Michael Emilio » Real Estate Investing

5 Questions to Ask Homeowners When Looking at a Home to Buy

Michael Emilio — Tue, 02 Mar 2010 02:00:09 +0000

Ask them how long they’ve lived in the home. This gets the conversation going and starts the process of you gathering information from the homeowners. (“It seems like this is a nice area to live. How long have you lived here, in this house?”)
Ask them if they plan on living in the same area when they sell their home. The reason for this question is that it gets them to tell you what their future plans are. Knowing what their plans on are huge so you know what to focus on when it comes to negotiation time. They may answer that they may be going to another state, another country, moving back home with parents, or moving in with a spouse or boyfriend/girlfriend. There could be positive reasons or negative reasons associated to the area – for example, they may be divorcing and want to leave the area, which lets you know they are in a hurry to leave. (“I noticed a few shopping malls nearby, seems pretty convenient. Do you plan on living in this same area once you sell your home?”)
Ask them when they plan to get the house closed by. If they give you a specific date, then this tells you a lot about their situation, whether personal or financial. They may tell you they need to close on April 1st because they need to pay tax liens on the property. They may tell you there’s no real fixed date in mind to sell and they’re just looking to see what the market offers. The answer to this question gives you insight into how motivated they are to close by a certain date. (“Is there a time-frame in mind for when you’d like to get this closed by?”)
Ask them if they have a bottom-line price on the home. By getting an answer to this question you’ll gain insight quickly on what the seller has in mind in regard to price and whether you’re on the right track to getting a deal done. (“A lot of sellers I’ve seen recently, instead of doing the whole haggling-price thing, put a final and best price on the home and then put it on the market. This can often make the transaction process much more stress-free. Do you have a bottom-line price on this home?”)
Ask them how much they owe on the property. Not all owners will answer this, but if you can get an answer to this question it allows you to follow up by asking them that if you can offer them their price if they can let you assume payments on the house for a period of a year or 2.

When asking these questions, don’t just ask the sellers one question after another, rapid-fire style. You don’t want to be an impersonal robot, you want to connect with them on a personal level. You want to engage the property owner in polite conversation, gaining rapport and gaining their trust. You want them to be comfortable with you – this allows them to open up to you and answer your questions truthfully.

If you notice the questions I’ve written for you above as examples, you may see that none have easy “Yes or No” answers. You want to ask open-ended questions. You ask the questions and then stay silent – let them answer, don’t fill the silence with chit-chat! You ask the question and then wait. By asking these open-ended questions you’re leading the conversation, but they’re the ones talking. Generally, you’re looking for a 70%-30% conversation split, with them being 70% of the conversation. Why would you want to blabber on and on – what good does that serve you? A hiring manager for a company would never dominate the conversation of a hiring interview, they ask questions and then let the applicant speak. Always remember that your outcome in this initial process is to get information on the property and on them as homeowners. You don’t want to blabber on and on about how great you think the tile is and it’s your dream home or other nonsense like this.

As a final note, always have your contracts and paperwork with you when you go to look at any property! You never know what can happen – you always need to be ready to take action if the opportunity arises.

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How to Overcome Nervousness as a Beginning Real Estate Investor

Michael Emilio — Fri, 31 Jul 2009 00:22:31 +0000

If you’re getting started in real estate investing, you might be a little bit nervous about actually going to take a look at a potential real estate investment property.

Questions in your mind might be, “What do I say to the seller? How do I act? Am I going to seem dumb if I ask a silly question? Should I come across as cool and experienced or should I play it “dumb”? When I should I mention price? When do I start negotiating?”

Newbie real estate investors and real estate professionals get jitters – I know this, because I’ve been there. We all get scared we might say the wrong thing and “our cover will get blown”. But it doesn’t have to be like this. You don’t need to have a “cover”. You can be yourself and still get the deal.

The good thing about real estate investing is that if you’re dealing with the typical home seller or real estate agent they’ll likely be clueless to real estate investing. Most people, even those inside the real estate profession, don’t bother to learn about real estate investing. But since you’re interested in real estate investing and you’re investing the time to read this article shows me you have the interest and passion to learn – this gives you a head-up over the average person out there. So let’s get into how to talk to sellers if you’re a real estate investor.

One of the first insights you get as a real estate investor is that a house is a house is a house. What I mean is that as you gain experience, you start to realize the usual issues that the typical property for sale has, how these issues can get fixed, and around how much it’s going to cost. This comes with experience but really isn’t very difficult to master. It’s a good idea if you’re a beginning real estate investor to bring along a friend that’s experienced in home improvement to give you some price estimates privately after you’ve viewed the property together. Remember that real estate is your business and since it’s your business you need to be constantly learning and improving your skills in all areas, including communication and negotiation.

So if the issues that investment properties have are pretty similar across the board, what makes the difference from one home to another? The difference is the unique characteristics of each seller. You need to be able to listen, learn when and how to negotiate, and learn rapport tactics that you can use in your dealings with sellers. Think of yourself as a being an interviewer of the seller on a television show. You need to be directing the conversation with your questions, not the other way around with the seller asking you questions. Remember that he who asks the questions leads the conversation. The secret is that you want to be asking your questions so that the seller is free to talk without feeling like it’s an interrogation session – the conversation should be fluid and relaxed.

Throughout the process of you talking with the seller, remember that the seller wants to talk to you. They have an issue (they want to sell their property) and they’re hoping you can be the person that can solve this issue. Many times people are selling their property due to issues in their personal lives (divorce, layoff from a job, etc). By being friendly and warm with the seller they will likely relax and reveal their “true issues” to you – almost like a real estate therapy session. You want to be the solution provider, but to do this you need to know all the issues behind the sale.

One of the biggest tips to feeling at ease when meeting a seller for the first time is get there on time, about 5 minutes before the scheduled time, but not earlier than that and definitely not late. Aim to get into the neighborhood twenty minutes early. Once there and you have that extra time, take a drive around and look at other active listings in the area so you have an idea of how much active listings are selling for in that particular neighborhood.

