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Then Jacob found a web site. That’s how it all started. He dialed the number to the real estate agent in Chattanooga, Tennessee to inquire if it was really possible to purchase a three bedroom, two bath home with central heat and air conditioning for under $70,000.
The answer Jacob received may have changed his life. In fact today; just nine months later, Jacob and Melissa own 6 rental properties in Tennessee and 3 in Georgia. As crazy as it may seem, they have never stepped foot in either state!
“The numbers make sense. Plus, we trust our Investment Realtor, Property Inspector and Property Manager. We have a great team!”, says Melissa when she’s asked how they could feel comfortable with such an arrangement.
“Plus, the checks keep coming in!” Jacob adds with a chuckle, referring to the positive cash flow on rental income that is averaging almost two hundred dollars per month, per unit over and above all expenses.
Jacob and Melissa are part of a growing group of “National” real estate investors. They’ve realized that there are different opportunities in different markets throughout our country. While one area may offer impressive appreciation potential, another may be a landlord’s dream!
...Elwood, an investor in Chattanooga, explains his philosophy this way, “The best football coaches surround themselves with the best assistants. As long as you have a good team in place, there’s no reason you can’t compete!” Elwood may sound a little overly excited at the prospects of his decision to expand his investment horizons, but his analogy is a solid one. His team is built around a quality Investment Realtor, dependable Property Manager and her crew. That, combined with an opportunity his Investment Realtor has uncovered in the Apartment market in North Alabama, has created a situation he can’t match in his home state. “The fact is I wouldn’t be managing the properties even if they were around the block.” Elwood adds, “I simply don’t have time with my work schedule. So, what does it matter if they are a couple hours away?”
...Mabuk and his crew are working their way across the southeastern US. re-habbing houses in moderate priced neighborhoods. The funds they utilize come from a small group of investors in New York. Mabuk says, “We are able to consistently buy houses that need repair for under $50,000. We then complete the repairs in two to four weeks and resell the homes for a $10,000 to $20,000 profit.” He summarizes, “We don’t have this opportunity in New York, so we travel.” So far they have purchased and sold homes in nine states.
Investing is about the numbers. If the numbers make sense in Arkansas, they’ll make sense in Ohio. And the one thing we have in common all across this great land; we all use the same dollar and cents. So, although in most instances it is probably more logical to keep your real estate investment dollars right in your “own back yard”; there are often situations where it would be more beneficial to invest elsewhere.
There can be dramatic differences from one metropolitan area to the next. Working with real estate professionals who have a working knowledge and, perhaps more importantly, contacts in more than one part of the country can be of enormous benefit.
The fact is the grass isn’t always greener....but sometimes it is.
Unfortunately this is a topic that is too broad to provide all the answers I know in one article, but I can
share some ideas, a couple warnings and a formula that will at least, help you steer clear of trouble or at
best, direct you toward profitable projects that will fit your strategy for personal success.
Speaking of strategy; that’s a great place to start. What is your investment strategy? Are you looking for
single family homes under $35,000 that you can invest $10-15,000 of repairs and re-sell for $60-65,000
and net a $10-15,000 profit? Or do you want to work in a more affluent market? Or are you interested in buying multi-family
property, improving it and then holding it as rental property? Or is commercial property really the thing you have in mind? Do you see
yourself developing a run-down strip center into a vibrant piece of revenue generating real estate? One of the quickest ways to lose
my interest in helping or partnering with you is to say “yes” to all the above. My first tip: “Pick a horse and ride it!”. Figure out
what interests you and then put blinders on. Focus on that and that only. Stay focused! Become the best you can at this specialty!
Remember, Specialists get rich while General Practitioners just make a living.
If I just hurt your feelings; that may be good. At least a good segue. Emotional behavior is for amateurs. This is my first warning to
you. Do not get emotionally involved in a project. In fact you should always have a figure in mind for what it would be worth to you
to walk away today. And, as much as you may like to see a project to the end, you need to be willing to do exactly that! What’s your
‘walk-away-today’ price? If you find yourself unable to part with a deal at any stage of the deal; you are in trouble! Seek help. Get an
experienced professional to consult with or partner with you. It’s worth saying again. Do not get emotionally involved in a project.
Formula for success. Now that you know you need to be focused and approach your deals with an “It’s not personal, it’s only
business” attitude; the key is to have a simple formula that will allow you to do an initial evaluation of a property. You can adjust this
formula to fit your strategy. For now, I am going to ‘adjust’ it to specifically target the type of re-hab project I am most often asked
about: the “single family homes under $35,000 that you can invest $10-15,000 of repairs and re-sell for $60-65,000 and net a $10-
15,000 profit” strategy that I mentioned earlier.
