The Urly Bird

Fistfuls of Cash: 20 Creative Real Estate Investing Strategies

Make money closing real estate deals by using these 20 creative real estate strategies.

1. No Money Down

What is no money down real estate investing?

No money real estate is a creative real estate strategy where the buyer borrows 100% of the purchase price. When the buyer doesn’t make a downpayment they do not have to use any of the cash from their savings to purchase property. If the property that you purchase cash flows then you do not have to worry about money because you just acquired an asset that pays you without putting any of your own money into the asset. 

Your payments will be larger so make sure it cash flows. 

Your mortgage payments might be larger because when you borrow more money so when you analyze your deal make sure it cash flows. Do a simple cash flow analysis where you enter in at the top how much rent you will collect from the property followed by all of the expenses you will need to pay to maintain the property (like insurance, taxes, and heating). Subtract your expenses from your rent and you get the cash flow. 

What are the risks to no money down real estate?

Borrowing funds is riskier than putting your own money down on a property because the value of the property can decline — like a real estate bubble bursting — and you can be left with a loan that is bigger than the value of your property. 

I can tell you that mortgages with higher loan-to-value (LTV) are more susceptible to default; If the size of the mortgage is large compared to the value of the property, there is a greater risk of default than if the LTV is lower. If the the vacancy rate goes up so that the property can not cover the mortgage payments you might default.

Many real estate gurus recommend that it is OK to own a property with no money down as long as it cash flows because the income from the property can cover your expenses until the value of the property comes back up — in the case of a real estate market crash.

If it doesn’t cash flow it might not be the best sustaining deal. It could blow up in your face because unexpected repair costs and loss of tenants!

Check your government backed or insured lending programs in your area to see what is legal.

Sandwich Lease Option

Sandwich lease option builds the number of doors that you have that cash flow with no money down. Sandwhich lease option is giving a tenant the option to buy a motivated seller’s property. 

If you want to acquire two properties at the same time you can buy a new property and have the motivated seller as the tenant.

What are the risks to the sandwhich lease option strategy?

You need marketing costs to find a motivated seller and a tenant buyer. It is difficult to repair homeowners’ budgets.

More reading on no money down real estate investing strategies:

• The Book on Investing in Real Estate With No and Low Money Down: Real Life Strategies for Investing in Real Estate Using Other People’s Money by Brandon Turner
• Why using other people’s money (OPM) is so important for getting rich in real estate by Michael Sadler

2. Owner Financing: 

Owner financing is a group of creative real estate strategies where you convince the seller to finance the mortgage.

The four types of owner financing are:

• Assumable Mortgage
• Subject-To Financing
• Vendor Take Back (VTB)
• Wrap Around Mortgage
• Agreement For Sale

Assumable Mortgage

What is an assumable mortgage?

An assumable mortgage is a mortgage with a clause that says that you can takeover the mortgage and get a better interest rate than markets currently have.

Ask your seller if they have an assumable mortgage to find out whether you can get a great deal.

Subect-To Financing

What is subject-to financing?

Subject-to financing is creating a new agreement with the seller that has identical terms as their existing mortgage. You take over deed (in the US) or title (in Canada) and the motivated seller’s mortgage stays on title. Your benefits include a faster sale because you do not have to qualify for a new mortgage with a bank and you are purchasing property at a discount because the seller is in foreclosure. 

Your motivated seller could stay in the home as a tenant in a rent-to-own agreement with you while they rebuild their credit and buy the property back from you in a few years or — if that doesn’t work — you could get tenants that pay the motivated seller’s mortgage if the seller is not financially capable of staying in the house.

What is the due-on-sale clause?

According to creonline.com:

The “due on sale” clause states that the lender has the right to call the entire note due if any of the terms of the initial agreement are not met, such as payments being paid or transfer of the deed without paying off the original loan.

You might need to negotiate with the seller’s bank.

What are the risks of subject-to financing?

Subject-to financing could be seen as predatory because you are targeting foreclosures. Lawyers might stop this type of deal from going through even though it could be legal.

Vendor Financing (VTB)

What is a vendor take back mortgage?

• A vendor take back mortgage is when you buy a property with less of your own money by convincing the seller to mortgage as much of the property to you. 

According to whichmortgage.ca: “with cooler housing conditions, lower prices than some sellers want to accept, and terribly low rates on GIC’s…” they’re …“finding more sellers willing to entertain the option of financing some of the property to increase their return, speed up the sale and get a good price for their property.”

What are the risks to VTB?

You could pay a higher interest rate because the seller could ask for a return higher than what you would get at a bank. Higher interest rates will reduce your cash flow and make owning your investment property more stressful.

Wrap Around Mortgage

A wrap around mortgage is also known as “wrap”. 

What is a “Wrap”?

A wrap is when a buyer convinces the seller to finance the sale of the property using a second mortgage. You, as a buyer, will pay the wrap around mortgage and the seller will use those payments to pay their mortgage.

Here is an example of using a wrap from creonline.com:

$120,000 purchase price

$5,000 cash down payment

$115,000 to be held by seller as a wraparound mortgage

You explain to the seller that you will make them monthly installment payments on a $115,000 promissory note secured by a purchase money wraparound mortgage that will encircle their existing $100,000 bank first lien mortgage.

What are the risks of a wrap around mortgage? 

The size of the second mortgage could be too large; Different jurisdictions have different laws on the size of the mortgages that can be taken out on a property. 

You should speak to a lawyer about drafting the right type of mortgage.

