Build a business platform that qualifies you to receive additional loans for your business. Over time you can establish a larger line of credit.
With the popularity of “Flip or Flop” on HDTV buying auctioned property and foreclosures to upgrade and place on the market quickly is growing in interest.
An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.
Part Four in a 5-Part Series: Is An Investment in Real Estate Right for You?
Part One: FOMO
Part Two: Real Estate Investment Types
Part Three: Building Your Rental Business
One of the more popular topics in books, seminars and training sessions was called “Mortgaging Out.”
- The way it works, they said, was you get a property that you actually own.
- But, the beauty of this method is you are the one paid for taking it over.
- Instead of the normal approach when you pay for the property.
- Using this methods delays taxes on the cash you receive, until you decide to sell the property.
- If then, they said.
Obviously this is a more sophisticated financial scenario which requires guidance from a CPA and an attorney.
You want to structure your investment for an annual cash flow.
- When you do, you build a business platform that qualifies you to receive additional loans for your business.
- Over time you can establish a larger line of credit.
- And, out of the cash flow you can repay small bills.
With reasonable caution you can tap unusual sources to generate even more cash flow according to the pros.
Look into:
- Lines of credit on credit cards
- Second mortgage lenders eager to package all kinds of unusual loans
- Investors wanting real estate in their portfolio
- Hard-money lenders willing to charge high interest rate loans for short periods of time
- Property improvement loans
- Development cost loans
- Seller refinancing
After you’ve mastered a couple of these deals it’s time to take your business seriously and look for multiple zero cash deals.
You’ll need to line up down payment loan sources ahead of time and develop a longer term business relationship with them.
At the core of the relationship you’ll want to evaluate and tap into their capacity to fund your business plan to take over, say two or more properties a month, on a consistent basis.
And they may turn out to be a tremendous local source for locating potential properties.
Other sources to monitor?
- Newspapers
- Local and national real estate magazines
- Internet sites featuring properties for sale
- Bank fliers offering Real Estate Owned (REO) properties
- Sheriff and tax sale bulletins offering foreclosed properties
- Get on real estate broker lists for free information and leaflets on available properties.
- And join an “apartment owner association” and study their publications.
For each investment you want to locate owners who feel they want to get out of their property they’ve held for too many years.
They represent your best opportunity for successfully proposing a zero cash offer – a motivated seller.
They are more likely to entertain one or more of your proposals.
- How would you like to sell at 10% more than your asking price?
- How would you like to sell your property to me in just days?
Reassure them that you’re dedicated to upgrading and improving every piece of real estate you own.
Prepare for your negotiations by meeting the seller’s needs with a reasonable, but lowball offer.
- Refer to what you discovered in your research.
- They’ll recognize that you’ve done your homework which places your offer in a favorable light.
- Highlight local and national market conditions, for instance.
- Consider taking advantage of any time pressures your seller may have with an offer to close the deal quickly.
- Make sure your offer reflects your business plan and takes into account possible negative scenarios.
“The What Ifs.”
What if you had purchased rental units just before a prolonged recession?
Check into local area recession data to determine the degree of overhang in previous recessions.
- In some areas the upper end is 12%.
- That is expect 88% of your units will be producing income.
- Your area may vary.
- Factor in a conservative estimate for a decrease in net cash flows by 12% to 15%.
- Together with an increase, of say a 30%, in costs.
- In your business plan calculations appreciation doesn’t play into your monthly operations, because it won’t be realized until at the time of the sale.
Will your offer still hold up?
In slow real estate times condo units being auctioned off still in new condition can present new opportunities
- Typically, they are sold to highest bidder regardless of price
- The seller offers investor financing of 90%
- Auctions close deals quickly to move units
- No repairs of any kind need be made — these are new units with all fixtures and equipment guaranteed
- Once the deal closes it represents significant savings to you
With the popularity of “Flip or Flop” on HDTV buying auctioned property and foreclosures to upgrade and place on the market quickly is growing in interest.
- Lenders or government agencies offer foreclosures to investors.
- The inventory of properties grows when people bought more expensive homes than they really could have afforded.
- Or developers fail to analyze the market for their property correctly.
- And investors didn’t factor the impact of tough times and tighter attitudes of bank lenders into their business plans.
But you did.
Where else can you find deals?
- Try special rehabilitation or historical building incentives.
- When you weigh the pros and cons you see that tenants generate rental income already.
- You’ll need to do your due diligence, but in most cases the units have good bones – sound construction.
- They occupy good locations that appeal to low- and middle-income renters.
Steps:
(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.
(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?