Begin with the end in mind. For this you will either need to know the market yourself, have access to the courthouse records or to a
real estate agent that knows what they are doing and is willing to help. Know (a) what the property will logically sell for in a short
time on the market (preferably 30 days or less. This will be a longer period if you are working with higher priced homes, multi-family
or commercial property). From this subtract (b) your marketing costs. (I would use 5 to 10%). Now you have (c) the amount you
believe you can net from the sale of the property once it is repaired. From this, subtract (d) what you estimate the repairs will run. (If
you don’t have an eye for this, you will want to either partner with someone who does, hire an inspector or work with an agent who
knows what they are doing.) Also subtract (e) the amount you want to make on the project. The answer, (f) is the maximum amount
you should pay for the property as it sits. So, the formula looks like this: (a - b) = c - (d + e) = f
Providing that you have accurate market information, realistic repair estimates and have approached this; a project that fits your target
strategy, with a non-emotional business-like attitude; you now have a solid idea of what to offer. Due to the nature of real estate, I
would suggest offering slightly less than you are willing to pay. This will allow the seller to present a counter offer or two and feel
like they have done their best.
Don’t be scared! Two fears that keep want-to-be investors from becoming investors are: 1) “What will the seller think if I offer such
a low price?” and 2) “How do I know that I can do those repairs for what I estimated in my formula?” First, this is America and in
America real estate is truly a free market product. It is worth what someone is willing to pay. No more. No less. Second, if you
know what you are doing or are working with an agent who does, you will protect yourself in your contract with contingencies, such
as “Contingent upon acceptable property inspection by buyer and/or buyer’s representatives”. (For more on this, see the “Real Estate
Articles” section at Middle Man Magazine’s web site: www.Commercial.4T.com)
The key is to stick to your formula, your strategy and your business. If another “investor” is willing to pay more than your formula
says a property is worth; let them! There are plenty of deals. Plenty!
Do not get caught up in a bidding war with emotional buyers. The winner will be a loser.
The Department of Housing and Urban Development (HUD) is
the federal agency that manages properties when someone with a
FHA mortgage defaults.
HUD turns the property over to a listing broker to market the
properties for sale. In Tennessee the firm is Golden Feather Realty.
Golden Feather has offices in California, Illinois and Texas. Their
job is primarily to prepare the properties for sale. They rely upon
area licensed real estate agents to sell the properties via on-line
auctions.
Because foreclosed properties are often in disrepair, many of
these homes are listed at prices below market value. Some can be
financed using FHA and other government subsidized mortgages.
The key is to do due diligence and then work with a real estate
professional who understands the system.
HUD homes rarely sell for less than 92% of the asking price.
Often we see home buyers lead to believe that they must bid in
excess of the asking price. This is usually incorrect.
We also find that very few agents are interested in working with
buyers looking for homes under $60,000. We feel this presents an
opportunity to our buyers. In fact, many times ours will be the only
bids submitted on homes in less desirable areas. These often the
greatest opportunity for investors in our opinion.
Several lenders will also make renovation loans where you can
escrow funds for repairs; similar to a construction loan.
Secure a relationship with a competent (and motivated) pro on
the real estate side. Prepare your financing in advance. You be in
the best position to win the bids. Be honest with the professionals
with whom you are working. Since you desire their dedication and
commitment; grant them the same courtesy.
The latest HUD properties are in Middle Man, or obtain updated
information by linking to HUD's site from www.Homes.4T.com
Feel free to call us for help at (423) 313-7979.
Tenants are the customers of landlords. That seems to me to be a fairly logical assumption. Therefore, if there are tenants occupying a property that you are considering purchasing; these are potentially your future "customers". However, should you decide not to purchase the property, these "customers" remain a vital asset of the current owner. Naturally it is in both your best interests not to agitate these "customers".
I mention this because there seems to be some confusion on this issue. Some of my fellow Realtors don't grasp what we are trying to accomplish with this request. Certainly, we are not trying to hide anything from them or their buyers. We are simply trying to lay the groundwork for a smooth transaction.
Tenants, by nature, tend to not be familiar with real estate sales transactions. So, when they are told the property they call home is being sold; it causes concern. In fact, one of the most common questions I hear from tenants is "Do we have to move?" They usually don't understand that they have rights.
One of the ways we avoid placing undue stress on the tenants occupying our listings is that we seldom place signs in their yard. In fact we usually do not communicate that the property is being sold until we are confident that we have a serious buyer interested. See, I'm from Ohio and telling tenants that their home is being sold reminds me of something the great
Ohio State coach, Woody Hayes used to say about the forward pass in football: "3 things can happen and 2 of those are bad!" The truth is there is seldom good that comes from prematurely telling tenants that their home is being sold.