You’re going to want to dress relaxed business casual for the meeting. Don’t dress up too much, but don’t underdress either. You want to come across as someone that has money but that isn’t showy about it. Something along the lines of a short-sleeve polo with beige khaki pants. If you feel the area is very working class, you may want to go for jeans, but usually that khaki/polo combo will work well for you.

I know some people are going to be more relaxed than others when meeting a seller. Of course, with time and experience, even the most skittish of real estate investors will get the hang of things and before they know it will be gaining quick rapport. My best advice is practice, practice, practice. If you need to, set up two visits in one day: the first one with a property you’re not really into and the second one with the property you’re really into. This helps you because after the first meeting you’ll feel much more relaxed because you’ve gone through that experience already so the meeting with the second seller will generally flow much smoother and you’ll be much more at ease.

Have you ever gotten nervous when meeting a seller? Let me know how you’ve gotten over your nervousness in the comments!

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The 2009 Real Estate Investing Market Predictions: Getting the Edge in the New Year

Michael Emilio — Thu, 29 Jan 2009 17:24:07 +0000

When the market is hot, it’s usually a great idea to flip and take advantage of increased consumer demand for residential properties – holding on to properties may be difficult to convert into positive cash-flow due to market demand for ownership, especially in upper-income markets. But what do we do when the market is cold?

When the market is cold, it’s a great opportunity to take advantage of the large available inventory, sellers motivated to sell, and the low rates available for mortgages. Flipping may be dangerous in cold markets if you don’t have the capital to hold on to the property for a year or more if it doesn’t sell quickly though. However, if you’re looking for passive income, this is a great time to invest, since a lot of people can’t afford to own and thus are looking for rental properties – including yours!

One of the best ways to find hot new properties to invest in is by using the Multiple Listing Service (MLS) – contact a real estate agent to find out more. Short sales and REO properties are now searchable in the South Florida MLS system – this may be available in other areas as well. You might also want to Short sales may be a great opportunity to purchase a home at very low prices, fix it up, and then sell for a nice profit.

Opportunities available include new construction, foreclosures, and FSBOs (For Sale By Owner) properties whose owners are finding it difficult to sell. In order to get a property that you can sell quickly, generally try to find homes with about 3 or 4 bedrooms around the middle of your market’s price range. You’ll have a good available market when it comes time to sell since almost any type of family can live in a home that size.

Condos are an interesting concept in cold markets, some investors love to invest in them and others stay far way. On the negative side, condos may be problematic as they often are in competition with apartments for renters – making it more difficult for you to find tenants. On the positive side, you don’t have to worry about having to maintain the exterior of condos as that’s handled by the condo association.

If you’re an experienced investor, you may want to look at helping out investors looking to get out of the game – to your benefit of course. New investors, thinking that real estate investing is just running numbers in a Microsoft Excel spreadsheet, can burn out easily if they can’t handle tenant complaints, property management, and negotiation techniques. This is a great opportunity for you to swoop in, help someone get out of a property they want to get rid of, and get yourself something you want for your portfolio.

If you have a real estate license, this can be an excellent time for you to grow your real estate investment portfolio. One way to do this is by buying properties from sellers when a deal doesn’t go through – make sure you always adhere to your fiduciary duties though. Although some agents don’t take a commission if they buy a property from a client, you are in your legal right to still ask for the commission. If the property is actually on the market, and the owner is your client, first refer the listing to another real estate broker for a referral fee and then purchase the property. You want to do this in order to avoid any violations of the Realtor’s Code of Ethics. I also would suggest you always state that you a licensed real estate agent or broker up front when you’re purchasing a property, even if you have no agency role in the particular purchase. If you represent real estate investors, never bid against one of your clients – your clients’ welfare is your main concern! A solid tip is to offer the property you’re interested in first to your real estate investor clients for 48 hours; if none have expressed an interest in purchasing, then go ahead and purchase the property knowing you’ve kept your client’s welfare in mind. As long as you always abide with the Realtor’s Code of Ethics, you can rest assured that you can generate some incredible long-term wealth by investing in real estate in an ethical manner. There’s a reason why 41% of real estate professionals own investment real estate and that reason is that there’s money to be made in investing!

Even with all the temptation to rush out and start buying investment properties like mad, resist the rush and don’t buy more than you can handle! Even if all the properties you come across are “good deals”, don’t get greedy with your purchases. You don’t want to get in over your head – it may be very hard to get out if you’re in this situation if the markets gets colder. Many conservative investors only like purchasing 1 or 2 investment properties a year – of course they make sure these are great deals! Other investors purchase dozens of properties a year (or more)!

When picking your properties to invest in, you need to analyze them thoroughly. Many investors feel there are only good deals or bad deals and that there’s no such thing as good markets and bad markets. Of course, even so-called “bad markets” may net you great deals if you purchase wisely.

“I want positive cash flow” is a phrase I hear prospective real estate investors say often – with good reason too. Tax benefits, appreciation, and leverage are other benefits of holding investment real estate but making positive cash flow after taxes and mortgage payments (or at the least, breaking even and then selling five or more years down the line) is the goal for most.

When looking at annual cash-on-cash returns on investment properties, you generally want to look for returns of 3%-5% on single-family homes and condos and 7%-8% on triplexes and fourplexes.

When looking for prospective residential real estate investments, always keep in mind you’re generally looking for properties that have high demand. Buying homes in areas near shopping, job opportunities, and quality schools can do wonders for your ability to find tenants and buyers. Do some research as to which areas seem to be in the path of progress for economic growth and jobs. Don’t be afraid to go small as well because, depending on your area, single family homes with relatively smaller square footage area can often get higher rents per square foot than larger homes. If you sense a sense of pride of ownership in the neighborhood you’re considering to invest in, then that’s a great sign there will be demand by tenants to live there as well.

If you’re looking for quick appreciation, smaller properties and newish single-family homes can be a great place to look. Of course, if you don’t mind getting your hands dirty, properties in need of some do-it-yourself handyman work can also be a nice source of investment properties for you.

