What’s the Investor Opportunity Forecast for 2017?

What’s the Investor Opportunity Forecast for 2017?

Are we off to a Happy New Year America?  Things affecting our business could be changing big time in 2017.

For the real estate sector there are many areas likely to be affected by the new administration.  Residential and commercial construction, infrastructure projects, interest rates and legislation are all likely to see increased activity.  Which will have the greatest impact remains to be seen.

Residential construction will likely outpace commercial projects and eventually bring balance to many areas of the country.  Currently there is a seller’s market in many MSAs with brisk sales reported in many parts of the US.  According to the National Association of Homebuilders, there is only a 4.6 months supply.  A balanced market is usually reflected by about a 6-month inventory.

Things look promising for increases in infrastructure projects, which will create jobs, not low wage – fast food jobs but more skilled labor jobs with higher paychecks.  America’s roads, bridges, airports and tunnels need, in large part, a major facelift.  Infrastructure projects appear to be a priority for the new administration.

The elephant in the living room for most people involved in the housing markets are those pesky interest rates.  10-20 loans dating back to 2006 that haven’t been refinanced are now beginning to reset and will likely put a lot of properties at risk.  It might also create some excellent buying opportunities from sellers who will not be able to handle the significant increase in their monthly payments.

More importantly are the concerns that rising interest rates will dampen the robust seller’s market.  Interest rates are very likely to rise because there is nowhere for them to fall as they remain at historical lows.  With the growing reports of increased consumer confidence driving fears over inflation (which the Federal Reserve seeks to control with interest rate hikes) we’ve seen the first increase in an exceedingly long time.  More will follow, but remember this, at $20 Trillion in government debt, interest rates cannot rise too fast or our federal government’s interest only payments would cause a further decline to our nation’s debt rating and increasing a risk of recession.

Last, but certainly not least we are likely to see legislative reform involving the Wall Street Reform Act, commonly known as Dodd-Frank.  This legislation is not all bad but it has had negative consequences in the provision of liquidity for the residential housing market.  Over-regulation and a lack of accountability of the Consumer Financial Protection Bureau has in some ways hamstrung banks.

Dodd-Frank has also impacted the ability of investors across America to provide seller financing to underserved sectors of the population in a manner that makes it beneficial for all parties involved.  It remains to be seen what changes will occur but with the support of organizations such as National REIA and the National Association of Realtors there may be some relief in sight.

Price growth I continuing on along the east and west coasts and major inland cities.  The breadbasket and rust belt states are likely to see less price volatility while enjoying rent stability.  Both types of areas create opportunity for the disciplined investor whose exit strategies are guided by their acquisition methodology.

OK, so what do we as investor’s do?  Keep making offers; use good metrics on your real estate purchases, use positive leverage – don’t speculate and work within your sphere of influence.  While it is possible, even probable, for rates to rise in 2017 they do not rise vertically.  They rise gradually over time.  A 50 to 100 basis point increase could happen between now and year-end but what does than mean to buyers in real dollars and cents?  This is the key question not what the alarmist media broadcasts.

The payment on a $100,000 mortgage at 4% is $477.42 a month and at 4.5% it rises to $506.69 a month.  That is less than a dollar a day or about 1.6 Starbucks a week and an increase to 5% increases the payment to $536.82.  Yes, this can impact some families but if they are that tight on their monthly budget, they may be better off waiting to purchase a home.   And yes, that would diminish demand somewhat but by how much?

Many of the families that would potentially fall into this category will be buoyed by the improving jobs market and higher wages.  I don’t want to sound like a societal blasphemer but there are some families that do not and should not qualify for home ownership until they have a better financial position.  In many cases they need education to help them understand how to become a successful homeowner.

They need the financial discipline required to manage a household budget and the responsibility that comes with home ownership.  This is where rent to own and lease option programs can really serve families who want to achieve the American Dream, but aren’t fully ready, can benefit from working with investors.  They can become homeowner’s in training; learn the ropes, save for a larger down payment and clean up bruised credit that will qualify them for lower interest rates.