I have seen the following results from mishandling (and mistreating) tenants: 1) They move out (usually without notice) out of fear, anger or ignorance...or all three. 2) They stop paying their rent because they think their current landlord has no recourse. 3) They stay, but fear unknowns like, "Will my rent increase?", "Will the property be maintained as well as before?", etc.
The reason I am telling you this is because I was recently told "That's not the way we do real estate around here." Frankly, I feel this way is the better way. We respect the buyer's right to see the property before they finalize the transaction. However, we also believe it is best to treat tenants with dignity and respect. In addition, we owe an allegiance to our sellers. That allegiance calls for us to protect their interests. Keeping the occupants of their rental properties placated falls into this category.
It comes down to the "Golden Rule", doesn't it?
Certainly most investors take advantage of any legal deduction
available from expenses and depreciation. However, there is a way
to roll from one property to another without incurring tax that
many are not taking advantage of; the 1031 exchange.
What is a 1031 exchange?
A 1031 exchange allows you to sell investment property and
defer capital gains and depreciation recapture taxes, assuming
reinvestment of 100% of equity into "like kind" property of equal
or greater value. Any property held for investment purposes or for
productive use in a trade or business generally qualifies as "like
kind" property for 1031 exchange purposes.
A 1031 exchange is also referred to as a tax free exchange, tax
deferred exchange, tax exchange, or Starker exchange.
1031 exchange rules generally require an investor to identify up
to three investment properties within 45 days of the close of escrow
of the relinquished property and to successfully complete the
acquisition of the replacement investment property, or properties,
within 180 days of close.
The Section 1031 exchange is really a sale and a subsequent
reinvestment. The deferred exchange is the most popular form of
exchange. It involves four parties:
The qualified intermediary is an individual or entity with whom
you have not had a business relationship of any sort within the
last two years. Therefore, your accountant, lawyer, or real estate
sales professional will not qualify as an intermediary.
The intermediary makes the exchange work. Think of exchange
money as "radioactive." You may not touch it. Your buddies
(like your accountant or lawyer) may not touch it. If you or your
buddies touch it, you destroy the exchange and trigger taxes.
The qualified intermediary handles the money and holds the
sales proceeds from your property in interest bearing accounts.
Then, the intermediary distributes the money as needed to
purchase the replacement property.
You're probably asking "What is he raving about this month?" Certainly the real estate business is, by
nature, a kind of 'survival of the fittest'. In fact, in many ways, real estate is the purest form of capitalism.
Prices are set by supply and demand. Everything is negotiable. So, why am I touting the idea of leaving money
on the table? Because, especially in the investment side of things, you may be back at that same table before
you know it! The closing table, that is.
As a Investment REALTOR, my typical client will purchase 4.65 properties per year. So we know we will be seeing some of the
same faces over the course of these transactions. I talked last month about the "win-win-win" strategy (email me for a copy of this
article if you missed it) and I meant every word. There really are ways to put deals together where everyone feels they got the best
end of the bargain. This is not trickery. It is foresight and the realization that there are different motivations driving the different
parties in any given transaction. While the price may be the key element to one party; it is often the case that the other party will
place more weight on another factor. As real estate professionals it is our job to uncover what those motivations are and structure
an agreement that is acceptable, if not preferable, to all parties involved. Certainly an integral part of this responsibility is simply
being willing to hear what the other party is telling you.
We've all heard the "is the glass half empty or half full" story, but it can not be more apropos than in real estate dealings. As
we represent dozens of full time, serious investors in our practice; we often are asked to make offers that are substantially lower
than the asking price. While we recognize this as just the opening gambit in serious negotiation; we are usually ignored or rebuffed
by our counterparts. The professionals (and/or sellers) who realize our offer has simply raised the floor on negotiation (from zero),
and are willing to counter our initial offer usually wind up finding a mutually beneficial deal can be reached as a result.
The fact is, real estate offers many opportunities on many levels. From wholesaling to other investors (like me), to re-habbing, to
purchasing turn-key properties for rental income; it is very possible for profits to be made at each level without any party being
harmed. Look for a way to make the deal happen instead of reasons why it can't and you'll find a lot more success and fun in this
wonderful business. As Zig Ziglar says, "Help enough other people get what they want and you'll get what you want too."
If you are an experienced investor, you likely have developed your own strategies (or "cookie-cutters")
for analyzing whether a property or package will fit favorably into your portfolio. However, if you are new
to real estate investing or are just open to new ideas; I'd like to share my favorite strategy with you.