In general, unless you really know the area extremely well, I would avoid purchasing investment properties in distressed neighborhoods, even if the price is great. Think about it this way, even if the numbers work well, what happens 5 or 6 years down the line when the local economy in that neighborhood withers to nothing?

Following that line of thinking, while purchasing luxury properties for investment can be a source of bragging rights among your buddies, I would suggest you focus more on middle-range properties more moderately priced. Average priced homes mean average priced rents, which can usually give a wide group of potential tenants that may be less likely than other income groups to move to a home higher up on the luxury scale. If following this strategy, look for areas where the average person in the area is a reliable working person who perhaps lacks this ability to quickly move up to buying a home.

As a general rule, when it comes to sell, single-family homes are the easiest to sell and multi-unit properties are generally more difficult. The reason for this is that multi-unit properties are judged according to NOI (Net Operating Income) while single-family homes, if sold to an owner-occupant, are often purchased for more emotional reasons. Having multi-unit properties so tied to NOI can be tough if rent prices don’t go up as quickly as interest rates do – this may cause that multi-unit property to decrease in value. However, if you know what you’re doing, multi-unit properties are the only way to go for experienced investors – they can give you huge amounts of passive rental income!

For a quick guide when you’re running the numbers, I would suggest using a 35% expense factor. The reason for this, even though some may think it’s too high of a number to use, is that it gives you a realistic gauge as to the profitability of the prospective property. In other words, if the property is still coming up as profitable when using this high expense factor, you may have just landed on an investment gold mine! What you do is take this 35% expense factor and then subtract it from the projected income. This will let you know if this property will be bringing in enough cash flow to cover your monthly payments.

Now that we’ve gotten ourselves acquainted with how to invest in real estate in a cold market, we’re now going to be talking about a topic that may be on your mind once you’ve gotten to this point… which is where to get the money to do all this! Although some real estate gurus might like to tell you otherwise, in most large markets, it’s extremely difficult to find no money down deals – even 20% soft second mortgage deals are rare. Prepare yourself to pay a down payment, it’d be extremely difficult to get a loan anyway if you’re only putting down 3%-4%.

If you’re investing in smaller properties, then you’ll likely be putting 20% down on conforming loans – this is because of the changes in mortgage insurance restrictions. Of course, do your best to raise your credit score – try companies like Lexington Law and Source One Credit Repair for some help in this area.

With all the mortgage law changes, loans may sometimes be hard to come by, but if you have 20% available to put for a down payment, verifiable income tax returns for the last 2 years, and verifiable assets, then you’ll stand an excellent chance of getting approved. Local lenders may be your best source of investment funding.

I really advise you to keep up-to-date with the latest developments in laws and regulations that apply to real estate – I cover the most I can in this real estate blog but you would be well advised to also read publications such as the New York Times and your local newspaper. What I can tell you right now is that the financial climate coming up in the near future may be more challenging, but by no means impossible. A new Freddie Mac regulation prohibits the agency from buying any mortgages that have been made to investors that own more than four 1-4 unit financed properties. Fannie Mae still has its loan limit for investment property ownership set at 4 – this number is expected to hold constant.

Moving forward, I see most real estate investors going for the 30-year fixed loan approach in order to finance their investments. Adjustable Rate Mortgages (ARM), known as Variable-Rate Mortgages in other parts of the world, are too volatile in cold markets. 30-year fixed loans, in cold markets where buy-and-hold is generally the preferred strategy compared to fix-and-flip, may give you the best opportunity to get positive cash flow.

If you are going to be holding on to a property for only the next 3-5 years, then short term loans can make definite sense. I’ve touched on short term loans in two posts, Consumer Debt Worst Offenders: Banks, Advertisers, and Advisors and Rule to Grow Rich By #2: Refinancing Your Home, but the main factor you want to consider is whether the market will be strong when the rate eventually changes.

In order to be able to move quickly when you’ve made a purchase and need some quick cash for repairs, “impulse” purchases, and other miscellaneous items, establish a line of credit with your preferred bank. You can use this line of credit to make quick purchases and it gives you a leg up on getting hold of preforeclosure properties before a bank possesses. Keep in mind, if you plan on flipping, that there are new anti-flipping laws which make it mandatory for investors to hold onto a property for 6 months before it’s possible to sell or refinance for a higher value – confirm this with a local expert.

Yet another source of funding can be your retirement account, if you’ve been diligently funding it. If you have a Solo 401(k) or Solo Roth 401(k), you can utilize funds from these accounts for investing in real estate, as long as you return income from your investment properties to these accounts.

Worst case scenario, let’s say you’re reading this article, you’re excited about investing but there’s one big problem: You have no money and you have no way of getting any in the near future! Obviously right now is a perfect time to invest in properties, but even if you don’t have the capital to do so right now, you can still pick up some great properties a couple of years down the line when you’ve saved up enough cash or you’ve raised your income or credit score. There are always great deals out there, no matter the market, as long as you perform your due diligence by doing a financial analysis of all prospective properties. Always remember there is no greater investment than investing in yourself, so use your time wisely! Constantly read and feed your mind with reading material about real estate investing, subscribing to real estate blog RSS feeds, following real estate twitterers, listening to audiobooks, and subscribing to real estate podcasts.

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Making the Offer and Closing the Deal: Get the Edge as a Real Estate Investor

Michael Emilio — Tue, 13 Jan 2009 20:21:15 +0000

Once you’ve run the numbers on a potential real estate investors, you know what you want to offer, then it’s time to get down to business – you need to know exactly what to write on your offer and how to write it. I know there’s a lot of real estate investors that swear by investment guru contract forms that they received at a real estate investing seminar. For example, the Carleton Sheets No Money Down program includes a software program called Real Estate Toolkit that gives you an ability to populate an Adobe Acrobat .pdf file with the pertinent information and you can then just print this out and offer this to the seller. For the most part, I recommend against using real estate investing contracts that you’ve taken from investing books or seminars. Instead, I want you to use the standard Realtor contract form from your state. You want to seem professional – not appear like you’re this real estate scammer that’s trying to take advantage of some unknowledgeable sellers. The contract forms found in most real estate investing programs have these almost ridiculous provisions that are almost comical in their slant towards the buyers/investors. Don’t get me wrong, when dealing with a property that seems like it’s been on the market for ages, has a multiple of problems, then some of the provisions found in these real estate investing guru contracts have some use. Generally speaking though, stick to the standard forms for your state.

