Real Estate Lesson Learned: Is Big Better?

Copyright 2006 National Real Estate Network LLC
At one time in my life I was buying 7-8 Houses a month, fixing them up and then reselling them. Then I got the bright Idea that if I can buy and sell 7-8 a month, I can buy and sell 80. This was a choice that eventually led me to bankruptcy. This has not been that long ago. Twice in my life I have made a lot of money and then took on a large growth spurt and got a large learning experience in business failure. The last one resulted in bankruptcy.
It is hard when things are going well to not be seduced by more is better. When you have something working for you, it is easy to become overconfident and start to think of multiplying it. As with most things in life, you want to be sure when you take on something, that you complete it. Pumping up the volume puts you at risk of not having the structures and being set up to deliver on what you are committed to. You naturally encounter problems that were not present on a smaller scale. It is hard when things are going well to not be seduced by more is better. I had to learn personally that pride Goethe before the fall. The bottom line is that there are always good deals in Real Estate! I say measure your success one house at a time. Buy investor property, fix it up, resell it, rent, do a lease-option, but do it one house at a time.
Multiple Purchases?
One of the most common mistakes I see in business is where investors come into the business and think they need to do multiple houses at a time. Try this on: Try doubling the cost you think it will take to fix the property, doubling the time you think it will take to rehab the property and figure your holding costs doubled (insurance, mortgage payments, taxes, lights, gas, rehab cost).
Great deals in Real Estate don’t come in houses fixed and ready to sell. The great buys come from houses that need work. If you are just getting started, stick to cosmetic rehabs (paint and carpet), Don’t take on major rehabs. It will take time to develop rehab crew. The most successful people I see in Real Estate do one house at a time. Failures are great; if you look at them and ask what action was missing that would have made a difference?
Hard moneylenders?
One pitfall is using very expensive money. For years I ran a business financed on money from Real Estate Investors who are called hard moneylenders. They look at collateral and loan money based on receiving interest can be 18% or higher when you figure in the closing costs. When you get multiple properties in this condition, you will have interest payments that are going to be double and triple what conventional financing is in Real Estate.
Now combine this with the common lie we tell ourselves that we can repair the house and put it back on the market for sale or rent in a short time. Your overhead will rise because you will need a staff to manage and rehab everything. Can you see this is a recipe for disaster for everyone? Now if you are doing one house at a time, your overhead will probably stay very low, with very little staff. Therefore you have limited your expenditure of time, money and aggravation.
At one time, my overhead was in excess of $50,000.00 per month. I had to depend on other people to do everything, including checking the work. A hundred percent of the monies I was making went paying down my debts and I kept telling myself I would turn it around tomorrow. I found myself with houses that were not finished and houses being lost in foreclosure and for taxes. That left me a very motivated seller and bankruptcy was looming large. With my overhead still there, I attempted to wholesale deals. I decided I would no longer find, repair and resell homes. Instead I would find great buys and sell them to other investors.
Basically, I started my business over. It takes a great amount of time to cultivate a list of investors interested in buying deals. This business is built on the concept you can borrow you way out of debt, but it just does not work. You have family, friends, and business associates that may get hurt or destroyed. I’m not saying this to tell you a sad story, but rather in the hopes that by sharing it, someone else can avoid the pain of my mistakes. Take from this what you can learn for yourself. I am 53 years old and starting over. I now have the knowledge to build a business with the proper foundation. I teach Real Estate Investing class now that look for pitfalls and what is needed to do a successful deal one at a time.
My advice to you on handling real estate transactions is: Use Title Companies What can happen to you when you fail to get title insurance? We had a participant in one of our seminars, who purchased a house to fix it up. He invested over $40,000 into the home in both repairs and purchase price. When he went to refinance, he found out the person he purchased the house from was not in the chain of title. In other words, he did not have a clear title. Whenever you purchase a home, always close through a title company with title insurance on the property. Title insurance is protection that insures the borrower or lender that they get the property with marketable title. They will only insure the property for the purchase price or for the amount of the mortgage.
Use a reputable lender
Interview lenders. Go to Real Estate Investor Clubs to find out from other investors which companies are doing the best job. Are you at risk when you use a lender that wants to cross collateralize loans or wants personal guarantees? One lender I know will get one-two year mortgages and demand a right to lien all the properties you own to procure the loan you are getting. Just beware, if you are buying the property to fix up and resell, there are things that you don’t always plan on like: twice as much rehab cost as you planned for, longer marketing time than you initially thought, resulting in added holding costs, or maybe the market moves the wrong direction and you can’t sell the property, so you rent it. Now one of your other properties or even your personal residence needs to be refinanced. You now have a lien showing against the property. Now what do you do? Think before you jump. If you have purchased the property right, you should be able to borrow money based on the equity of that property - not you’re home and other properties.
This same lender will ask for a personal guarantee signed by you, your wife and your partner. This personal guarantee allows his mortgage company to lien anything the partner and wife own. Not only that, but this particular lender demands that you use a Title Company he owns. Now when you want to sell another one of your houses and this same cross collateral loan will show up on any property you are selling. Now you are faced with using his title company or he won’t release his loan. Beware of putting yourself in a situation where you are using a person who controls the lending, title work, the appraiser and the Real Estate Company.
Do you think, if you had your title work placed with a company the Lender had ownership in, you might run into a problem getting the documents released or have a clean closing at the same title company? Why risk letting human emotions drives a stake into your deals? Keep an arms length distance within your dealings. If you are selling homes or wholesaling property, let the buyer find his own lender and make sure you get an independent title company. Make sure there is not a conflict of interest in the Title Company, Mortgage Company, and real estate company. Keep the integrity in the deal. I am sure there are title companies, real estate companies, and mortgage companies, where there is common ownership that run very good businesses and can separate the conflicts of interests and profit centers. However, to protect yourself, make sure you receive proper disclosure of common ownership. You can always look at the volume of business they are doing in each business and check with the state Licensing Dept. for any complaints against the firm.