As a football coach (from Ohio), I always favored the triple option because it gave my guys at least 3
opportunities to succeed. The "Win-Win-Win" strategy for real estate investment does the same thing for
"my guys" today.
The first "win" comes at the beginning of the investment. This may sound over simplified, but the key is
to buy the property right. Obviously, some properties shouldn't be purchased at all. Others are overpriced.
So, I believe the first key to making a wise purchase is to arm yourself with accurate information. Next, you
should secure professional guidance. Third, be prepared to act promptly and fourth; be patient.
Information is power. This may be more true in investing than anywhere else. Today, the Internet allows
investors to make more educated decisions than ever before. From details about the property itself to knowledge of the tax laws
that effect our business; knowledge will allow you the upper hand. If you are strictly a do-it-your-selfer, there are even groups of
independent investors and web sites available to help you do the research yourself. Of course, as an Investment REALTOR myself,
I think it makes much more sense to team up with a professional that is committed to this end of the business. The team concept is
not only applicable to sports. Certainly you utilize professionals in other areas where you don't have time or inclination to become
proficient, so it only makes sense that you add a good real estate professional to your team. (That's the end of my sales pitch.)
A major part of being prepared is having your financing, if necessary, in place. The fact is that the best deals go fast. So, ifyou are not ready to react to an opportunity, you are destined to miss it.
Of course, that doesn't mean you jump at the first opportunity that you see out of fear of missing it. My Polish Grandma has
been teaching me that for years. "Don't be too anxious, another one will come along", she always says. Although she usually is
not speaking about real estate investment opportunities when she says that; I think it still applies. Be patient.
The way to get the first "win" is to buy a property in a way that with very little effort and a small amount of time you could
re-sell it at a profit. Although this is not likely your plan for the property; this option will be available if you prepare properly.
The next "win" is cash flow. The property we purchase in the W-W-W is specifically targeted to, after a modest amount of
investment in repair and renovation, be able to create significantly more income than is needed to pay for debt service, taxes and
maintenance. As a direct result of thorough preparation at the front end, our property is bought only if it will create "win" #2.
This places us in the enviable position of NOT being a motivated seller and sets up "win" #3.
Because we are now in a position where holding the property will only result in greater profit, we can now set our price based
upon the property's value to us. Therefore, with the property occupied and the lease generating significant cash flow we can set
an ultimate sales price that will appear to high to most other investors. We can do this with the knowledge that at some point,
another investor will agree with us. This buyer will value the return on investment that our, now, 'turn-key' investment will provide
when compared to other, less consistent and/or more troublesome investments. When this transaction occurs, we enjoy "win" #3.
Despite the high volume of real estate investors working in the Chattanooga market, there are numerous opportunities that fit
this strategy all of the time. In fact, many investors from Nashville and Atlanta are commuting to our area for just this reason.
So, as you peruse the pages of our area's 'most complete real estate magazine', keep an eye open for the "Win-Win-Win".
These are some of the questions that have driven the
Of course there are many considerations to be made before
If your answer is "No", you should strongly consider
As usual, due to the limited space I have provided myself
There are numerous considerations for you to make before
RISK TOLERANCE: This is a big term that encompasses
LONG TERM PLAN: It has been said that people don't
WHAT DON'T YOU BRING TO THE TABLE?:
WHICH COOKIE CUTTER WILL YOU USE?
JUST DO IT: I've had the opportunity
Click here to go to see RANDY LEE'S BOOKS ON INVESTING
The Following article is from the February 2004 issue of Middle Man Magazine
How To & How NOT To Buy HUD Foreclosures
by Randy Lee
Click here to go to see RANDY LEE'S BOOKS ON INVESTING
The Following article is from the August 2003 issue of Middle Man Magazine
Contingent Upon Acceptable Inspection
by Randy Lee
Click here to go to see RANDY LEE'S BOOK ON SHORT SALES
The Following article is from the February 2004 issue of Middle Man Magazine
How To Avoid Taxation and
Maximize Profitability by Randy Lee
1) You as the owner (seller) of the property being relinquished.
2) The buyer for your property.
3) The seller of the property you want to acquire.
4) A qualified intermediary.