Keep in mind that if you’re making an offer on a home that is being sold with the help of a real estate agent, the agent will likely require you to present your offer anyway on the standard Realtor form of your state. Real estate agents have been trained in the finer points of the state real estate offer form and know the legalities of the contract inside and out – it also makes it easier for the agent to compare the various offers presented as they are all written on the same form. These state forms have numerous provisions that protect real estate agents and real estate brokers from litigation and protect their right to their commissions. By them accepting your real estate guru contract, they would be exposing themselves to a high level of legal liability – understandably real estate professionals as a whole are extremely wary of accepting any contract offers not presented on the standard state Realtor offer form.

Real estate agents are required, by law, to present every offer given to them to the seller. The reality is that they will likely persuade you to rewrite the contract on the standard offer form. Although they are required to present all contracts, the law says nothing about what they tell the seller as they hand your offer to them. They very well may tell the seller to not even consider your offer if it isn’t written on the standard form. They may tell the seller that something seems fishy about it and has many provisions disadvantageous to the seller. They then show the many other offers presented on the standard form, which obviously have a more professional appearance. Yet another reason to present on the standard form is this: what if it’s a hot property and many offers are coming in? You submit an offer on a real estate guru form, the real estate agent asks you to present a new offer on the standard form, but during this exchange a great offer comes in and the property is sold from out under you. Real estate investing is often a race – you need every edge you can get. Those submitting on standard contracts generally look like professionals that can close; those that submit on investing guru forms may unknowingly come across like seminar graduates that don’t have the experience or ability to close on the deal even if they got it. If you’re submitting your contract offer directly to the seller who is selling by-owner, and you’re using the standard Realtor form in your state, make sure to tell the seller you’re submitting on this form because it’s the standard form for the state and is evenly balanced for all parties involved.

Most loans are able to be turned around in two weeks if you have a top-notch mortgage broker on your team. Obviously you’re going to want to confirm this with your broker, but if it’s possible, then put down on the contract that the closing will be in three weeks – this gives you a little wiggle room. Remember that the homeowner wants this deal done as quick as possible so they can move on with their lives. If you can close quicker than other investors and potential owner-occupants you might just give yourself an edge and eventually, land yourself the deal. When it comes to time before closing, having the closing come quickly is extremely effective to landing the deal when dealing with vacant properties, but only slightly so when the property is currently being occupied, depending on the homeowner’s circumstances. The reason why it may not be in the homeowner’s best interest to have a quick closing date if they currently occupy the property is that some people are wary of having the pressure of having to get all of their items moved out of their home in two weeks. To improve your chances in this situation, tell the seller’s real estate agent that you can close quickly on the deal, but that the seller can have as much extra time as needed in the home to handle their affairs (about two extra weeks) and move out of the home.

To show your professionalism and willingness to move quickly on this deal, include a copy of your bank statement (make sure to black out your account numbers) which shows enough cash in your account to purchase the property, if you’re paying cash in full. If instead you’re getting a loan, then attach a letter from your mortgage broker which states that you’ve been preapproved for an investor loan. If you can pay closing costs with cash, then make sure to state on the contract that you’re paying the closing costs with cash.

As a side-note, I know of an unethical practice where some real estate investors offer to close with all cash and no financing contigency – but all the while they have no cash and were planning to obtain a loan all along. It’s the old bait-and-switch, they tell the seller one thing, then do another thing once they have the seller on the hook. Imagine you’re a seller, you’ve been waiting months to sell your home, a seemingly perfect offer comes along, 100% cash, quick close, what could be better? It’s almost too good to be true – and it is. Most homeowners, especially homes being sold by owner (FSBO) don’t realize they deserve to see proof of these financial claims. They agree to this offer and they become emotionally invested in this deal. They tell all their friends, maybe they throw a party. Then the buyer lays the brutal truth on them. Sadly, some sellers are so tired of the process, and they feel embarassed telling their friends and family that they got suckered, that they begrudingly go along with the deal anyway. Ethical real estate investors take note, although this is an extremely small minority of real estate investors out there that engage in these unscrupulous practices, you need to know what you have to deal with out there.

Submitting offers and closing the deal can be a complicated process – but it doesn’t have to be. By following these simple steps you’ll be getting a leg up on your competition – and in this business, a small edge may be all you need to make thousands of dollars in profit.

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How to Beat Other Real Estate Investors by Using Full Price As Is Contract Offers

Michael Emilio — Mon, 12 Jan 2009 22:40:03 +0000

There are two main reasons why a property for sale will a ridiculously low listing price, far below real market value:

1)The seller is desperate to get rid of the property
2)The seller is ignorant of the true worth of the property

Offers generally come rushing in for these sellers. Some will be from real estate investors and some will be from people looking for a home. Now let’s assume you’re interested in purchasing this home as an investment property so you submit an offer to purchase. If you write a typical offer, your offer is just going to be thrown into the pile of offers that the homeowner has received. You need to make your offer stand out. The way you do this is by carefully writing and constructing your offer in such a way that it’ll be accepted. You need to write your offer with the thought of how the homeowner is going to perceive your offer.

Personally, I generally consider anything a property that’s listed at $25,000 or more under market value to be an excellent deal. Most real estate investors are going to be trying to low-ball the owner, knowing that the owner is likely to be desperate to sell. If you absolutely know that you want this property and that it’s going to be profitable for you, then what are you waiting for! Don’t lowball, offer full price! In fact, I would suggest you offer at least $1000 above the listing price – this means you’re likely going to beat any other offer on the table.

