Hey, it’s Larry here.  One of the questions that I get more often than any other question about working with us is:

How do I submit a property to you?

What is your buying criteria?

Well, as many of you know – at least those who own my Ultimate Buying and Selling Machine, which is my course that teaches how to buy and sell houses the same day using the Internet, which is based on my book Getting Started in Real Estate Trading – I need to be able to sell my properties at 70% of the after repaired value. That 70% includes purchase price, repairs and closing costs.

In other words, whenever I buy a property, I need to be able to add my $5,000 to $10,000 to $15,000 to it, then include repairs, closing costs (which I generally figure around 4% of the 70%), taxes, insurance and attorney fees (which I usually figure around $2,500) – and that is the price that I need to be able to sell it for to another investor. I want another investor that buys this property from me to be able to buy it, pay all the closing costs, fix it up and then they have 30% instant equity built into property.

Is it easy to do that? No, not all the time. But if you will do this in buying your properties to resell to other investors, it will be an easy sell if you negotiate a deep enough discount or you can turn around and sell it to another investor at 70% including purchase, repairs and all closing costs.

Also, I get people that want to know about submitting a note to me, as far as Filthy Riches type note. By the way, I only buy Filthy Riches notes from Filthy Riches students. That way you know exactly what we are looking for and how to protect yourself and get the most amount of money from your notes.

Because these Filthy Riches notes are such small deals and because you are buying them at $4,000, $5,000 or $6,000 and then creating a note buy [xx 00:02:19] sell price of $30,000, there is not really a lot of equity – real, true equity – in the notes. So you have to be able to sell them at 25-35% yield.

But if you are buying a property for $5,000 and you sell it for $30,000 and they give you a couple thousand dollars down, even if you only get $15,000 for the note, you still made $10,000-12,000 on this deal, so it’s still a really good deal. In fact, if you buy it for $5,000 and you end up netting $12,000 or $15,000, then you sold it for 2-3 times of what you’ve paid for it. You can’t do it on $100,000 or $200,000 house – there’s absolutely no way.

I hope this helps in understanding how to submit a property and a note to me. For complete details on submitting a property or a note to me, just go to www.InvestorsRehab.com and click on a link Submit a Property. It will give you all details about submitting a property to me to buy and submitting a note as a Filthy Riches student to buy.

Thanks a lot and be sure to look for next month’s newsletter where we have some really special items included for you! So thanks a lot and have a great day!

You might think I’m off my rocker for suggesting that a housing boom can actually work against you, but it has happened to many, many investors, including myself.  Let me share with you two observations I’ve made after going through a housing boom into a housing collapse.

 

#1: A housing boom can keep you from learning to negotiate.  Think about it.  When property values are going up thousands of dollars per month, you could actually buy a house for full market value and resell it later for a profit.  You could buy just about any house on the market without picking and choosing, or offering less than asking price.

 

Conditions like these only last a short while and are no way to run a portfolio in the long run.  What will happen when home stop going up in value?  You won’t have any negotiating skills, which take time to develop and cultivate, and you will either waste time learning, continue offering way too much and getting into trouble, or not making any offers at all.

 

#2: A housing boom can make you focus on short-term profits  I remember when any investor with a pulse could get a loan to buy a rental property, often with no down payment and 100% financing.  Or, people would get short-term financing with ridiculously high payments, because they intended to (and could) sell the house for a profit in a few months.

 

So guess what happens when financing gets harder to come by?  Your whole operation will get shut down.  Or, you might buy several properties with short-term, expensive financing, but not be able to sell them OR rent them out, and then you’re stuck. 

 

#3:  A housing boom makes you too lazy to find private money.  In  my opinion, the key to success is to build relationships with private lenders constantly, so that you can always borrow money on easy terms no matter what your exit strategy.

 

So while a housing boom is great in regards to your houses’ equity increasing, the side effects are the 3 temptations I’ve listed above.  I recommend negotiating well and finding private lenders regardless of your market conditions.