Agreement For Sale

Agreement for sale is adding documents to a purchase contract so that you can get control of a property with as little of your own money as possible.

The essential first part of an AFS is that even though the buyer takes full possession of the property and is responsible for taxes, insurance, and maintenance of the property, the title remains in the seller’s name. Sellers love that title remains in their name when they are providing the financing.

Agreement for sale requires partnering with a lawyer.

3. Contingency Clauses in Contracts

Contingency clauses are clauses that you can put in your real estate contracts when purchasing property to help you escape from the deal when it falls through. Contingency clauses are also known as escape clauses.

Why would you use contingency clauses?

Contingency clauses reduce your risk when making money in real estate.

Examples of contingency clauses in your contracts:

Subject-To Inspection

Subject-to inspection clauses allow you to inspect a property before the deal closes. 

If you do not have the subject-to inspection clause in your contracts you might have to do unexpected and expensive repairs. You do not want to be stuck in a deal where you can not afford to make repairs. By getting a home inspection before closing the deal you can avoid losses.

It is good to get an inspection because you do not want to be liable to your tenants for hidden beams that could break threatening their lives. It surprises me that some real estate professionals do their own home inspections.

You should use the subject-to inspection clause in your contracts so that you can save money by getting inspections done before closing a deal.

When you buy a property sight-unseen it might not be possible to have a subject-to inspection clause.

Subject-To Fixtures, Appliances, and Furniture

You need to be specific about what fixtures, furniture, and appliances you want to keep when you close a deal.

You do not want to buy fixtures, furniture, and appliances. It is better if the property already comes with fixtures, furniture, and appliances.

Fixtures are fixed to the property. They are difficult to replace. It is good to get an inspection to make sure that important fixtures are attached to the property before you close your deal.

The more furniture, fixtures, and appliances on the property the happier your tenants will be and you will make more money. Furniture, fixtures, and appliances are assets that need to be accounted for so that you increase your cash flow.

Subject-To Appraisal

There are pictures in the appraisal so you can see if the property is in good condition. The appraisal shows comparable properties.

Buyers and sellers should know how much the property is worth.

Motivated sellers will sometimes keep the price high and negotiate other favorable terms like positive cash flow.

Subject-To Financing

Not everyone has a cash buyer. 

It is good to get your financing approved. Documents need to be submitted to the banks. Financing can take 30 days. Some mortgage brokers know alternative lending sources.

The subject-to financing clause will allow you to get cash so that you can make money on real estate.

4. Joint Venture

Joint venturing is partnering with a buyer and finding them property. You can negotiate 50% of the cash flow from the property with the buyer for finding the deal. You can also get a percentage of the transaction. I have seen lots of fee agreements with lists of real estate professionals’ commissions. 

You can also setup a corporation and sell shares. The main activity of the corporation is to buy real estate.

The key to making money joint venturing is to have direct access to a buyer and a seller.

There are real estate professionals that bulldoze through Daisy Chains to get access to cash buyers and motivated sellers. Having a property under contract and circulating property information attracts buyers. Attracting buyers helps you make money by closing your current deals and by building your buyers list for future deals. 

If you do not have your buyers and sellers under contract then your deal might fall through because of circumvention. Circumvention is a problem where buyers and sellers try to cut you out of the deal because you do not have a contract and because they are not reputable.

Direct mail creates direct access to motivated sellers. Sellers might expect an earnest money deposit when you sign the purchase contract. Buyers look for discount deals or deals that cash flow.

You can get access to buyers and sellers online, at local private clubs, at your local real estate investor’s association, by posting a ads in the newspaper.

5. Hard Money

Hard money is a loan with a high interest rate.

Hard money is leverage that increases your net worth. Hard money allows you to own more property.

Hard money can be used in the short term. You can use hard money to make repairs to your property or to finance the purchase of a great deal. Refinance at a lower rate when you can because hard money is expensive.

If you can not afford a hard money loan you might have to sell your property. Run a cash flow analysis to figure out what you can afford.

Mortgage brokers and private lenders can do hard money loans.

You need paperwork to qualify.

6. Buy and Hold Rental Property With Cash Flow

Cash flow is king.

Many real estate professionals accumulate cash flowing properties.

Sometimes market conditions make it difficult for property to cash flow. Property can break-even. Analyse the cash flow before buying.

Renovations are a great way to boost cash flow.

If cash flow is break-even you can still get capital gains.

7. Rehabbing and Hold

Rehabbing property is increasing the value of the property by making repairs. You can get capital gains by holding the property.

Figure out how much money you can make rehabbing and holding a property by using this calculator.

8. Flipping

Flipping is profiting by renovating and selling property at a higher price than what you paid for it.

Cost of repairs tend to be higher than what is budgeted. 

Buy property at a discount. Make valuable improvements to property.

9. Wholesaling

Wholesaling is flipping a contract between a buyer and seller.

You need marketing expertise to be a wholesaler. The cost of acquiring a contract from a seller can be too high if you do not have a buyer to sell that contract to quickly.

Assignment allows buyers to assume your contract. Buyers want to assume contracts where they profit. You need to source real estate at a discount so that you can sell purchase contracts at a profit to buyers. You get an assignment fee at closing with a lawyer. Add “and/or assignee” in your contract.

Direct mail is used by coaches to find motivated sellers.

According to Investopedia:

A typical wholesaling scenario looks like this: The wholesaler has a house under contract for $90,000 that he estimates needs $20,000 in repairs but will sell for $150,000 once the repairs are made. Using his network of investors, he finds an eager buyer at $100,000. He assigns the contract to his investor, who then has a profitable fixer-upper project, and the wholesaler made a $10,000 profit without ever owning the home.