Gordon Pate is a 5^th generation resident of Bryan-College Station, his extensive knowledge of the area and its culture helps you get acquainted with Bryan-College Station Real Estate. He offers various homes for sale college station properties that satisfy what you need and what you want.

Real Estate Investor Question: Rehab and Sell, or Rehab and Keep?

Here's another awesome question I received from my discussion board.  The question; Why bother keeping property after it's rehabbed?  Why not sell it after the rehab and GET PAID!
Of course, the first questions that you must answer is how emergent is your need for quick cash?  You can likely generate the most SHORT TERM cash by selling a freshly rehabbed house.  But, you will give much of it away in taxes come next April.
If you keep it, you stand to make more!  You will also enjoy some great benefits while you own it such as cash flow, a tax break, and MORE cash with the future appreciation.  You can still pull some nice cash a few months after buying it when you refinance (post rehab) the property from your hard money (at 70% loan to value) to long term financing (at 85% or 90% loan to value).
The short answer is an investor is going to make considerably more money by hanging onto a property after it's rehabbed.  There is a downside to it.  You have to be a landlord, and you have to decide if you want to do that.  I don't think it's too bad as long the landlording is done correctly.
Let me illustrate the difference in overall money between rehab and sell, and rehab and rent investing with this example;
Let's say appreciation rates are 5% in your town and the average price of a freshly rehabbed property in the neighborhoods investors buy in is $100,000. Let's also say there is Bill and Fred.
Bill sells his properties after rehabbing and makes $15-18,000 per house. Good boy Bill!
Fred keeps his rehab projects and cash-out refinances, pulling out around $10,000 per house within 3-6 months of ownership.  (Fred trades his 70% loan-to-value (LTV) ratio hard money for long term, 30-year mortgages at a lower interest rate with an 85-90% loan to value ratio.  He pockets the difference between what it costs to pay off the hard money and the new mortgage less closing costs.  This works out to about $10,000 per property.)
Bill (rehab and sell) makes a great living. Ten houses per year is $150,000-$180,000 per year...nice jingle! The downside is that Bill has to keep rehabbing to keep making that living year-after-year and pays taxes on all that money as regular income (ouch!).  So his $150,000 per year is in reality somewhat less.
Fred (the rehabber) also makes a great living. Ten houses per year makes him $100,000 or so in tax free, spendable cash. But, Fred controls a million dollars in real estate and it's going up in value year after year.  Also, Fred pays no taxes on that money he gets from the cash-out refinances.  It's part of a mortgage, so must be paid back, therefore is not income!  I love that part!
Let's look at what Fred's doing more closely.
Let's say Fred bought 10 houses valued at $100,000 each, owes $90,000 on each one (after the 90% cash out refinance), so he controls $1,000,000 in property. If he keeps them 5 years (assuming a low appreciation rate...which is pretty conservative):
Purchase year - 10 houses x $100,000 = $1,000,000
Year 1 - Same 10 houses X $105,000 = $1,050,000
Year 2 - Same 10 houses X $110,250 = $1,102,500
Year 3 - Same 10 houses X $115,762 = $1,157,620
Year 4 - Same 10 houses X $121,550 = $1,215,500
Year 5 - Same 10 houses X $127,627 = $1,276,270
Essentially, Fred makes an extra $50,000 per year for keeping 10 properties. After owning them 5 years, if he sells, he puts $276,000 in his pocket.
Remember
- Some parts of the country will appreciate much faster than 5%.  Heck some places properties will double in value in 5 years.
- No tax benefits of keeping the property is included here. That equates to thousands of dollars in real income.
- This is ONE ten-house year. Let's say you want to "top out" at owning 30 houses. Well, in just a couple of years your buying will slow down to a trickle and you'll start selling and cashing out of properties. I mean, how many ten-house years to you need to string together before you are set for life?
- What if you hold these houses 10 years?  The numbers get pretty exciting.
If you're like me and you don't want to do this for too many years, then holding properties for a few years makes a lot of sense, especially if you don't have much personal money invested in them.
So what of poor old Bill?  Chances are, Bill will satisfy his need for short term cash, then start holding property.  What do you think?
Contact or visit Gordon Pate for more details.