 

Click Here: http://stinkymarketreport.net — In this FREE digital book, learn the secrets that a $100,000,000 real estate investor has discovered about making money in a slow market, by understanding how market cycles REALLY work.  Or, for info on Alan Brymer, go to www.AlanBrymer.com

MOLD:

Mold in houses has become one of the most popular scares in recent years. Although it has been around since before caveman days, our industry is always out to find something new to charge thousands of dollars to correct. Most molds, even black in color are not the toxic poison type of mold that causes illness in people. The temporary fix is to use a 50/50 mix of bleach and water to clean the surface. This does not kill the mold, it just removes the surface visibility and unless you take away the moisture or cause of the mold it will return. For mold remediation of black mold and mold infestation, please refer to my article on mold in your previous issues of REIP magazine. If you have significant mold in sight, one of the brands of product I recommend is Microban. It is highly effective in handling problems associated with mold, fungi, bacteria, germs and so on. You may find it by calling a janitorial supply company from your yellow pages book.

Microban is used by professionals for mold remediation; yes the toxic black mold remediation that costs thousands of dollars by people wearing HAZMAT suits. It is also used for water damage, flooding, sewage backups and such. Another type of product for the same problems is called Shockwave and may be easier to find locally. The effects of mold can be breathing problems such as asthma, headaches, rashes, stomach ailments and so on. The four steps to eliminating mold are to contain it, kill it, remove the dead mold, and protect from further contamination. This may mean an exhaust fan in bathrooms, better ventilation in rooms and crawl spaces. Placing dehumidifiers in strategic areas in the house, or using hepa filter air cleaners as well. You can get a mold test kit at major hardware stores for about $10.

 

LEAD BASED PAINT:

Lead based paint is a toxin found in many living quarters and can cause serious illness or even death. It is especially toxic to children and can even affect babies before they are born. A good thing is that lead based paint that is not deteriorating is not a threat. Also there are options to be done to reduce and eliminate the hazard. You can contact lead from paint by breathing it, touching flaking areas of paint, dusty paint surfaces and during renovations it can be cast into the air from hammering, sanding, sweeping and more. Youngsters can get it on their hands from doors, windowsills floors and such and then put their hands in their mouths as we commonly see them do. This can affect brain function as well as nervous systems in children. Long-term exposure leads to hearing problems, learning problems, behavior problems, headaches and lots more. Adult symptoms are more described as reproductive problems in both genders. Difficulties during pregnancy, a rise in blood pressure, nerve problems as well as bad digestion, memory loss and muscle pain. This threat goes lower risk in younger houses because lead paint was stopped for making and using it around 1978. So newer houses have less risk of this problem. Lead based paint test kits are available at most larger hardware stores for about $4 a kit. The most common places to check would be windows and sills, doors and doorframes, stairs, railings, decks, screen porches and lets not forget furniture. Don’t overlook your prized antiques either. If it’s old furniture that has original finished surfaces, this area is often overlooked. Any peeling, flaking or chipping paint accompanied by dust is suspect. To do it yourself or hire a pro for lead abatement, you need to stay clear of sanding, sweeping and vacuuming as this will spread the dust air born. Lead based paint must be removed (the painted structure) or most common is to encapsulate the paint. Products can be bought that you spray, brush or roll over the lead paint to seal in the hazard. The E.P.A. (where some of my research was obtained) has a booklet for free on lead based paints; it’s effects, the abatement and prevention available upon your request. This will provide you with some useful info.

 

METH LABS:

Another toxic terror that is becoming more well known is finding out that the house you bought or are thinking of buying as an investment was once used as a meth lab, a crack house, or some other form of drug related house. This came up at a seminar I am giving in Portland this week. The person asked my opinion about his deal and that it was previously a crack house. He made an offer and it was accepted. The house, he said, was a property seized by law enforcement and it had been vacant for a while. I listened and told him that I would not want to buy this house myself. Puzzled, he asked why. First, this information will need to be disclosed to all interested in buying it and could be a turn off. Second, I asked how it had been (cleaned up). He told me that the city had given the house a clean bill of health. So I said will they accept any liability if anyone has any health related problems? He said no. I told him that all liability would rest on his shoulders and he would be solely responsible for possible trouble. He thanked me, and said he really wanted to be talked out of the deal cause it was too much for him to do on his first deal. It was almost a total gut job. Now keep in mind, under his circumstances, I told him no I wouldn’t but it myself. However, I do know several investors with a lot more experience in this type of house that would have jumped all over this deal, and made a huge profit as well. It was the experience level here. He probably should get his feet wet without starting with an issue on the house like that one. The problem with drug related houses is that there is no set way to tell how much residue is still in the cracks, crevices, vents, gaps and other areas that may still cause exposure to the toxins. There is no real data on how long of exposure to this will it then affect someone. It is the responsibility of the homeowner from purchase on for any liability caused by this. So how do you know if it’s a drug house or meth lab? Generally there are beakers and burners and test tubes present shortly after abandoned. There may be a smell present and cans of cooking fuels around. There may be burn marks on countertops as well as dusty residue in kitchen and bathroom areas. Samples can be taken by taking scotch tape and (lifting) debris from surfaces of countertops, sinks, carpets, bedding, curtains, floors and utensils found in the property. Have them analyzed by a law agency and get a report. Then decide if you want to do the deal. Remember, this does not scare a seasoned investor who knows how to deal with creative real estate. This is an opportunity, or a niche, because most people will pass on these kind of deals, and the ones that do them…PROFIT.

 

CARBON MONOXIDE:

This is a problem that can be found in many homes. Even mine. I just recently had my furnace replaced and was about to remodel my basement and add some on to the house when I noticed an exhaust pipe from the furnace had separated from a portion of pipe. This had been easily 3 months or so since the job was done. I went to a local hardware store and got a test kit for about $6 and did the test. It came back as a dangerous reading from the kit. If not found, this could have turned out to be serious health risk. CM is an odorless, colorless gas or liquid and is hard to detect without a test kit. Though my culprit was a furnace, others could include kerosene and gas space heaters, leaking chimneys, gas water heaters, wood stoves, and gas operated equipment like cars. Some people in winter will start their cars in the garage to let them warm up before leaving for work and even with the door open this poses a threat. Even in low concentrations, fatigue and chest pains can happen. With more exposure it may cause dizziness, lack of vision or concentration, headaches and nausea. Exposure can be fatal. To reduce risks EPA guidelines say to keep appliances properly adjusted. Always use vented heaters and never use alternate fuel sources on thing meant for a certain kind of fuel. Such as do not use gas in a kerosene heater. I have seen workers do this on jobsites in the cold. You need to have an exhaust fan over gas stoves. Never grill indoors with any gas driven bar b que and have your furnace checked and serviced often. I hope this information will help and educate you as to the dangers of TOXIC TERRORS IN YOUR HOME.

Using “Small Math” to Make BIG Profits

By Trace Trajano

Unlike most people I love math. I am an engineer by training so I am used to “Big Math”…you know the kind of math that involves too many Greek symbols. However, in real estate investing all you need to know is small math – addition, multiplication and subtraction. This is the math that your third grade teacher wants you to master. If you can do third grade math or small math you can make BIG profits in real estate.

I have a formula for making the right offers on a property. This formula works in any market – whether the market is HOT or cold and it works in any country. No other formula for making offers works as universally and it uses “small math”. It works whether you’re trying to rehab a deal or you’re trying to wholesale it.

Here’s the formula:

MAO = CF x ARV – Repairs – Profit

One of my students – Maria Senger from Michigan used this formula in successfully buying and then wholesaling her very first deal. The market right now in her part of Michigan is slow (albeit better than Detroit). Based on her analysis, the ARV or After Repair Value or the value of the property when it’s fixed up or in move-in condition is $105,000. According to her estimates, the property needs about $5,600 in renovation or repairs. Based on her market, she used a Cost Factor of 0.8. The CF or Cost Factor is 1 less the percentage of the value of the property that you allocate as the cost of selling. Very simply, CF is related to the cost of selling a property. The longer the property stays on the market, the higher the cost of selling and CF goes farther from 1.0. For example in a slow market, use a cost factor of 0.8 even 0.7 for markets like Detroit. For hot markets or areas where houses sell in 30 days use a CF of 0.9.

