected by a taxpayer safety net, there is no way they should become landlords or property managers. This could easily make things in our nation much worse. As for the Fed, shouldn’t it make more sense for them to focus on monetary policy, the task for which our tax dollars pay them rather than jumping on the housing band wagon? Housing policy seems to me to be well beyond the scope of its charter.

Since it is your tax dollars paying their salaries; should the Fed be making or even commenting on housing policy? What do you think?

January 3rd, 2012

FHA EXTENDS WAIVER OF ANTI-FLIPPING REGULATIONS THROUGH 2012

FHA EXTENDS WAIVER OF ANTI-FLIPPING REGULATIONS THROUGH 2012

WASHINGTON – In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, Acting Federal Housing Administration Commissioner Carol J. Galante today extended a temporary waiver of FHA’s anti-flipping regulations through 2012. Read FHA’s anti-flipping waiver.

“This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” said Galante. “FHA remains a critical source of mortgage financing and stability and we must make every effort to promote recovery in every responsible way we can.”

With certain exceptions, FHA rules prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, however, FHA temporarily waived this regulation through January 31, 2011, and later extended that waiver through the remainder of 2011. The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension announced today is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA. All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers. The Waiver continues to be limited to sales meeting the following conditions:

All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction;
In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will apply only if the lender meets specific conditions, and documents the justification for the increase in value; and
The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
Since the original waiver went into effect on February 1, 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.

FHA research finds that in today’s market, acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

November 7th, 2011

Wholesaling Houses; the Good, the Bad and the Ugly

When I first began investing in real estate I had no idea of the broad range of possibilities for making money.  One of the more surprising ways was the concept of wholesaling.  Being from New York, I heard the line, “I can get it for you wholesale” a million times but never even considered houses ad something you could wholesale.

Wholesaling houses is simply the idea of buy low, sell low.  We find a bargain and then sell it to a bargain hunter.  How do you do it?  The same way as every other aspect of our industry, locate suspects, prescreen for motivation and sort the prospects from the suspects, create and present your offer(s), follow up, control the property and close quickly.

While wholesaling isn’t my core business I do wholesale a few properties a year either because they are out of my farm area or I have enough projects going on that holding a vacant house until I can get a crew on it isn’t as valuable as the quick cash that a wholesale deal can provide.  Besides if I provide good deals to other investors, they are likely to return the favor sometime in the future.

In order to be successful at wholesaling you need to buy very low and the only way to do that is to find properties that people absolutely, positively don’t want and that the average homebuyer won’t touch either because no bank will finance it or it has something that frightens the average buyer (structural issues, infestations, major repairs, etc.).

A good wholesaler can see past the problems all the way to the profit!  They know that there aren’t many problems with a house that cannot be fixed for a price and that the market for these properties is much smaller than the standard retail properties on the MLS.  A smaller market creates the opportunity to purchase these properties cheap so they can sell them cheap and still make a profit while leaving profit in the deal for their buyer!  Many new investors are frightened by these scary looking properties and tend to walk away because they can’t see the profit potential.

One such property was recently uncovered by one of my students. When we went to look at it I was blown away.  Most wholesale properties I have seen have been vacant, this one happened to be occupied up until two days before we inspected it.  After having viewed thousands of houses over my investing career I thought I was beyond shock. I was wrong.  Take a look at the video.  What do you think?

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As tempted as I might be, I’m going to avoid social commentary here and stick to the subject of wholesaling.  With wholesaling the “good” actually comes from the “bad” and the “ugly.”  With trash, debris and vermin piled wall to wall up to the windowsills and only very narrow paths through the garbage, these was the worst living conditions I have ever seen.  I lived in a college dorm, rented a house with fraternity brothers and have rented to some pretty lame tenants and this exceeded anything I have ever witnessed by an order of magnitude.

The good news is that we can see past what is and on to the possibilities.  This little 3-bedroom 2-bath block home had a good roof and looked fine from the outside.  It sits in a decent working class nice neighborhood with well-maintained homes along the street.  While the place needed to be gutted to the studs, fumigated, the HVAC replaced, new baths, new kitchen, flooring and paint there is a profit to be made by the right buyer because there is nothing wrong with the house that cannot be fixed by a check to the proper tradesperson.  The key to success is in buying it right.

The end of the story is the property was put under contract and wholesaled to someone who is ready to do everything that needs to be done and sell for a profit or hold is as a long-term rental.  But their exit strategy is their business and a topic for another day!

What would you do?

 

 

October 19th, 2011

How Do I Get A Green Card?

How do I get a green card? Well, if you’re a holder of an E2 Investor Visa the answer is you can’t. Go ahead, check with the USCIS, The United States Citizenship and Immigration Service. Green cards are out of the realm of possibility for these legal immigrants who come to the United States in search of a better life. The odd thing is that the must buy or build a business, hence the “Investor” part of the type of visa. They must create jobs…and they do.

As a result they pay taxes, raise families and become part of the fabric of the USA. Even their kids, at least until they turn 21…then its adios amigo…The family gets split up as their children (who grew up here, pledged allegiance to our flag and played little league or joined the girl scouts) get shipped back to their country of origin. Of course they family can stay together if they all leave thereby closing their business and eliminating some jobs and taking tax dollars back out of the treasury. (yes, in some cases they might be able to sell it).

Wouldn’t it make sense for them, along wth their parents, to be able to apply for citizenship in the country that, for many, has been their only home? They come families who work for a living and provide jobs for others as well.

Last but not least, the inability to ever get a green card isn’t the only hurdle, every two years the Visa must be renewed with no guaranty that it will be renewed. Talk about having a sword dangling over one’s head.

How can a successful investor consider additional investment in their business, which could create more jobs and tax revenues, be a consideration when in the event your E2 Investor Visa renewal request is declined you are given 30 days to leave the country. It seems like the E2 Investor Visa as currently structured is actually anti-business, although it requires foreigners to invest in the U.S.

If this sounds as crazy to you as it does to me please take a moment to go to http://wh.gov/4TP and sign the petition which seeks to change some of the negative aspects of this Visa. It is a two-step process (why should the government make anything easy for its citizens?) so please be patient while the send you a confirmation email and then follow their instruction.

It takes about 5 minutes…here’s the catch; you must do this right now. 5,000 signatures are needed by October 27. We have a short time and a long way to go. Please forward this information to your family and friends and anyone else with some common sense and a respect for families who came here legally and create jobs. Thanks!

To your success….

Augie Byllott

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