A lot of wholesalers believe that they can wholesale without no money. There is no carrying cost. There is an earnest money deposit with the seller. There is a marketing cost.

Some real estate professionals say that wholesaling is illegal. Consult a lawyer.

Here is further reading on how to wholesale a deal step by step.

10. Rent-to-Own (Lease Option)

Rent-to-own is helping a homeowner stay in their home by buying the homeowner’s property and allowing them to rent the property with the option to buy the property back at a later date.

Rent-to-own’s are extremely profitable. You get capital gains because you negotiate an appreciated buy back price in the future and you get cash flow above market rents because of the downpayment to buy the property back.

What are the risks of rent-to-own?

It is difficult to repair homeowners’ budgets. The appreciated purchase price that you use in your contract can be seen as predatory by lawyers.

11. Perfect Tenant

Perfect tenant is a strategy where you find a perfect tenant for a joint venture partner.

Joint venture partners will be pleased to have a qualified tenant when buying a real estate investment.

You can find motivated sellers via direct mail. You can find tenants online and in the newspaper. Cash buyers can be found online. 

It is good to keep your marketing on all of the time to create cash flow from joint venture deals.

12. Bank Foreclosures/REO

You can purchase lists of foreclosures online.

You can build relationships with Asset Managers on LinkedIn. Mention that you can help with REO. 

13. HUD Foreclosures

You can get cash flow from foreclosures.

What is HUD?

HUD is the Department of Housing and Urban Development (US Government).

HUD sells foreclosures.

Registered real estate brokers and other organizations can bid on HUD listings.

Investors can purchase HUD listings after they have been offered to owner occupants.

You can buy a HUD foreclosure with cash or a FHA loan.

“HUD strongly urges every potential homebuyer to get an inspection from a licensed professional home inspector prior to submitting an offer to purchase.”

14. Short Sales

What is a short sale?

A short sale happens when the lenders agree to sell property for less than the amount that they are owed.

Buying short sales helps motivated sellers avoid foreclosure and legal fees.

You can make cash flow from short sales. You need to do a cash flow analysis before buying short sales.

What are the risks of buying short sales?

You need property inspections and insurance information. Short sales can take time because lenders don’t want to sell.

15. Probate Properties

A probate property is a property for sale after a death.

The benefit of buying probate properties is that they can sell for below market value.

You can find probate properties through courts in some jurisdictions. Governments change how they distribute information; It is good to diversify your source of information so that you do not go out of business.

16. Tax Liens/Deeds

A tax lien is created by the government when taxes on a property aren’t paid. Tax liens can be sold to investors.

The difference between tax liens and tax deeds is that when you buy a tax deed you own the property free and clear.

What are the risks to tax liens?

Property owners might not be able to pay back the taxes.

What are the advantages to tax liens?

You could acquire property.

17. Land

Investing in land is risky. Investopedia recommends some ETFs (exchange traded funds) that you can invest in.

If you are a REIT, the Flock has land that you can access.

18. Investing in a REIT

A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate.

From an investment standpoint, many options, such as the Vanguard REIT ETF (VNQ), provide diversified exposure to industrial, office, retail, health care, public storage and residential property developments. For most small investors, REIT ETFs are an ideal choice because they do not require direct management, they are broadly diversified by property type, they are geographically diversified, they can be purchased or sold on a real-time basis and they are very inexpensive.

19. Lend on Second Mortgages

Lending on second mortgages returns a higher interest rate if the deal is good.

You can acquire property that you lend on if the borrower defaults.

20. Match

Matchmaking is the ideal way to make money in real estate.

Real estate professionals are afraid of dealing with Tire Kickers because they are a waste of time and present fake deals. If you believe what Tire Kickers say and then distribute their information, you could be a Tire Kicker.

Tire Kickers create Daisy Chains because they believe that they have a deal when they do not. Daisy Chains are large links of real estate middlemen separate the buyer from the seller. Real professionals verify the identity of cash buyers and motivated sellers before bringing them to the table. 

If you find yourself in a negotiation and can not proceed because you are afraid of being circumvented then chances are you are a Tire Kicker and have not spent the time putting the buyer or seller that you are bringing to the table under contract. 

• I have received signed contracts from wholesalers verifying that they own the contract. 
• Some cash buyers say that they have no problem providing bank documents. 
• Real estate brokers have no problems collecting documents from cash buyers. 

If you deal with someone who says that the information is too sensitive to provide and who wants urgent access to your buyer or seller then they are probably fake and trying to cut you out of a real deal.

Tire Kickers try to build relationships with your buyers and sellers in order to circumvent you, which ends up with you not getting paid.

How can you spot a Tire Kicker?

Tire Kickers try not to pay earnest money deposits (EMDs), while real coaches budget to put deposits on wholesale contracts that they purchase risking a few thousand dollars at a time to do so. Real professionals also put your money in escrow. If buyers don’t put your money in escrow then you know that they are not real. There is no need to chase a deal for them.

Tire Kickers put a lot of pressure on you to get information quickly while offering nothing for it. Don’t give up information without knowing that you are going to get paid. Some of the most valuable information that you should not give up is buyer and seller contact information. This can accidentally be exchanged via contracts. Avoid giving up this information before having a contract with your buyer and seller. It is okay to share information when you have a contract with a buyer and seller and know that they are real.