Click here to go to see RANDY LEE'S BOOK ON SHORT SALES
The Following article is from the June 2003 issue of Middle Man Magazine
Greed Kills
by Randy Lee
Click here to go to see RANDY LEE'S BOOK ON SHORT SALES
Contact Randy By Email
The Following article is from the April-May, 2003 issue of Middle Man Magazine
The "Win-Win-Win" Strategy
by Randy Lee
Click here to go to see RANDY LEE'S BOOK ON SHORT SALES
Click here to go to Return Home
Contact Randy By Email
The Following article is from the March-April, 2003 issue of Middle Man Magazine
Would You Buy It Today?
by Randy Lee
let your investment values fall before you bail out? How
much of your hair will you pull out when they start going
back up as soon as you sell them?
revitalized interest in real estate investment. With
good reason, investors are looking to real estate as
an alternative solution....or even a life boat for
their plans for retirement and wealth accumulation.
divesting yourself of current investments or delving into
new ventures. First; a good question to ask yourself about
investments you are considering liquidating is simply,
"Would I buy this investment again today?"
liquidating immediately. If your answer is "Yes", you
likely should hold on to that investment. However, the
problem a lot of people have in this situation is caused
by their lack of a crystal ball. Therefore, often your
answer will be, "I don't know". In this situation, I
suggest you realize that investing doesn't have to be
an 'all or nothing' proposition. So, if that is your
answer, strongly consider liquidating half and keeping half.
here, this is an oversimplification of a situation that
deserves extensive thought and consideration. Before you
liquidate any investment, please seek counsel of someone
you trust in these matters. (If you would like a referral
or recommendation, feel free to call me.)
you become a real estate investor. It is prudent to
consider all of these that follow and seek guidance from
others that are already involved in real estate investing.
Your own personal sphere of influence is a good place to
start for this guidance. In addition, I recommend that you
visit (and ultimately join) an independent real estate
investors group. These groups are designed to educate and
support investors. There are probably others in the area,
but the one that I recommend (and am a member of) is
called Real Estate Investors of the Tri-States. To learn
more about this group, visit their web site at
www.REITS2000.com or call them at (423) 344-7807.
everything from your bank account to your psychiatric
soundness. The fact is a lot of people are not cut out
for investing in real estate. First, you need to ask
how much money you have to invest? and what would happen
if you not only lost the use of this money, but wound
up owing more to the bank for a property that proved
nonproductive for an extended period of time? Obviously,
this is not just a financial question. Also, you must
consider all parties involved while making this
consideration (i.e. spouses, partners, children, etc.)
Certainly, I don't mean to be a pessimist (any of you
who've spoken to me about an investment know that!),
but it is important to not look only through 'rose
colored glasses'.
plan to fail, they just fail to plan. Like in any
business endeavor, sound investing in real estate should
start with a plan. What are you trying to accomplish?
How soon do you need to accomplish your goals? Once
you've set a goal; ask yourself if it is 1) Obtainable?
and 2) Measurable? These are the keys to reaching goals.
If you set a goal that is unrealistic, it is like trying
to win the Indianapolis 500 with a Ford Escort. And if
your goal is reachable, but you haven't thought of ways
to measure your progress; you'll be like a sailor on the
sea with no compass. Another old saying is "How do you
eat an elephant?" "One bite at a time."
We all have skills. Some are more valuable than others
in real estate investing. Maybe you can swing a hammer
or know how to lay carpet. Maybe you are a great bargain
hunter or a fearless negotiator. Perhaps you have an eye
for decorating or are a brilliant delegator. Take time
and write a list of all of the skills that you bring to
the table. Now you are ready to make the really important
list. What are your weaknesses? For this one you may need
help. If you're like me, you think you don't have any.
So for the quickest results, ask your spouse. I'm sure
that will yield a long list and some meaningful
conversation. Seriously, though, it is important to
figure out what you can do on your own and what you are
going to need to rely on someone for. It may be
accounting or renovation. Next start asking for referrals.
It just makes sense to have your team in place before you
get started.
Have you noticed how the highest paid Doctors are
specialists? Focusing on one or two elements of the
real estate investment market will serve you much
better than 'playing the field'. There are probably
dozens of potential investment strategies to choose
from. Here are a few: Buy low, repair and rent; Buy
low, repair and sell high; Buy as a turn-key investment
and rent; Build and rent; Build and sell; Buy low,
renovate, rent and sell as turn key. There are a bunch
more! Then which segment of the market are you
targeting? Based upon sales prices and types of
property; houses, multi-family, commercial, industrial
and/or warehousing. There are numerous combinations.
The key is to start narrowing your focus as soon as
possible. Start with what interests you the most.
Then consider the viability of those strategies in
your market place. Try to narrow your focus down to two
or three strategies, or "cookie cutters". Then, don't
let other opportunities (that don't fit) distract you.
to converse with many extremely successful people.
What has always jumped out at me in those conversations
is how their failures ultimately lead to successes. In
fact, often they were more excited to talk about what
didn't work and how they learned from it than what
brought them success. Do due diligence and if it
makes sense, take the risk.
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