All told, these are my personal opinions and you are welcome to agree or disagree but know this, 2017 will have plenty of opportunity for those willing and able to get out there and take effective action.  Rentals will remain vibrant, as rents are likely to continue rising and fix and flip activity will serve those who buy right and deliver a quality product.
The clock it ticking so keep learning, keep growing and keep making offers!  It isn’t construction, legislation or  interest rates that will make 2017 a great year … it’s YOU!  So play full out and take effective action everyday!

Augie Byllott is a full time real estate investor, trainer, speaker and coach.  He is also the author of the Financial Freedom Formula now available on Amazon.com.

Check our upcoming events calendar here http://www.creatingwealthusa.com/

How to Profit at Lightning Speed

How to Profit at Lightning Speed

Every investor should have one or more ways to sell properties quickly.  Entering into a real estate transaction without knowing your exit strategy can be hazardous to your financial health.  It can be painful, frustrating and downright costly.

What will you do?

Do you plan to flip the property to another investor?  Are you going to fix it up and sell it retail?  Maybe you plan to do a lease option.  Before determining your best exit strategy you need to consider things like; how much money you are going to put into the property? How long do you expect to hold it? How long do you think it will take to sell?  How long might it take your buyer to get financed?  These are important questions you need to consider before you enter an agreement to purchase a property.

When starting out, many new investors sell their first few deals to other investors in order to build up their capital reserves.  If you learn to buy right, you can expect to make $1,000 to $5,000 per deal by simply assigning your contracts on your first deal or two.  You do not have to own a property to make money from it.

All you need to do is control the property by putting it under contract.  Once you’ve located a prospective deal and secured it with a purchase agreement, you can sell it to another investor for a profit.

Bargains for bargain hunters

Example:  You find a property worth about $100,000 in its current state. It requires $10,000 to renovate the property.  The After Repaired Value (ARV) of the property is $120,000.  You negotiate a purchase price of $75,000 and sign a purchase agreement with the seller.  Next, you find another investor who is willing to pay $77,500 for the property and do the necessary repairs. This allows you to sell your deal to another investor for $2,500 and walk away with a nice profit using no money of your own. The other investor will make a nice profit as well.

In this example, the property was purchased at a 25 percent discount from its current market value and a 37% discount from its ARV.  Discounts can vary widely, based on things like the neighborhood, schools, access to transportation, shopping, as well as, the level of renovation the property needs.

Your buyer will likely be a rehabber who will renovate and retail the property.  Be aware, that when they sell the property they will make more money than you will on the deal.  Effectively when you wholesale, or flip, contracts your buyer takes on more risk and earns a greater reward.  Do not let his bother you. There is margin enough for you both to profit.

Finding Buyers

One good place to find buyers for your properties or contracts can be your local investment club or association.  You’ll meet other investors including wholesalers, rehabbers, landlords, agents, brokers and lots of other people involved in the property investment business.

You can find a list of local investment clubs and associations from around nation at www.NationalREIA.com.  You can also find local groups by Googling “real estate investment clubs” or checking out local Meetup Groups.  As you begin to network you can begin building your buyers list.  This way every time you put a property under contract you can quickly and easily send out an email to your entire list.

Another way to build your buyers list is by using classified ads both online and offline.  Offline ads will cost money you might not have whereas there are plenty of free online alternatives such as www.Craigslist.com.

Bandit signs are another great way to attract rehabbers, landlords and other investors (be sure to know your local laws regarding bandit signs).   As you build your list you need to learn and keep track of what each of your buyers is looking for so you can quickly and easily match buyers and properties.  Don’t spend too much time with inexperienced investors because many aren’t  able to perform quickly.

Prescreenng and qualifying

Here are a few tips on qualifying your callers:

  • How many houses do you buy each year?
  • What type of discount do you usually look for on properties?
  • Do you have your own cash to close or will you borrow it?
  • How big a renovation can you handle?
    • Paint and Carpet (Level 1)
    • Replacing kitchens and baths (Level 2)
    • Moving walls, Re-pipes, Rewires (Level 3)
    • Sinkhole houses, Burnouts, Re-engineering (Level 4)
  • If I find a bargain, how quickly can you close?

When you prescreen investor/buyers using these questions, you will quickly have a list of qualified investors to contact when a new project comes along.  If you don’t have an investor association in your area, check out groups on social media sites like Facebook or Linked-In.  There are lots of groups, check out Transaction Engineering Full Time on Facebook.