Some investors are scared that the seller, if they receive multiple offers, are going to want to start a bidding war. For the most part, this doesn’t happen. What usually happens is that the property owner just takes the best offer available and closes the deal. Homeowners selling their property are generally not professionals at real estate negotiation! They aren’t comfortable with the whole process and just want to get their money and move on with their lives.

Here’s another tip to get an edge over the other offers on the table: Offer to pay closing costs on the contract. Let’s say you do this and the owner accepts your offer. What you want to suggest to the seller is that you’ve spoken with your mortgage broker and your broker has suggested that you finance these closing costs into the price – this is done by attaching an agreement to the contract which will raise the purchase price of the home by the amount of what you anticipate the closing costs to be. Remind the seller that this will not affect the amount of money the seller will be getting at closing nor will it affect the seller’s taxable gain. Remember to speak to your mortgage broker about this and be clear about your local laws – what generally happens is the appraisal will then come in at a higher price than the original contract price which will then help cover the closing costs. Of course, this will increase your monthly payment by a few dollars per month.

When writing the offer, to further sweeten it up for the seller, you may want to very seriously consider taking the property “as is”. Here’s a tip to make this even sweeter for the seller, which multiplies your chances of getting this offer accepted. In the special stipulations section of your contract (the blank area at the end for additional terms), write something like this:

Buyer is purchasing the property as is. Buyer will not ask Seller to make any repairs to the property nor will the Buyer ask the Seller to expend any money on fixing any items on the property.

In order to protect yourself, I would also add an inspection clause like this:

Buyer has the right to inspect the property for four (4) days. If this inspection is not satisfactory to the Buyer, Buyer may then invalidate this contract and receive a refund of earnest money.

This gives you an out clause in case the house really is beyond repair. To go really extreme, you could even leave the out clause in there, but instead offer that the seller will keep the earnest money if the inspection shows you reason to cancel the contract.

A lot of people reading this article might feel very nervous about submitting an offer to purchase a property “as is”. The reason why you want to consider this tactic for certain “high-demand” real estate opportunities is that the seller is going to love it and is already going to see you as being easy to deal with. I know you don’t really care about making the seller your friend, there’s a strong negotiation reason for this. By having the seller put you in the “easy to deal with” frame, it’ll help you gain a helpful negotiation stance for later.

For example, let’s say you use the clauses I’ve given you above and the seller accepts your offer. Of course you added the inspection clause and upon inspecting the property you’ve found $9,000 worth of serious repairs you’d have to make to the property. What you now do is that you explain in writing (writing is generally less confrontational than face-to-face) that you anticipate making $5000 worth of repairs. Those repairs you need to make include painting, roof repairs, kitchen updates, bathroom updates, and new carpet. After those initial findings, you’ve also found significant structural repairs that need to be repaired. These repairs were not mentioned in the disclosure statement by the seller, so it was impossible to know of these serious repairs before you presented your offer. Be sure to also include a statement you’re sure that the seller didn’t know about them either as this was only found by using an extremely thorough inspection – you don’t want to accuse the seller of lying to you! You continue this letter to the seller by stating that these repairs would need to be done before the seller could sell the house to anyone at all. Tell the seller in the letter that your own carpenter can make these repairs at a cheaper price than any retail structural repair company. In our example, perhaps make a suggestion that the seller credit you with $6000 at closing for the repairs. The seller may come back with an offer for $4000 or $5000 which may want to consider accepting.

One of the reasons this tactic is so effective is that you’re leaving yourself room to negiate with your inspection out-clause. Homeowners generally don’t want to have to make repairs, they just want to rid themselves of the property and get some cash. By you taking the property “as-is” and stating that you will not ask for repairs, you’ll be beating out any other offers that have an equal or lower price that also includes a repair request. Another great thing about this is that you’re also automatically beating out owner-occupant contracts because almost all potential owner-occupants ask for repairs to be done. In fact, by you including this non-repair request contract you may even beat out other contracts that may offer slightly more money. Always remember that homeowners want the easiest way out of the situation – so this means you’re in prime position to get the investment property you’re looking for.

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The Public Records Search: When They Update and The Hows and Whys

Michael Emilio — Wed, 07 Jan 2009 03:35:07 +0000

In the article How to Use Public Records for Real Estate Investing Success, we talked about using tax records to help us find investment properties. We’ll take a deeper look at this strategy and point out some pitfalls that you should be aware of.

When looking at tax records, be aware that they are usually updated only once a year. The owner of the property that you’ve looked up the tax record information for may have sold this property to someone else, yet the tax records may still show the original owner as the owner and not the new true owner. Usually these tax records are updated on January 1st of each year.

Another detail to keep in mind is that the owner listed on the tax records may have inherited this property recently – especially if the previous owner has the same last name (likely to be of the same family). Look at the probate court records and check to see if there is an estate for the previous owner. The tax records may show an order of the probate court, but the deed may not yet be filed in the record room.

Taking a look at the public records is a great way to get an edge over beginner real estate investors. Of course you don’t have to look at the tax and public records for every single deal you’re thinking about making, but it is a great tool to have in your real estate investment toolbox. When I say toolbox, I mean that you should have a sundry of various investment techniques that you’ve learned from reading real estate blogs, investing forums, real estate books, audiobooks, and taking investment seminars. Even if you only learn one simple tactic from reading a blog post, for example, that one gold nugget of information could save you thousands, or make you thousands of dollars in your investments.