Some people will say that Tire Kickers don’t have their own web domain as their email address and don’t have well designed websites. I do not know what to make of this one because it is relatively easy to make a website. An email from a website with a high domain authority from Moz.com is very believable and probably not a Tire Kicker. However, I have seen the “From” e-mail address faked before.

I think that the best way to spot a high quality real estate professional is by knowing them for a long time and by peer review.

You might have trouble finding someone that will trust you to go out and get them a deal. They might say that they have been in real estate for 20 years and have a few connections already. Some people believe that the big hedge funds won’t provide bank statements. This article on Forbes about how the wrong client will suck you dry when you think that they are valuable is true. The thing about circumvention is that you never know it’s happening to you. Don’t trust these people at first. 

You do not need to work for them until you know that they are real. 

You are the real estate professional that verifies the identity of your cash buyers and motivated sellers. I’ve been told that your reputation is everything in real estate. 

What have you done to verify that your cash buyer list and motivated property sellers are real?

Michael Sadler is the Founder of Access The Flock Online Real Estate Marketplace where he helps Real Estate Professionals make money accessing cash buyers and motivated sellers. Follow on Facebook, Twitter, Google+, YouTUBE, LinkedIn Group, LinkedIn Personal.

With the right goals you can go from where you are now, even if you are just starting out in real estate investing, to being CEO of your own real estate investment trust (REIT). 

What is a Real Estate Investment Trust (REIT)?

A real estate investment trust is a corporation that raises funds from its shareholders to invest in real estate. A REIT is a bigger form of real estate investing compared to investing on your own because investors pool money into your REIT expecting a higher rate of return from the REIT. Investors expect a higher return from the REIT because the REIT can find the best deals in any geographic location which allows the REIT to return a higher return on investors’ money compared to other assets like stocks, bonds, and commodities. 

How does your corporation qualify to be a REIT?

I will highlight below some of the biggest features of how to qualify as a REIT that are found on REIT.com where this linked site covers how to form a real estate investment trust.

• In the U.S. you need to have at least 100 investors. 
• 5 investors added up together cannot hold more than 50 percent of the shares. 
• No investor can own more than 9.8% of the shares in your REIT.
• Most (75%) of your REITs income must come from real estate cash flow and cash held in a bank (20%). 
• No more than 5% can come from non real estate sources.
• Your REIT must distribute 90% of it’s earnings each year to shareholders.

When you follow the above rules, your corporation can qualify as a REIT.

What is the difference between a REIT and Turnkey properties?

There are no differences between managing a REIT and providing turnkey real estate investment services. Turnkey is a term that can be used by the REIT to market to investors and raise funds. The word turnkey alludes to having someone else manage property for investors so that investors do not worry about managing property or making repairs to property. REITs can use the term turnkey when they are marketing to investors to raise funds that are used to invest in real estate.

You still need to source real estate deals, close transactions, and manage the property if you are a REIT.

REITs can be publicly traded and raise billions of dollars to invest from the public and hedge funds.

How to make sure your REIT is successful

Many of the principles that you are taught at real estate investor associations (REIAs) and real estate investing courses prepare you for owning your own REIT.

To be successful as a REIT you need to become as big of investor as possible. You need to build a team, a network, raise cash, hustle, be professional, be willing to travel. These are all things that you already learn how to do at your REIA. Your goals are bigger because you will be doing it with more doors to make more cash flow.

Many of the team members that will help you form your REIT and take it public after you grow it’s revenue, shareholders, and real estate assets are found at the bottom of this linked page about lawyers, accounts, and investment bankers that are expert in REITs.

Market yourself online

Starting a REIT can be just like becoming a real estate investor in that you start local. There are benefits to starting local:

• Becoming expert in the area (for example knowing the profitability of different neighborhoods)
• Getting direct access to sellers through direct mail
• Building a local brand through repeat exposure to your market

Marketing online allows you to increase your reach to other markets when you are ready. 

Marketing your REIT online allows you to build your network the fastest way possible because you can reach investors and team members in different markets when you are ready to expand. 

Social media helps build connections. There are lots of professionals on LinkedIn that invest in real estate and that can help you source real estate deals.

You can do crowdfunding through your website. Crowdfunding is raising small amount of funds from a lot of people. For this strategy to work you need your website to get lots of traffic by ranking in Google for a lot of keywords. You can follow SEO to rank in Google, get investors for your REIT, and drive real estate leads to your website.

You can build your legal team in every jurisdiction that you run your REIT. Each jurisdiction has different laws. Focus on building your legal team in different markets when you are ready to expand.

How to take your REIT public

Going public means that the shares of your REIT will trade publicly like a stock on the stock market. Traditionally, you could raise the most amount of money to invest in real estate by going public. With your crowdfunding website, you could potentially raise the most amount of money through your own online platform.

The best advice on going public comes from investment bankers. Find investment bankers that specialize in REITs here.

With goal setting, the right marketing, innovative technology, and expert team you can go from where you are to being CEO of your own REIT.

What have you done to start a REIT?

Follow on Facebook, Twitter, Google+, YouTUBE, LinkedIn Group, LinkedIn Personal.

You could lose your house. It could be 2008 all over again.

Many private money borrowers don’t plan to repay their loans. 

You should plan to repay your loans if you are using hard money, high-interest loans, or short-term money or else you could lose your investments.