Retailing to the masses

Many new investors try to retail properties to owner occupants without a real estate agent to in order to save money on commissions.  While this may sound like a good idea, it usually isn’t.  Besides trying to avoid paying a commission, they usually neglect to account for the cost of an agent’s commission in their estimate of sales expenses for the resale of the property.

The primary benefit of using a real estate agent is to have your property listed in the Multiple Listing Service (MLS), which is used by all other real estate agents.  The MLS will give your property visibility to the largest segment of the home buying public. This will allow you to focus your efforts on finding more deals rather than waiting for buyers to show up at your property.  But in most markets commissions can run 6 or 7%.

In today’s market there are alternatives to the MLS; free online resources like, Zillow.com, Redfin.com, Trulia.com and my favorite is Postlets.com because it will automatically add your properties to the other property portals including Zillow and Trulia.  It also allows you to print very professional looking flyers complete with property description and pictures.

If you want to sell fast, you may need to pull out all the stops and MLS is still the big man on campus.  The more cost effective way to use the MLS is with a flat fee listing.  There are brokers/agents out there who will list your property for a flat fee ranging from as little as $99.00 to $500.  You will still have to pay a commission to the selling agent should there be one, but if you find your own buyer, no commission is due.

We use one locally that charges the members of our REIA $225 and as part of the service they add the property to Postlets.com and a number of other selling websites as part of their flat fee service.  They will even help you figure out the paper work when you’re just starting out.  This exposes our properties to the entire agent community as well as people who may be shopping but don’t have access to the MLS.

Since the listing agent/broker is only getting small flat fee, you will receive all the phone calls but there is an electronic lockbox on the property and you don’t have to waste your time showing the property.  Instead you can be out there making more deals.

What if it doesn’t sell fast?

Not every property can be resold quickly.  Occasionally, you may be stuck with a property for a few months. If you are disciplined and always do your homework, this will rarely happen.  If you can’t resell a property within 30 days, you probably made a mistake somewhere in your process.  Either you paid too much, bought in the wrong neighborhood or underestimated the renovation costs.

Other times you might be over-motivated and sign a purchase agreement on a marginal deal and have a difficulty reselling it.  Even though you are looking for quick cash, there may be other ways to earn a profit.   One strategy might be to take a promissory note from your investor/buyer for part or the entire purchase price (have an experienced real estate attorney or a knowledgeable closing specialist help guide you through this process).

The promissory note will be secured by lien against the property.  This will be accomplished by recording either a mortgage or deed of trust depending upon which is customary in your state.  The promissory note will contain interest, payment amounts and other terms.

Or you might even be willing accept a promissory note for the purchase price, with no payments due until the investor resells the property.   We have actually purchased a lot of properties this way.  A word of caution – before doing this you should confirm that the buyer has the financial resources and experience to renovate the property.

A third option can be to partner with the rehabber, which can work especially well when there are extensive repairs or a thin margin.  If you are flipping to an investor who will rehab the property, you might offer the property as your share of the partnership while he offers the materials and the labor as his share.  When you sell the property, you can split the proceeds.  You may have to take less than half of the net profit to make the deal work.  But a wise investor once said, “Half a paycheck spends a whole lot better than no paycheck!”

Whether it is flipping a contract or closing and reselling, the key is to know our way out of every transaction!  Why do you think there are so many clearly marked exits in life?  Safety friends, safety!  Be sure your deals have clearly marked exits too!

You can learn how to Wholesale properties on February 11th at Bird Dogging for Big Bucks! You’ll be on the path to mastering the simple steps to entering the real estate game and playing to win!  The best part is that you’ll be doing it in a way that won’t make you risk losing money or your future.

You will learn how to generate leads and negotiate agreements to bring to guaranteed, ready and waiting cash buyers who want to put money in your pocket! You never have to own the property, put your cash into the deal or handle any muss or fuss with the closing. It’s as simple as putting 1 and 2 together and generating real cash in the middle.

Hope to see you there!