Real Estate Investments’ Guideline

Investing in real estate can be profitable if you know the correct ways to do business in this field. As real estate investment experts say there are several keys to making significant profits in real estate investment deals. And when the deals are profitable, you will certainly be well on your way to success.
For real estate investment neophytes, don’t be afraid of the challenges and pitfalls you may encounter along the way. There is definitely a lot to learn, but in the long run after you have gained some experience, you’ll hopefully become a master at closing profitable real estate deals.
There are 5 core skills that are necessary for building a real estate investment business. These will be the key factors in creating a profitable real estate investment portfolio. These are the 5 core skills of real estate investment:
1) You should totally understand the meaning and concept of investing in real estate, including all of the financial risks and benefits.
2) You must learn when and where to find the right kind of sellers.
3) You must become an expert in all areas of real estate investment and understand such terms as lease options, cash sales, wrap mortgages, short sales and other terminology common in the real estate investment trade.
4) You must be able to quickly and accurately analyze each real estate investment deal so you’ll know exactly when to proceed and when to pull the plug.
5) You must learn the art of being a master negotiator when it comes to closing your real estate investment deals.
After considering these five skills, it is time to consider investing in real estate. There are great potential rewards and the effort you put forth can yield enormous monetary returns on your investment. Your confidence level will grow when you’ve gained some experience and closed on your first few real estate deals. But, don't stop there... You should continue to learn about real estate investing and to develop your investment skills. In a short time you may find yourself managing a profitable and growing portfolio of investment properties.
Moreover, you should also continue to follow your real estate investment "game plan" and always keep an eye out for the hidden investment opportunities. The opportunities are definitely out there and with a little knowledge and desire can be yours for the taking. So, why not get started in what might be a new and exciting (and profitable) career today?
Contact or visit Gordon Pate for more details.

Creative ways to advertise your home

With the advent of the Internet a whole new market has opened in the advertising world.  There are virtual worlds being created every day to introduce the world of consumers to new products.  Why not use this innovative way to sell your home.
It is possible to create a free web site with many different web hosting companies.  This includes Yahoo and Bravenet.  You can log on and set up an account for absolutely no charge.  Both of these sites have a What You See Is What You Get (WYSIWYG) site builder.  You can create a beautiful, informative web site for nothing. 
Using this concept, you can advertise your home to the world.  Making up flyers with the web site address printed on them will allow you to send interested parties through a virtual tour of your home.  You can put these flyers in a special bin under the “For Sale” sign in the front lawn.  You can even put them up at the local grocery store or laundry mat.  By taking video of your home and narrating it, you can show off your house as no one else could.  You can point out all the unique features which made you buy the home in the first place.  Then you can point out the hidden ones which made you fall in love with the place while you lived there.
There are sites which allow you to advertise for free, like Craig's List, on the Internet.  Many homes have been bought and sold on this virtual “classifieds” section of the web.  Investors are always looking here for their next purchase.  Whether you want to reach the people in your local area or the ones across the country, you can do it with Craig's List.
Other sites specialize in For Sale By Owner (FSBO) properties.  Some of  them charge a fee while others allow you to enter your listing for free.  Many of these web sites offer informational videos which explain the entire process from deciding to sell to closing the deal.  You can even find contracts and other forms you may need.  You can chat with other FSBO sellers to see what they are doing to market their homes.  Many great ideas come from listening to others. 
Of course the traditional sign in the yard will let those in your neighborhood know you are selling your home.  However, asking your neighbors in for a private showing can also bring in some great potential buyers.  You can do it in a neat way by calling up your friends and neighbors and saying something like this.  “Hi Jane, I just wanted to invite you and Bob over on Saturday.  Bill and I are putting our house on the market and we thought you may know someone who might want to take a look at it.  How does 1 o'clock sound?”  You got their attention, went straight to the point and let them know they could bring someone to look at the house.  You can explain the details later in the conversation.  Things like it is only going to be for a half hour because you have someone else coming at 1:45 gets the ball rolling.  If “Jane and Bob” know anyone who thought about moving into the neighborhood, this is their time to shine.  Remember, people like to shine.  If you do this with ten of your friends and neighbors, you just got some of the best advertising money could buy, word of mouth.
When you sell a home, think of it as a marketing game. You have the product, now find your market.  Ask yourself who would want your house and where would you find them.  This is always the best place to start when selling anything and a house is no different.  There are many creative buyers.  Be a creative seller.