A tip for planning to repay your hard money loans is to keep track of the loan amount in a spreadsheet and the interest charge that is being added to your cash flow. Just do the math and calculate the interest portion of your loan and that is how much extra expenses you are taking on. Mortgages charged by private lenders are calculated differently than amortized mortgages and are called interest only loans because they do not repay the principal. You should have a way to service that expense or you should not take it on. That means that you should have a way to pay it back.

The interest expense might mean not eating at McDonalds as much.

Reasons you might need private lending

You might need private lending to afford the repairs your house needs. I got this idea from TorontoLife.com.

I have also seen people need private lending because they fell into a difficult financial circumstance that has recently gotten better so they could afford to service the debt they are taking on. But, the reality is that a quarter to half of those people fell back into financial problems because their job, health, and/or marriage problems turned out to not be completely over.

I am concerned that the same people that are taking on real estate investing as a new career are the same people that have job, health, and marriage problems — problems that make them require a private lender. If you are a real estate investor you could deal with cash buyers only to get an interest in property without carrying a mortgage; Cash buyers could fund the deals that you find for them and you could negotiate a 50% interest in the cash flow from the property.

Private lending for real estate investing should be used intelligently as a strategic tool for leverage. When done properly leverage can increase your net worth. Big corporations carry debt, or leverage, because it increases their firms values. The way that you can tell if leverage is right for you is to compare the interest rate that you are paying on the private loan with the ROI of your investment or assets. Your ROI should be larger than the interest rate on your loans or you are doing it in an unintelligently manner.

If you are taking out credit card debt or high interest loans to start a new career in real estate estate investing when you have a difficult circumstance already, then you are probably taking on too much risk. This means that you could lose your house.

What have you done to pay back your hard money loans?

Follow on Facebook, Twitter, Google+, YouTUBE, LinkedIn Group, LinkedIn Personal.

You will get rich buying real estate using OPM — or Other People’s Money — because you do not have to save as much money yourself and can get your money to grow faster.

You have to be respectful of where money comes from. Money generally comes from someone who has earned it, gained valuable experience earning it, and from someone who can guide your decisions on how to structure deals with sellers.

You might feel like you are swindling money from someone to buy an investment because the pitch generally is that the investor can get a better return with you than they can get elsewhere. You are not swindling. It is a real business.

You are generally a bird dogger and need your own deal finding systems for the relationship to work. Profitable deal finding systems are hard to create and that is why you earn your money. Romana King says to find deals that cash flow so that you can hold them in both an up and down market.

The difference between real estate and financial securities or paper assets is that you need a license to raise money to buy paper assets. With real estate in most jurisdictions you can organize a joint venture between you and the investor and is typically legal without a license. It is a paper contract. Consult your lawyer. 

You can get started in real estate with no money using OPM. 

Using OPM allows you to buy property sooner because you do not have to save up

When you use other people’s money you can create a larger pie in a shorter amount of time. The real difference between using OPM and not that when you use OPM you remove your downpayment and exchange it with partners’ money. This allows you to buy more properties and focus on finding deals that cash flow for your partner.

You get an interest in more property sooner with OPM

Since you get control or own more property sooner because of using OPM you benefit from compounding. Since the amount of assets that you own or control is larger with OPM, your return is bigger than if you did not use OPM. This return compounds. Buying property sooner with other people’s money allows compounding to take effect more rapidly.

Develop a system to raise other people’s money for real estate investing

You can ask friends and family if they would like to invest with you in a piece of property that you find. They put up the money and get a return. You get a share of the property — usually 50%. 

You can also use the internet to setup lead generation systems for you to close. You can focus on local SEO (search engine optimization) and setup landing pages to capture a list of cash buyers and motivated seller leads.

Some possible sources of funding

• The local real estate investor’s association
• Family
• Local private clubs

Have you had success using other people’s money in real estate investing?

Follow on Facebook, Twitter, YouTUBE, LinkedIn Group, LinkedIn Personal.

How to Make Money in Real Estate

Be prepared for mental and physical health problems due to the stress of taking risks. This article on Business Insider is about how Mike Henkel would get really stressed growing a $10,000 investment to $4 million in real estate.

Fortune in Real Estate in California. Photo by Ken Lund.

Risk it all by taking out loans

You can make a fortune in real estate by taking out loans like Mike Henkel did.

You might not even be able to get a credit card so you try to put deals together with no expenses other than a phone number. 

If you are going to own real estate, on the other hand, then you need to be prepared to take out a lot of debt — or leverage — to finance your property with the least amount of down payment. This can be risky because there are laws stating the minimum that you must put down to buy property in different jurisdiction. Some articles recommend risking it all by taking out credit cards. This is fine if this fits your appetite for risk and using hard money. Just be respectful of the fact that you have to pay this money back. In most cases loans with higher interest rates are meant for short term uses. Some people buy their property free-and-clear.

Care about your tenants by improving your property

What’s the point taking all of the risk if you don’t care about the property?

Many investors don’t care about the condition of the property. They care about getting paid. Some investors would rather offer discounts on rent than make an improvement to their property. This tells me that they are under capitalized or just aren’t good business people. If you want to invest in property you should care about making improvements to it to optimize it’s value.

Plan for your property to be damaged, budget to repair your property, and take people to court to recover costs. Real estate is built around contracts. If you want to enforce your contracts you have to take them to court often to get liens, judgements, and help getting tenants out of properties. Make sure to talk to your lawyers.

Condos make for better rental properties

What property type should you choose?

It’s been said by sites and realtors that condos make for better investments than single family residences. Decide whether you are a cash flow investor or capital gains investor, analyze your deals and make your decisions. It seems that mobile homes are popular right now.