To your success,

Augie 

A Focused Acquisition Strategy Can Earn Higher Investment Returns (Podcast)

A Focused Acquisition Strategy Can Earn Higher Investment Returns (Podcast)

Good news! I’ve been featured on a Podcast by the

Invest Florida Show!

 

Click below to listen!

Beginning real estate investors often get caught up in the appeal of high returns. However, the focus on high investment returns can come at the expense of a sustainable exit strategy.

A focused acquisition strategy can mean the difference between a profitable investment and a failed one.

It is important to consider a seller’s circumstances when making a potential investment deal.

 

By tailoring a deal to fit individual circumstances you have a higher tendency to close.

By structuring multiple deals, you can easily see what acquisition strategy works best for your investment goals.

Click here to listen to the podcast!

Practice Makes  Perfect? Well, Not Exactly…

Practice Makes Perfect? Well, Not Exactly…

Practice Makes Perfect? Well, Not Exactly…

When I first began investing in the early 1980’s I did what I thought were all the right things. I read books, listened to tapes and gurus, but for some reason even with all that education behind me I found that I didn’t close as many deals as I thought I should have. Have you ever felt that way?

As I think back, I learned many important lessons in my life, but some of the most important ones came from professional sports. Back in 1983 I had the opportunity to attend my first professional golf tournament, the Doral Open in Miami, Florida. I was the guest of AT&T, one of our corporate vendors, (yes, friends, I had a real job back then) and I have to say, I was impressed.

They did it all first class; a hospitality tent, gifts for all the guests, cocktails and gourmet food. I had never experienced anything like it! It was all a bit intimidating for a junior executive just starting out.

P110905sc-0250dh President Bush presents PGA champion Jack Nicklaus with the Presidential Medal of Freedom Wednesday, Nov. 9, 2005, during ceremonies at the White House. White House photo by Shealah Craighead

During the second day at the tournament I came face to face with one of my all time idols, the Golden Bear; none other than Jack Nicklaus. I was nearly speechless but at least had the presence of mind to wave my pairing sheet under his nose for an autograph, which he graciously provided.

So how does any of this relate to real estate investing or closing more deals, you ask? It doesn’t, but here’s what does, the next morning I arrived at the course early, 6:30 am and there were at least 10 pros on the practice tee and they were hitting ball after ball after ball. By 7:00 am there were 20.

Over on the practice green there were another dozen or so professionals putting ball after ball after ball. That afternoon after they finished, many headed right back to the practice tee or the practice green and again they would strike ball after ball.

Jack Nicklaus…Ball After Ball

These were top professionals, the best in world, yet they practiced before the tee off and again after the round. They didn’t show up unprepared when the money was on the line. They were as prepared as they could possibly be. Can you make the same claim when you are talking with a seller, a buyer, a realtor, banker or contractor?

Are you always ready for the big game?

What I have learned that helps close more transactions than anything else is to be prepared for the big deal. When that motivated seller calls and needs to sell quickly, do you have the ability to analyze the opportunity quickly and correctly then get it closed? Do you see more than one way to make the deal? Can you see multiple exit strategies?

Perfect Practice is the Key

We’ve all heard the old expression, practice makes perfect but it is untrue. Unfortunately just plain old practice won’t help you get better. However, perfect practice does make perfect! What I failed to mention about many of the golfers on the course that day were that they were there with their coaches. They had objective feedback to help them make those subtle swing changes that might serve them well next time a $500,000 prize is on the line.

The goal of this blog is to provide you tools and ideas to help you achieve that “perfect” practice ability. If you do it wrong and continue to practice it the same way day after day you’ll just get better at doing it wrong and keep a low batting average. But if you start developing and sharpening your skills the right way, you’ll be hitting them out of the park in no time!

As a good southern buddy of mine puts it, “even a blind squirrel finds an acorn every now and then.” Don’t be a blind squirrel, practice, study, learn and grow! You’ll find enough acorns to grow a forest!

To Your Success,

Augie

What To Do When You Don’t Know What To Do

What To Do When You Don’t Know What To Do

“What do I do…should I do this deal?…HELP!”

Do you ever get into a situation and wonder what to do? You’ve worked hard to find a deal, you’ve got one, but you’re not sure what to do. Has this ever happened to you?