Factoring in a profit of $20,000 for her renovator/buyer and $10,000 for herself, her MAO or maximum allowable offer is $48,000. She initially offered $40,000 for this house that the seller – which happens to be a bank – was asking $63,000 for. She made the offer anyway. The bank lowered their price to $55,000. Then she countered at $45,000. The bank still did not budge. Everyone agreed to meet halfway to $48,000 – her Maximum Allowable Offer. The MAO is your absolute highest and best offer – going above this means you’re lowering your profit and even risking losing money on the deal.

What happened afterwards? Once she has the property under contract – or once she has control over it with a purchase contract, she then worked diligently to find a buyer for the house. She sold the house 2 weeks later for $55,000. She made $7,000 profit using “small math”.

Another student of mine – Jay Castillo from the Philippines used the same formula for buying and successfully selling a house on a rent to own basis. He found a bank owned property that is being auctioned. Based on his analysis, in the neighborhood where the house is at, the property being auctioned off has a value between P1.9 Million and P2.5 Million. To be conservative, he used an ARV of P1.9 Million. Based on contractor estimates, he thinks he can renovate the house for P30,000. He found out that similar houses in the neighborhood sells quickly – within a month – and this is why he used a cost factor of 0.9. He factored in a profit of P350,000 for himself for buying, fixing then selling the deal. Based on all these numbers, the MAO is P1.33 Million.

During the auction – of which he was the only bidder, he got the house for the minimum bid of P1.1 Million. He proceeded to renovate the house. His actual renovation cost is P130,000 (P100,000 over!). Two weeks before he finished renovating the house he already found a buyer. The buyer agreed to buy the house for P1.9 Million on a rent to own basis. The buyer put down P350,000 and Jay will have a cashflow of about P5,000 a month over the next 10 years and P18,000 a month from year 11 to year 15. All in all – not a bad deal. Had he sold it for cash for P1.9 Million, he would have made P800,000. Now that he sold it on rent to own, the cumulative cash he will get is about P3.1 Million – a P2 Million profit!

Not bad for using “small math”.

So now that you know how to use “small math” to make BIG profits, what do you do? Focus on learning how to find good deals and make a lot of offers using the simple formula I shared with you. If you do, I guarantee it, you will be counting BIG checks soon!

Source: http://tracetrajano.blogspot.com/2009/07/using-small-math-to-make-big-profits.html

Websites You Can Use Dec 2009

By Shannan Hearne

I’ve hijacked Larry’s column this month to share a totally cool way that you can increase your income from what you are already doing – building your buyers list and looking for real estate deals – on the internet.  On this month in history, the concept of affiliate marketing was hatched fifteen years ago.  Unfortunately for decency purposes, we can’t talk about what industry came up with the concept.  It is better left unsaid.

The internet cleared the way for virtually (no pun intended) anyone to earn extra income by telling people about good companies to do business with.  Affiliate marketing took off like a rocket because it was easy and because the internet created powerful ways to automatically track referrals.  We go around telling people that “referrals are the lifeblood of our business” but then we don’t give them an easy way to be compensated for their referrals.  We basically have to count on them sending us referrals out of the goodness of their hearts.  Internet based affiliate marketing gives us a tracking mechanism.

On this anniversary of the affiliate marketing concept, I want to share with you some websites to help you nab your fair share of the affiliate income that passes hands every month.

BrandClik http://www.brandclik.com allows you to earn an income on in-text adwords in your published content online.  For example, if you write an article about rehabbing properties you can sign up with Brand Clik and earn a commission every time a reader clicks the word “rehab” in your article.

The most widely recognized pay-per-click company you can place ads on your website for is Google’s AdSense.  http://www.Google.com/adsense is a method by which you get paid for allotting some of your web site space to other companies’ offers and earn money every time one of their ads is clicked.  There’s no tracking or thinking involved.  Google takes care of the whole thing and sends you a check.

What if you have multiple web sites dedicated to different things?  An affiliate program directlry like http://www.AffiliateTips.com can provide you with lots of web site monetizing programs to put on your web sites.   On your real estate web site, you might want to put an affiliate link for CPA (cost per action) ad for a mortgage company.  These types of ads often pay in excess of $20 per action or more.  An action normally is categorized as providing the company with an individual’s name, email address, phone number, and any other sort of information they hope your site visitors will leave.  There’s no work on your part.  If the site visitor is interested in the advertiser’s offer, they will fill out the CPA form and you will get paid.