To find these public records you could either go to the courthouse (after a few times going to the courthouse you’ll get a good feel for how it’s like to search the public records) or just do your research online. I strongly suggest you download Mozilla Firefox and bookmark every government property search for the counties in your area. You’ll know it’s a government website because the website ends in the TLD .gov (TLD means Top Level Domain). For example, the South Florida Miami-Dade county tax record search hyperlink is this:

http://www.miamidade.gov/proptax/

The reason for becoming an expert at public record searches for properties is that you’ll be differentiating yourself from 80% of the real estate investors in your area. Real estate investors are a rare breed, so to be a part of the top 20% real estate investors in your area is quite an accomplishment! Of course, being a top investor takes way more than just looking at public records – but it’s an excellent way to find properties that the typical person doesn’t have access to. Think about all the abandoned property you come across in your travels. Think about the rental properties with absentee landlords. Think about those properties that would make excellent investments but it’s difficult to track down the homeowner. These are the situations were searching the public records will suit you exceedingly.

Besides finding the names and addresses of the actual owner of the property, public records can also help you find out other invaluable information. You can find out if there are any liens against a property. You can find out how long a person has owned a specific piece of property. You can find out how much someone paid for a property. This is very valuable information in order to make investment decisions! All in all, public records is an excellent way to pad your pockets with properties that other investors may consider hard-to-find, but to you these properties will a regular part of your investment strategy.

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How to Use Public Records for Real Estate Investing Success

Michael Emilio — Sat, 03 Jan 2009 22:28:16 +0000

Here’s a sneak-peek into the mind of the average beginning real estate investor.

Most would-be investors out there are looking for that perfect property to invest in. When I say perfect, I mean perfect! They have their noses in the classified ads section of the newspaper looking for ads that read something like this:

“I need to get rid of my house fast! I own the home free and clear and will give it away for half of what it’s worth. I’m more than willing to do owner-financing and lease to own. Please come, I’m desperate!”

As we know, these deals don’t come around very often! But this isn’t a reason to feel down and think there’s no chance to get amazing real estate investment deals. There is! You just have to know where to look – and most importantly – how to look.

The top 20% of real estate investors always run circles around the other 80% of wanna-be real estate investors that keep doing the same tired investing techniques. If you’re a true top 20% real estate investor, you’ll have your hands full with investment opportunities while the rest of the competition is eating the top-ramen noodles they bought for 50 cents at the supermarket and doing the same-old, same-old tactics.

These 20-percenters, the top real estate investors, know how to use public records. They know how to use property-tax records. They know how to use freely available information to make huge profits in real estate investing while other investors are just scrounging by.

I want to talk to you about using public records to your advantage in real estate investing. It’s a skill that anyone can use, but few know how to use effectively. In fact, most would-be investors don’t even bother to learn about how to use public records effectively!

You’re going to want to be very familiar with records from the tax assessor’s office, probate court and record room.

The tax assessor is responsible for knowing who is paying the taxes on a particular piece of real estate. Here’s a tip: the person paying the taxes is usually the owner. One option is to look up the prospective property at the tax assessor, get the owner’s name and mailing address, and send out a marketing letter. This could be what it takes to start a deal. Here’s another tip about the tax assessor – you can usually tell when a home is owner-occupied compared to properties that are rentals. A rental will usually have the tax bill going to a different address than the actual address of the property. The reason for this is that the landlord wants to get the tax paperwork, not the tenant. This means that the tax bill is going to get mailed to the landlord’s home address. Another key to notice to see if a property is a rental is to see if there’s a homestead exception – rentals are not eligible for homestead exceptions, thus if the property has one, then it probably means the property is a rental.

Another detail to look at when looking at tax records is that you may see something like this:

Michael Emilio c/o Miami Property Management

This may mean that the owner owns this company, but probably not. This usually means that there is a property management company that’s handling the management of this property for the owner, in this case Michael Emilio, and paying the taxes. In this case, if you send a letter to this address, you’ll just be sending it to the property management firm and they will most likely not bother to forward your letter to the actual property owner. The reason why they won’t forward the letter is simple – if the owner sells, then the property management firm won’t be getting their monthly fee for managing the property!

The typical 80-percenter (meaning the average investor out there that doesn’t use advanced techniques) just mails a letter to the property management firm (in this case, Miami Property Management), they don’t get a response, and they just cross the property off their list. This is great for you because this means that very few investors, if any, have even contacted the owner, which may mean big discounts for you! Many times, but not always, if a owner isn’t interested in managing a piece of real estate, then often times they aren’t interested in owning it either.

When a property management company is involved, you could be able to find the owner’s real mailing address by taking a look at any properties this person may own where the property address matches the mailing address – this means this is the person’s actual home. You may also look in the white pages to find a match for this person’s name with an address.An owner occupant will almost always have tax records with the billing address for the tax bill matching the property address – those that have the bill going somewhere else means that the bill is going to the private home of the landlord.

The real property record room (also known as the recorders office or clerk of court, depending on where you live) can be helpful if you’re not having luck at looking at the tax records. Take a look at the property deed files to see who holds title. Take a look at the three most recent deeds in the chain of title – these are the last three deeds transferring title. Let’s say you see someone in the chain of title who seems to be a family member (same last name). Write down the names of these family members and do a search for any property records of these people. If you find a record, this will include an address, and you can then send this person a letter.

For last ditch cases, you can send a letter to the tenants asking for help to find the landlord. You could also send a letter to the surrounding houses asking for their help in finding this person. Make sure to state that this is a personal matter and you’re not trying to collect money or sell anything. Yet another option is to contact the property management company to see if they’ll give you any tips on how to find the property owner.

Using public record searches is a great tool to use when you want to get to those properties that are relatively untouched by other more amateur investors. This means you’ll be putting in less time and effort for more money – all you’re using is a little extra knowledge that the typical investor doesn’t have. There are so many abandoned properties out there, with absentee landlords, that this could be a potential investment goldmine for you. Apart from what I’ve talked to you about in this article, public records can also be used to find out how long a person has owned a piece of property, what a person paid for a property, any liens against them, and insight into someone’s financial situation. This is valuable information – you just need to know how to take advantage of it!

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How to Handle Hopeless Real Estate Negotiation Situations

Michael Emilio — Wed, 26 Nov 2008 02:21:44 +0000

Let’s say you’ve been negotiating hard. You want to buy a home, for example, but the seller is getting hard-nosed about accepting your offers.