Fortune in Real Estate in New York. Photo by Sam Valadi.

Find partners that you can trust

Trust is key for all types of relationships in real estate. This article I wrote on Homes 4 Income explains why it’s important to build relationships with people on the ground when doing out-of-state or out-of-country deals.

Everyone that I interviewed over the past few years say that reputation is the most important thing when doing deals. It can take 7 years to build a handful of great relationships. Some of the people that you want to build trust with include contractors, wholesalers, investors, real estate agents, lawyers, accountants, and banks.

Diversification is key

Diversification is important, as with any investment, so plan to buy lots of property, a big portfolio of real estate assets, or do deals. If you do deals by being the middle man, you only need a few good connections to strike it rich. Consider investing in assets outside of real estate to diversify as well.

Start local

Robert Kiyosaki mentioned in one of his real estate courses to focus on your local neighbourhood and get to know the market well. I think that focusing locally is a great strategy because you are not far from your property and know what is going on. It can be more difficult doing out-of-state deals because you have to build trust with the people you are dealing with at a distance. It’s good to be able to fly to meet cash buyers and motivated sellers face-to-face. After you meet buyers and sellers on Access The Flock Real Estate Marketplace you can meet them face-to-face — it’s up to you! You can become an international expert when you start local.

Know Your Neighbourhood

Get connected with local experts that know about the specifics of each neighbourhood before you invest. There are great sites like Neighborhood Scout that let you analyze neighbourhoods that you find on The Flock. There are such drastic demographic changes between close neighbhourhoods in the U.S. that it’s good to know people in those locations that your trust that you can joint venture with or consult and to visit those locations yourself so that you can see the difference in the areas that you are investing in. Some of you invest in such big packages that make it prohibitive to visit every single neighbourhood but it’s a good idea for smaller investors to visit where they are investing. Even some coaches visit where they invest.

Find a niche

Finding a niche is really important. You do not need to be expert in everything. You need to be exceptional at a few things and customers will buy, tenants will rent, cash buyers will invest.

Pick Trending Markets

Contrary to starting local, Forbes recommends going where the money is. In this article, David Lichtenstein recommends following hot industries in order to know where prices will go up. He believes that trend spotting is very important to accumulating wealth in real estate quickly.

Have good tax accounting

Claim capital expenses on your taxes to defer paying taxes. Rollover your properties to new investment properties so that you don’t have to pay tax on the sale of one property when upgrading to a bigger one with more doors that cash flows better. Learn the different tax laws in each market so that you don’t miss out on investing in all of the hot markets with the biggest price appreciation. Consult your tax professional.

Get control of as many properties as you can while mortgage rates are at historical lows

Debt is still debt. You have to be careful of taking on too much debt because interest rates can rise and you can be over leveraged, unable to refinance, and go bankrupt. With so many countries going into negative interest rates, who knows where interest rates will go. With low interest rates it is more affordable to own property.

Build a lead generation system

“Systems and technology have leveled the playing field.” -Josh Altman, the star of the hit TV show Million Dollar Listing. Some real estate investors have their own sites with lists of 80,000 cash buyers, which really helps them get deals done in their local market when a distressed seller calls them. You need to have your own lead generation system. Placester provides tools that will help you increase your sales.

Here is an article on the hottest real estate locations in the U.S. to invest in. Here is a post on where you can get a couple of cheap deals in some of those markets on The Flock. 

You can find partners on The Flock to do deals with once you Access The Flock!

How much are you going to make in real estate in the next ten years?

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Real estate professionals feel defeated and need to be motivated when they are closing a massive deal and find out that their buyer or seller has been stolen from them by the broker they were negotiating with to close the deal.

This article post from Zillow highlights how real estate agents fight over their clients by calling them “My Client”.

The NCND did not work. Most times you are not aware of deals being stolen from you because there is no evidence except for an excuse from brokers like, “They didn’t return my call.” In reality the people that you introduced started their own relationship without you. You are afraid of this but could never really prove it was happening to you.

You asked for no more Daisy Chains and Tire Kickers when really what you want is no circumvention and higher quality real estate leads. When you are negotiating real estate deals from a distance you can’t be sure that what you are dealing with is fraud. Even when you meet someone in person for lunch you can’t trust them. When you share buyers and sellers contact information via contracts that you sign they may be lost to fake companies that disappear and change their name. This means your deal vanishes. This happens all of the time. 

This article on how to stay super positive and motivated by Forbes provides a few helpful tips on how to get over losing your deal. I like the point about seeing yourself as unstoppable. You need a big vision for the future after you close your deal. Having a vision of success will allow you to see set backs as short term hurdles and make you unstoppable in the long run.

To get started, I will introduce you to higher quality cash buyers and motivated sellers so that you don’t waste time. 

The Flock consists of most of the top U.S. bank’s Asset Managers. This is an unprecedented opportunity to connect with the folks that will make your dreams come true.

Some of the people that you can access are so sensitive that people are paranoid about the information that rests on their computers because the information will give you access to these people and the money that you will make.

Now there is a system where you no longer have to worry about circumvention so you can get paid on your deals.

You might doubt whether a rating system is enough to keep Tire Kickers and Daisy Chains out of your deal. I’ve seen it, the Birds of a Feather algorithm cuts out Daisy Chains and Tire Kickers. You are left with top quality, trustworthy people at the top of your feed. If you rate the person using the Urly Bird Grade that stole your deal you no longer have to worry about them doing deals.