Contact or visit Gordon Pate for more details.

Curb Appeal is Important

Walk outside and take a good look at your home.  Take a look at the other homes in the neighborhood.  If they are all looking the same, there is a problem.  Your home is not ready for showing.  It lacks curb appeal.  You need to get it noticed.
You want your house to stand out. You want people who drive by say things like, “I like that house”, or “I wouldn't mind living there”.  You need to know what will make them say that.  Look at your house again and see it's potential.  Determine what would make someone say those things about your house.
The first thing is a nice yard.  You may think a small yard is a draw back.  It is not at all.  You just need to know how to enhance it.  You need to make it colorful.  Add some bright, cheery flowers along the walkway.  Put in a flower bed under the windows, or along side the house.  Clear out any unwanted trees or shrubs.  These things can make a small yard look even more small.  You want to give your home a warm and inviting look, not one of cramped space.  Make sure the lawn is mowed and edged neatly.  If there are bare spots, get some grass seed and resow it into the lawn.  Trim the larger trees so there is no chance of dead branches falling.  You can also tell potential buyers you just had the trees trimmed.  This means they do not have to do it for quite some time.
The next thing you need to look at is uniformity.  Make sure all the windows look the same from the outside.  It actually makes the house look more well kept.  This can be done by installing vertical blinds, mini blinds, or even shades.  If you do use shades, during the day make sure they are all at the same level during the time the house is on the market.  You want everything to look uniform.
When you are looking at the windows, take a look at the trim work.  If the windows have shutters but some are missing, either replace the missing ones or take down the existing ones.  You do not want the house to appear as if it is in need of repair.  Missing shutters makes it look as though no one took care of the place.  The paint may be cracked and peeling.  Get the scraper and a bucket of paint and redo the trim work.  This will make the house look more clean and give the impression of good repair as well.
You may have cement sidewalks or steps.  If you do and there are cracks, fix them.  You can do this with a filler cement and a trowel.  This is a big improvement not only to the look of the home but to the safety of all who come there.  If the railing for the steps is missing or broken replace it.  Certain federal funding will not go through on a house which does not have a hand rail where there is more than two steps.  Again, replacing the hand rail makes the home look more complete and adds to the safety factor.
Of course you will want to replace any broken windows or doors.  This can really damage the curb appeal when a buyer drives by and sees this.  Also, if there is vinyl siding which needs repaired or replaced, you will want to do this. 
The key to making your house more attractive is looking at it from someone else's eyes.  If you can not do this, enlist the aid of your family and friends.  They can take a look and assess what needs fixed in a hurry.  Make a list and just do it.  Not only are you adding more value to your home, you are attracting more buyers.  When you have more buyers, you can sell your home in a lot less time.  All you need is a little curb appeal.
Contact or visit Gordon Pate for more details.