Here is something I received in the “Investor’s Email Bag” recently. Can you see yourself in this guy’s shoes?

Screen Shot 2016-03-04 at 1.37.11 PM

Dear What Do I Do Now,

When buying for cash we always talk about MACO (Maximum Allowable Cash Offer), which is the ARV (After Repaired Value) minus 30% (your profit plus other expenses), minus Repairs.

So in this case, the ARV (as per your comps) is $100,000. Deduct $30,000 (your profit plus holding costs) and it equals $70,000 BUT you still need to deduct the repair costs.

If you consider it a junker when you drive by, then it’s a pretty good indication that the inside is a disaster as well. Your renovation costs could be as low as $3,000 (just for paint and carpet), but there is no limit as to what it can cost you depending on how much work is needed.

You’ll need a good general contractor to look at the house and estimate the costs of renovations (someone like my contractor friend Greg charges a $250 for the estimate, but if he ends up doing the work, he’ll deduct the fee from his price).

If you don’t know how to calculate the costs of renovating a junker then $250 is worth it. You don’t want to go in thinking it’s going to cost you $5,000 and it costs you $50,000. Better to be safe than sorry.

Don’t over-renovate. A $100,000 house dipped in gold is still going to sell for $100,000.

The house in your comps for $56,000 may have been a similar situation. An investor may have bought the house, made the repairs, and is either renting it out to a tenant or a lease option buyer. That’s why you may not see a new higher sales price.

Do NOT be a motivated buyer!

How long has this woman been trying to sell her house? If she expects to get $100,000 and is holding out for that, you cannot make her motivated. But if she’s been trying to sell it for 6 months without a nibble, then she may listen to reason. It depends on her motivation. If she’s moving out of state or into a nursing home, or she can’t make her payments, she may take a lot less…and I mean a LOT less.

You could always make her an offer contingent upon an inspection; that is, if the home inspector comes up with thousands of dollars in repairs & maintenance that you didn’t count on, you could always go back and change your offer.

First find out from your friend how motivated she is. You can always go see the woman and give it a try. The worst thing she’ll do is to ask you to do is leave, the best thing would be that you get a deal.

Consider the Cost to Sell Guidelines

When you talk to Ms. Homeowner (the seller) and she is shocked at your offer, consider taking her through the Cost To Sell GuidelinesWith paper and pencil walk her through the reality of what she will face selling the house retail.

This is in no way an adversarial conversation, but instead one to enlighten her about reality. Here is the equation and an explanation.

Ms. Homeowner’s Asking Price Minus The Costs of The Sale = Her Profit

Cost to Sell Guidelines (Costs of the Sale)

  • Retail Buyers Discount of 3 to 10%:  This is the price at which the property will close. In this market, every retail buyer is going to put in an offer of at least 3% less than the asking price.
  • Closing costs paid by the seller: 2%-3%
  • Closing costs paid by the buyer but frequently paid by seller: Because the buyer can’t afford to pay them–3%
  • Realtor Commission: Usually 6% but sometimes higher if the seller is desperate and wants to offer an incentive.
  • Repairs: Use whatever value or cost the HOMEOWNER estimates. You can confirm this for yourself later (and remember, a retail buyer is going to estimate higher; so if the house needs a new roof, a retail buyer will assume it’s almost twice what it will actually cost).
  • Holding costs: On average it will take 4 to 6 months to sell; so multiply 6 times their monthly mortgage payment plus utility bills, insurance, etc. By the way, if the house is vacant, there is a much higher insurance premium. The owner must have a “vacant house policy” or you won’t be protected from vandalism, liability if someone falls, etc. It is twice the price of homeowner occupied insurance.
  • Inspection costs: What might a home inspector find that will require repair? Usually $1,000 plus.
These selling expenses should help you negotiate
your offer and increase accepted offers.

If you think it could be a good deal and she appears motivated, but you’re worried about doing the deal, then find a partner who is more experienced. You may not make as much money since you will have to share some of the profit with the partner, but you’ll still make money and get your first deal done.

I think the deal is good IF you buy right! If you buy it low enough, then you’ll be able to sell it to a renovator and you’ll both make money. If you pay too much, well, then you’ll be holding onto it. Maybe for quite a while.

To your success!

Augie