The Flock are Asset Managers from top U.S. banks, hedge funds, REITs, Real Estate Brokers, real estate investors, wholesalers, and principal buyers and sellers.

Who do you have in the pipeline right now? Make sure they are real.

Now, refocus. Get another buyer or seller and bring them to the real estate marketplace.

What has been the most motivational thing that has kept you going to achieve your dreams?

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To keep your assets and not go broke after purchasing a Lamborghini and Mansion you need to have assets that generate enough cash to afford the purchases and your lifestyle.

Assuming that you are starting out brokering long distance real estate deals from your basement office using free Skype calls you need to imagine what your lifestyle will be once you close a multi-million dollar deal. Many of you have leads to 100 million dollar real estate deals that you are trying to close. Imagining your lifestyle when you’re rich allows you to budget how much cash your assets need to generate for you to buy a Lamborghini and Mansion.

How much will you earn from closing your real estate deal?

Assuming you close a $100 million dollar deal and earned a 3% commission you will have $3 million. That is probably not enough to satisfy your appetite given your connections, deal flow, and the information sitting on your computer. You might be happy earning $20 million from a few more deals.

You could own a share of the real estate that you joint-venture (JV) by partnering with or bird-dogging for the buyer. This is how I closed my first deal and earned cash flow from the property that closed.

What are your cash flow generating assets going to be?

Real estate of course.

If you purchase tangible real estate the price of the properties going up and down might not affect the cash flow that you generate. The rental market affects the cash flow that you earn. If you purchase a REIT fund your cash flow could be affected by its variance because the approximate 4% yield (which is your cash flow) is tied to how much of the fund you own.

Let’s say you have $20 million and invest that in real estate that cash flows $800,000 a year using a 4% yield.

How much is your rich lifestyle going to cost?

It depends on the location that you want to settle and how much you travel to close more deals. A private midsize jet costs about $20,000 per flight in the U.S. Let’s budget for 10 flights during the year ($200,000 per year).

You could move out of your basement to office space that you own in the most glamorous parts of L.A., Texas, Ohio, New York, Florida, or potentially Missouri. These are the hot markets; You might want to settle there so that you can close more deals and be close to the action. Let’s budget for $100 per square foot per year for 5,000 square headquarters in California and mansion ($500,000 per year). Everyone is going to want to work with you.

What will your expenses be?

A Lamborghini Gallardo or Spyder that is a good investment because it has good parts can be rented out is about $100,000. Let’s not figure out the cash flow on it and assume that it is a one time expense even though it can be rented and requires maintenance.

Here are your total first year cash flow after closing $20 million in deals:

• Real estate income: $800,000
• Private midsize jets (10 flights): $200,000
• California real estate headquarters and mansion: $500,000
• Lamborghini $100,000

After you close your first $20,000,000 in real estate deals you will be able to invest in enough real estate to produce $800,000 a year in cash flow that you can invest in building your real estate empire further.

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There are 4 things that I really like about real estate as an investment: the social aspect of networking, automated marketing systems, that real estate is a tangible asset and that real estate provides long term predictable financial returns.

Networking

You get to socialize while you build your network. Mind you, half of your network are crooks, a quarter of your network are regular people, and a quarter are the most elite people in society. You get to network using digital technology, in your office, or from the comfort of your home. You can also go to real estate investors meetups, which take place in almost every big city.

You can connect people all over the world to close a transaction. Part of making money in real estate is having a big network of cash buyers and motivated sellers who you can do deals with.

If you are just starting out in real estate as a career I understand how much pressure you could be experiencing deciding how to get involved with such a large financial commitment. You might be thinking about real estate as an investment and not the market that helps you buy and sell and that determines the value of your investment property. The network is the most important part of your real estate career. If you don’t believe me negotiate a multi-million dollar real estate deal and test whether the person whom you are negotiating with is trying to get access to your buyer or seller.

Most people that I deal with are in the middle of the deal. I deal with real estate professionals that are connecting their buyers and sellers for money. Most real estate investing strategies, along with brokering, follow the same pattern of matching buyers and sellers. 

Consider fix and flipping a property. Fix and flipping is when you purchase a property at a discount, make improvements, and sell it for a profit. When you fix and flip, you buy from a seller and sell to a buyer. You need to match the buyer and seller so that the property is not on the market too long. Your holding costs go up when your property is on the market. You need to bring buyers and sellers together.

You might be worried about investing in real estate because you are using your own money and plan on using a real estate professional. Most real estate professionals want to deal directly with the buyer or seller. If you want to become a real estate professional then you better deal directly with your own buyers and sellers.

One of the biggest things to watch out for when investing in real estate is getting cut out of the deal. You need to have your buyers and sellers under contract before introducing them to any other real estate professionals or buyers and sellers. If you do not have a contract with your buyer or seller their contact information will be used to build a relationship with them by other real estate professionals and cut you out of the deal without you being aware.

I’ve interviewed real estate professionals about their biggest problems for the past three years. There is nothing worse than spending two years trying to close a multi-million dollar deal to find out that the buyer is fraudulent. It’s really expensive to put deposits on property that you are planning on wholesaling to a buyer and not being able to find a buyer. I came up with a solution to your biggest problems when investing in real estate. The solution is this real estate marketplace which weeds through bad people and leaves you with serious cash buyers and motivated sellers.

A lot of gurus say that to get rich in real estate you have to invest in your education (and then sell you a $5,000 course). I believe that you need to invest in your network. Real estate professionals believe their network is their net worth and it is.