To be or not to be there

Everyone gets nervous when the real estate agent calls and says a potential buyer wants to see the house.  You never know what to expect.  Do not feel bad, neither does the agent.  This is why so many people fight on whether to be or not to be there for the showing.  In truth, it is best if the seller is not around.
Buyers can be cruel.  A good real estate agent will tell you that many buyers, even when they are very interested, will point out every fault the home has.  This is because they do not want to appear too enthusiastic over the property.  They may love the kitchen, but will state the color is all wrong.  The bedrooms may be perfect, however, the buyer will say there the doors are hung the wrong way.  I have heard buyers complain about the carpet only to have them walk out the door and say it was the perfect shade.
You never know what a buyer may say when they are viewing the home.  The same it true with the seller.  A seller may be so desperate to please they can say anything to make the sale.  This is a mistake made all too often.  It is especially true of first time sellers.  They will offer to pay for things or reduce the price before the agent can stop them.
The best thing a seller can do when the agent is showing the home is not be there.  Go out for dinner.  Go for a drive.  Go see a movie or an old friend.  Just do not be at the house until the whole affair is over.  This means you should leave when the agent gets there and not come back until the time you have been told by the agent.  He or she will take care of everything while you are gone.  It is part of their job.  One agent actually had to take a cake out of the oven because a seller forgot about the showing and started baking right before he got there.
If you find you have to be present when the buyer comes due to family obligations or illness, try to stay out of sight and earshot.  Definitely keep your thoughts to yourself.  Should you overhear a derogatory comment about your home simply ignore it.  Remember the buyer does not want to seem anxious.  You may need to go into another part of the house, or even in the back yard to keep from commenting.  If this is necessary, by all means do it.
There is actually another reason why a real estate agent may ask you to not be present during a showing.  This is because you may reject a good offer if you hear the buyer down grading your home.  This has happened on more than one occasion.  The potential buyer started commenting on the condition of the home.  The homeowner heard this and got aggravated.  When the buyer made an offer, the seller rejected it instantly without even a counter offer.  The buyer chose another house.  The seller actually sold the house for less than the original buyer had offered.  All of this because a comment was made the seller overheard.  Real estate agents have this happen all the time.  They are trying to do the best job for you that they can.  You need to let them do their job.  This is why they are the professionals with the state license.
When your agent asks that you leave when they are showing your home, do not hesitate.  Make plans to do something else that night.  It can be the best night you ever had. 
Contact or visit Gordon Pate for more details.

Understanding A listing Contract

The listing contract is the written agreement between the seller of the property and the brokerage firm or it's representative.  There are many aspects of the listing agreement.  Each one is extremely important to both parties. 

The first thing you will notice is that it states this contract is an exclusive agreement between the parties. This means the only agent you are going to let represent your property on the market is the one listed on the contract.  It will be the brokerage firm/realtor listed on line one, usually. What this means in plain English is that you will not deal with other agents unless they go through your agent to contact you. You will not allow another agent or agency to offer your house for sale under their logo. 

Your property will be assigned a listing number.  This is the number the other real estate agents will be able to use to locate your property in the multiple listing service (MLS) book.  It is just like having an inventory number for the home. 

You will also notice on the listing agreement the date of the contract as well as the expiration date.  Usually there will be a six month difference between the two dates.  Most listing contracts are for six month periods.  There are times when you can negotiate a shorter term.  You can also have a one day listing for a real estate agent if you are selling the home on your own.  This can happen when an agent is working with a buyer who drove by and saw your house.  The agent will not get paid a commission if the buyer deals directly with you.  Many times an agent will approach a For Sale By Owner (FSBO) with a potential buyer and ask for a one day listing agreement so that he or she may show the property.  The benefits to this are that the buyer is usually pre-qualified so there is no problems with the deal falling through and the agent may have a title company and mortgage broker already in place to close the deal quickly. 

When you have a listing agreement with a real estate agent you will also have in writing everything that goes with the property.  This may be nothing but the structure or include everything under the roof.  You can be specific.  Usually things like window treatments and blinds, appliances, lighting fixtures, and other things like this will stay when you sell the home.  However, if the chandelier in the dining room belonged to great Aunt Mabel, you can have it excluded in the listing agreement.  Your agent will go over everything with you when you fill out the contract. 

One big issue is the commission which the real estate agent will earn should he or she sell your home. This is usually around 7%.  Many brokers also have a minimum commission they charge for their services.  The commission will always be the percentage or the minimum, which ever is greater.  It is also always paid by the seller.  There is one key detail which you must be aware of in this paragraph.  If your house goes off the market, for what ever reason, and you sell your home to a buyer who learned about your house through the brokerage, you pay the commission.  In other words, you can not sell to “Mr. Smith” for six months after the listing expired or was taken off the market if “Mr. Smith” first came to your home because of your agent.  If you do, then you still owe the commission to the brokerage. 

Remember the listing agreement is an agreement.  You can negotiate the terms when you fill it out to what you feel is fair.  Talk with the broker to determine what works best for you both.

Contact or visit Gordon Pate for more details.