If you’re submitting offers on a property that have included inspection contingencies – this means you have the authority to inspect the home and ask for repairs to be done by the seller – try submitting your next offer without this clause and say that you’ll take the property “as is”. Always remember to keep your right to inspect the property before closing though. You want to have the ability to drop the deal if there’s something very wrong with the property.

Let’s say it’s the opposite situation. You know the house has been vacant for a while. There isn’t much competition going after that property. The mortgage is low or it’s been paid off in full. Tell the seller you’ll accept his offer but only if you can push back the date of the closing by three months, plus having full right of possession and access to the property – this means having the key to the home. If the seller accepts, this is a perfect opportunity to flip this house within those three months and make a nice profit.

In your real estate investing experiences you’ll undoubtedly come across that seller that just doesn’t want to negotiate with you and you know the price is too high to make a nice profit on. What you want to do is tell the real estate agent that you’ll submitting a new counter-offer in a week. When you submit this new offer, add $100 to what you originally offered. If it’s not accepted, add $100 to the offer the next week. Keep doing this, adding $100 each week. This may just hook the seller into reopening negotiations with you.

If there seems to be absolutely no budge, remember what I mentioned about being willing to walk away from any deal and do exactly that – walk away! The seller may just sense that you’re being real about closing all negotiations and can sometimes agree to your terms.

Like I’ve said before, if the deal is unbelievable then why waste time negotiating a slightly lower price and let some other investor take it out from under you? Don’t negotiate and get it done now! However, if the deal isn’t that amazing or if you think there really isn’t going to be any other buyers making offers, then it’s time to bring out the big negotiation guns. Negotiating is one of, if not THE, most highly paid per hour careers available. You can make thousands of dollars by using negotiating techniques. When doing real estate investing or any other type of negotiations, remember that all good negotiators walk away from more deals than they close. Don’t think you have to close on any deal or opportunity that pops up on your lap. It’s better to pass on 5 average deals and hit on 1 amazing deal than to strike out on potentially financially catastrophic deals.

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Get in Control: The Nickel and Dime Approach to Negotiating

Michael Emilio — Thu, 06 Nov 2008 00:41:47 +0000

Today’s lesson is on the difference between a nickel and a dime.

Well, not literal nickel and dimes. We know that obviously nickels are 5 cents while dimes are 10 cents. But it’s time to learn to apply this to negotiation strategies.

If we’re negotiating with a seller, then we want them to drop their price for us by a dime for every nickel that we’re moving up in price for them. Let’s put this into a concrete example so we understand each other on this buying tactic.

When we make offers to purchase, let’s say on a real estate investment purchase, a response from the seller may come back quickly. If the property in question has a listing price of $200,000, you might make an initial offer of $170,000. The counter-offer might come back to you for $195,000. The average negotiator may just split the difference. Then they keep splitting, and keep splitting, and keep splitting. They’ll find the middle point between $195,000 and their original offer of $170,000 and come up with $182,500 as the counter-offer. The seller then typically counters with a price that’s in between their original counter ($195,000) and the buyer’s counter ($182,500) which would be $188,750. The negotiation usually ends at this point. The typical seller only does two counter-offers, with the rare third counter-offer, but almost never more than three – the reason is that sellers get sick of this predictable and boring back-and-forth split-down-the-middle negotiating style! This is not an efficient way to do negotiations – so we’ll use a different strategy – a smarter strategy.

Instead of just splitting the price difference, increase your offer each round, but by less dollars each time. For example, you offer $170,000 and they counter with $195,000. Raise your original offer by $4000 and offer that ($174,000). They may counter with $184,500. Your next counter should be $177,000 – this means that instead of raising the offer by $4000 as you originally did, now you’re only raising it by $3000. Each of your offers comes by you giving less each time you make a counter-offer. You’re giving yourself a major psychological advantage over the seller by using the strategy. The seller, by noticing you’re offering less each time, feels like you’re getting near the max amount you’d be willing to pay for the property. This “max amount” never is verbalized – instead this is a subconscious reaction on the part of the seller to feel a twinge of fear. This will help end negotiations quickly in a positive way for you. The sellers get worn down and nervous by this style of negotiating. After a round or two of this they feel like they’ve negotiated hard but this is the best price they can get from you. In our example, the seller may accept that second counter-offer you make of $177,000. If you compare this new counter-offer of $177,000 to the traditional counter-offer of $188,750 this means you’ve saved $11,750 – all from smart negotiation strategies that save you money.

You might be asking: “Well Mike, what if the seller doesn’t counter-offer and they feel like the initial offer I made isn’t worth a counter?” One of the most important concepts to learn in any negotiation is to always be willing to walk away. I’ll say it again because this is so important: Always be willing to walk away. If you aren’t willing to walk away from a deal, no matter how badly you want that item, you will lose. Guaranteed. Want to know another little secret? Being willing to walk away works in any negotiation – in any aspect of life. The one that is willing to walk away almost always wins the negotiation – the other one almost always loses.

If you’re doing real estate investing and you come across a property with a price that’s too high to make a profit on and the seller doesn’t want to budge on the price and terms, then you just have to walk away from it. If the seller is unwilling to negotiate with you and work with you to drop the price or improve the terms significantly, then just walk away from the deal – it’s not your deal, it’s not meant for you. If you really like this property though, you may want to wait 4-5 days and then make another higher offer. Perhaps contact the real estate agent directly and ask the agent if the seller would be willing to do a counter-offer. Sometimes a seller is more willing to make verbal counter-offers and will ignore written ones. I’d always advise written offers but if the opportunity is there then this may be an option for you.

When using the nickels-vs-dimes strategy, timing plays a big role in your strategy. Let’s say the seller makes counter-offers, but you counter immediately upon hearing from the seller. The seller is now in control – this falls in line with never falling in love with a property and always being willing to walk away from a deal. The seller wants to prolong the negotiations as long as possible because all the negotiation stress is being carried by you. The seller feels that you need this property. The seller gets the vibe that you’re desperate to get this deal done for whatever reason. When this happens there’s no incentive for the seller to stop; the only incentive is for the seller to continue to negotiate because of the knowledge that you desperately want this deal so bad that you respond immediately to all counter-offers.