Even though so many headaches come up when dealing with your network there is a social component to real estate that I love.

You Can Automate Your Marketing Systems

You need to worry about sourcing good enough deals that cash flow. 

Have marketing systems allow you to run your real estate business in a more automated, efficient, and repeatable way so that you make more money with less headache in the long run.

It takes a lot of work to setup an automated marketing system for real estate. Having a lot of money to invest in marketing your property is as important as the cash used to buy the property.

You need to come up with your own marketing systems, which I have written extensively about to help you set up for own real estate investing business:

• You Don’t Need To Be An Agent To Find Good Deals
• How To Build A Buyers List
• How To Get Motivated Sellers Information
• You Won’t Close Out Of State Real Estate Deals Using Social Media
• 8 Benefits of Direct Mail For Real Estate

Real Estate As An Investment Is A Tangible Asset

When you are picking real estate deals to start your career choose local. Some cities are hotbeds for investing activity. Prices are being bid up and I see buyers and sellers there all of the time. Start local and build your reputation so that people outside of your city want to deal with you because they see how expert you have become in the area. They want to see that you can provide them the deals. You can make a cut for bringing buyers together with motivated sellers.

Become expert in your area before branching out. Let your network guide where you are doing investments.

Real Estate As An Investment Provides Predictable Long Term Returns

Even though long term historical real estate prices increase at a steady rate there are a bubbles are a concern in some cities.

When you start your career with out of state investing you can end up with deals with a low cap rate because prices have been bid up. Low cap rate means that your property generates a small amount of cash compared to what you paid for it. Property with low cap rate are not good buy and hold investments.

Something that can happen to you when you buy out of state is that you get drawn to properties which prices are discounted a lot. Price discounts are great but they might be in a bad neighbourhood.

If you aren’t ready to plunge into real estate investing consider investing in a REIT ETF fund. Returns are great compared to the risk you take and the cash flow is awesome. Investing in a fund is still investing in real estate but it lowers your overall risk by diversifying your investment and let’s you invest a smaller amount of money.

I can understand how much pressure you must feel needing to start a successful real estate business because the financial burden that comes with owning a house can threaten your life. Now you are going to be taking the risk with many properties all over the place. 

The four things that I like about real estate as an investment are the social aspect of networking, building and watching automated real estate marketing systems, that real estate is a tangible asset that you can visit and touch, and that historically real estate has provided reliable returns.

What are your favourite things about real estate as an investment?

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Real estate professionals should be careful about investing in distressed property when the property are in neighbourhoods with lots of crime and poverty because the property can be too risky, even though distressed property values are lower.

Generally, you’d think that distressed property is where the best deals are. If you aren’t careful you can end up with a property in poor condition and that can’t be repaired profitably. 

The attraction to pursuing distressed property is that they are cheap. Highly motivated sellers that are behind on their mortgage payments live in distressed property. Motivated sellers close quicker and price their property for less.

You might be on a beer budget and have champagne ROI taste. This appetite for high returns is risky. Your investment in distressed property might blow up in your face; You could be left with no cash and a property that is full of write downs. Write downs are losses. Write downs are when the value of the property is less than what you purchased it.

Losses can happen because you can’t find good tenants. When you purchase property in impoverished, high crime, low educated neighbourhoods with high vacancy you are left with poor tenants.

Unless you are flipping distressed property you rely on cash flow. Watch out and pick distressed property in a good neighbourhood. Good neighbourhoods have lower vacancy rates and people that can hold a job because they are educated. Try Neighborhood Scout to research profitable neighbourhoods.

Property in a lot of areas in the United States have high cap rates. Balance high cash flow properties for negative characteristics that can come with the neighbourhood.

Not all distressed home owners want to sell their property. Many want to stay in their home. Help them refinance their mortgage by building relationships with lenders. You can earn a finder’s fee.

Some distressed property are not worth your time

You can get distressed property that are in such poor condition that they are unable to be redeveloped profitably. Since you could be buying distressed property sight unseen and and that are out of state, you might buy a building that doesn’t produce cash flow.

Sometimes it is considered predatory to only do deals with highly motivated sellers that are experiencing financial distress. Many articles advocate using principled negotiation, which is finding win-wins. Other online articles recommend highlighting the pain the seller is experiencing, making it tough on the seller, and using a more aggressive close. The second type of negotiation is closer to predatory than the first because there is no empathy for the seller. There should be a focus on solving a real problem for the seller. Once you know what problem you are solving for a distressed seller the deal will be easier to close. 

You might consider yourself a problem solver providing a solution to someone in a tough situation. 

Access The Flock has motivated sellers that you can access.

The transaction cost might not be worth the investment unless you purchase in bulk. Lower net present value of purchasing one unit compared to the work to close the deal (sourcing a principal seller and the risk of dealing remotely) might require you to purchase more properties to make your business profitable.

The more you deal in bulk the more you run into fraudulent sellers. Don’t accept spreadsheets listing properties as verification that the seller is real. Try to get proof of ownership so that you know that you are dealing with the principal seller. You might have to sign a NCND (Non-Circumvention Non-Disclosure). Even after signing this document fraudsters can still steal your buyer and cut you out of the deal. Rely on the real estate marketplace’s Urly Bird Grade, which is a consensus as to how trustworthy the seller is who you are dealing with.

The main risks you experience when buying distressed property are whether it is in a good neighborhood that can still be profitable given it’s crime rate, income and education. The condition of the property is also a concern because it might not be well kept.

What are your experiences purchasing distressed property?

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