You want the seller to feel anxious about the deal. You want to seller to feel like there’s a possibility that the deal will fall through if there’s too much haggling over the price. If you feel like there’s not tons of interest in this property on the market and it won’t be sold out from underneath you then get back to the seller at your leisure – make sure to wait a minimum of six hours before responding to their counter-offer. When talking to the agent, say you really have to think about this deal – you have to think about it long and hard. Say you also want to start looking at other compatible properties – ask the agent to email you or fax you other properties available in the area. Say that it’s going to be difficult for you or any other real estate investor to go as high as what they’re asking. Say that you’d like to close the deal quickly if the seller could only just bend a little. This will cause the agent and seller to get freaked out that this deal may drop out – likely causing them to bend more easily to your wishes.

The agent, although legally working for the seller, is also worried about their own financial well-being. Subconsciously, agents know that in the end, they work for themselves. If an agent working for a seller feels that the seller will be more likely to acquiesce and cave in to deal pressure than you would, then the agent will likely push on the seller to hopefully take your offer.

The nickels-vs-dimes strategy and the anxiety strategy all work in your favor to get you the best deals possible – whether you’re investing in real estate or purchasing a car second-hand. These are negotiation tactics that will work to your favor – but you have to be willing to use them! Some would-be investors and buyers read about negotiation strategies but when push comes to shove, they bend over backwards to accomodate the other negotiating party and forget everything they learned. If you apply these tools, you will get a negotiating edge. Practice these tools whenever possible and they’ll become second-nature to you – helping you save major money on your investments and negotiations.

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Focus on Profit: Accepting Counter-Offers and Trusting the Seller

Michael Emilio — Fri, 24 Oct 2008 01:04:51 +0000

Negotiation is one of the biggest keys to success in real estate. It’s also the skill that’s going to make you the most money you could ever hope to make per hour in a traditional job. Think about it this way: If by negotiating you can save $5000 in half an hour when buying investment property, then you just made what would be equal to a hourly wage of $6000 an hour. I challenge you to think of any career that can pay that much! This is why expert-level negotiation skills are critical for success in real estate investing. Some other investors may have more capital than you have. Some other investors may have more networking connections than you have. But if you have master-level negotiation skills you have an advantage over 90% of the people you’ll find in business and investing.

When making an offer on a property, the most likely scenario is that you’re aren’t going to get your first offer accepted. Of course, there’s always the chance that the seller is going to accept the first offer. But usually you’ll be receiving a counter-offer shortly.

I’m going to break off from the traditional negotiation mindset right here – and there’s going to be some sales gurus disagreeing with me on this one. A lot of sales trainers and real estate investing instructors teach that when negotiating you should have a “Scorched Earth” approach. This means that you go for broke – you negotiate everything and you squeeze everything you possibly can out of the deal, no matter what. Including items like the rusted mower in the backyard, negotiating the stinky sofa and including it in the contract, etc.

I disagree with the traditional negotiation mindset of getting everything possible no matter if the deal goes bad. It’s a matter of mindset and priority. Your mindset should be to get this deal done quickly and fairly. Your priority should be on getting the best price and terms possible for the circumstances available to you. Get a great price and terms and just buy those items yourself afterwards! If you’re getting a great deal on the investment property (good rule of thumb is at least $25,000 of profit) then do the deal and forget the other junk around the house. Don’t get your priorities switched around and end up losing a profit of $25,000 over silly negotiations that amount to $3,000.

When making an offer on a “hot property” (one that will sell fast due to great price) and you get a counter-offer that’s acceptable, then you’re going to usually want to accept the counter-offer. Of course, you’re going to want to run the numbers and make sure you’re getting a great profit. But if you are, and you have good terms even with the counter-offer, then go ahead and accept the counter-offer. The worst feeling in the world is to have wanted to do something but because you hesitated you lost out on the opportunity. Real estate investing is the same way. When an opportunity presents itself – like a great counter-offer on a hot property – accept the deal and keep your profits coming.

When negotiating, remember you’re dealing with human beings, not some sort of emotionless negotiation robot! People have emotions and don’t like to be made fools of! If you’ve negotiated a great sales price, but you continue to hard negotiate trying to squeeze out an extra $1,500 for bathroom repairs, for example, the seller may likely become upset and will angrily cut off all negotiations with you. Another investor comes along with a good attitude and a nose for profits and will snatch that property right from under your nose. When you get a deal that’s going to get you good profits, just sign the deal right there and get it done.

Just like some sellers may get upset by hard-nose negotiation strategies there’s going to be some sellers that may get upset by a seemingly “untrusting” nature. During your real estate investing deals, you’ll inevitably come across individuals that are “handshake people”. You often come across these people when you begin to do owner-financed deals, such as no-money down investing deals. They often refuse to sign a written contract for items such as financing. They may say things like, “I’m a man of my word, we don’t need a contract.” It’s a big risk to just shake hands on the deal without a written contract. What if they sell to someone else a day later? This is when your gut and intuition come into play. Do you feel this person is faking you? Then do as much as possible to get it in writing or just back out of the deal and let someone take the risk. Do you feel this person is genuine? Then don’t press them on a written contract if the terms and price are good. Most of these “handshake people” would be insulted if you press them on signing a contract. Of course I’ll always advise you to do everything possible to get the contract in writing, but if you feel it’s the only way to get the house closed, you may have to take the risk. 99% of the time, you’re going to want a written contract of everything. At the very least, send this person an email stating, “Just to confirm that we agreed to do ________ yesterday.”

These items I’ve touched on with you are common in real estate investing. One of the great joys of investing is that we are in close contact with people on a regular basis, but that in itself brings along its share of challenges. Just keep working your negotiation strategies, work with people as partners and not as adverseries, and investing will pay off huge dividends for you.

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