Commission Junction http://www.cj.com offers a central location to participate in multiple offers from multiple companies.  Then Commission Junction sends you one check each month.   Offers that could be relevant for a real estate oriented web site include home improvement links, do-it-yourself links, lawn, garden, bed, bath, etc. 

Other affiliate marketing opportunities can be found at http://www.leapfroginteractive.com, http://www.xy7.com, http://www.amwso.com, http://www.pepperjam.com, http://www.clickconversion.net, http://www.adlucent.com, http://www.clickbooth.com, and http://www.onetechnologies.net.

If this whole concept is relatively new to you, check out Affiliate Helper http://www.affhelper.com for all sorts of tools and resources to help you get started raking in additional income through affiliate marketing.

One of the easiest ways to make money selling sideline items on your website is through Click Bank http://www.clickbank.com which only markets digital products.  So your visitors to your web site can pick up an ebook or a free report of interest to them, download it instantly to their computer, and then Click Bank sends you your commission.  A quick search of Click Bank offers and the first real estate oriented one I found pays 60% on an $85 sale!

If you decide to put affiliate income into action on your website (or in your newsletter or your emails, etc.) you will want to subscribe to Shawn Collins Affiliate Tip blog.  http://blog.affiliatetip.com.  Shawn is one of the true gurus of affiliate marketing and affiliate incomes.

Finally, if you know lots of real estate investors and you think that they would benefit from Larry’s courses, you can even sign up as an affiliate for Larry and market his stuff on your website.  No strings attached!   http://www.larrygoins.com/affiliateprogram.asp  We’ll even give you some free software that you can give away with your affiliate link embedded inside so that people will use it, purchase other items from The Goins Group, and Larry will send you a check.

Real Estate Radio USA is devoting an entire column to affiliate marketing in the real estate arena.  http://www.realestateradiousa.com/2009/06/17/affiliate-marketing/  This colum by Barry Cunningham will be very useful as you develop your own affiliate income streams.

One of the definitive affiliate program directories is located at AssociatePrograms.com.  Allan Gardyne is the Godfather of affiliate marketing.  His specially picked list of 65 real estate programs with great profit potential for you can be found at http://www.associateprograms.com/directory/home-and-garden/real-estate/.

Hey, wait!  Larry’s affiliate program isn’t listed there.  Oh rats.  I’ll talk to you later, right now I’ve got to put back on my marketing hat and get Larry listed at Associate Programs!

Analyzing the structure of your deal with Filthy Riches

Filthy Riches is a concept developed by Real Estate guru Larry Goins of buying and selling distressed, low-end, and cheap, “dog with fleas” properties that virtually no one else wants which can be done in any state, and then selling them with a low down payment and carrying the financing for the buyer.

 

In this article we look at how this system works.

 

How does it work?

When you sell a property you will sell it with a low down payment and finance the balance. This is what makes low-end properties so easy to get rid of. A typical property that you buy for $5,000 will go right back on the market for around $30,000 with $1,000 down and you can finance the balance of $29,000 for 10 years at 11% interest and the payment will be $399.48 a month.

 

Now almost anyone can afford a $400 a month payment and if they are serious about becoming a homeowner then they can find the $1,000.

 

You can change the terms to fit your buyer, especially if they have more cash with a little less credit or maybe have good credit but not quite $1,000 to put down. You may have them put $500 down and finance the balance for 7 years with a higher payment. This will even give you a higher yield on your $4,000 investment.

 

Sometimes you will be able to get more down payment. For example, if you sell the property on eBay where the bidders are bidding n the down payment then sometimes it may go for $2,000, $3,000 or even $5,000 or more. Then you have nothing in the property. This is great for you and it is also a good deal for the buyer because they got to buy a property that YOU negotiated a steep discount on and they didn’t have to qualify to get a loan. If the buyer is an investor, even better because they now have become an instant property owner without qualifying for a loan and can fix it up and rent it out for a positive cash flow. This is a win-win situation for everyone!

 

As a general rule, try to keep it simple and try to keep most of your deals at $1,000 down and $399.48 a month for 120 months, which is 10 years at 11%. However never turn down a larger down payment.

 

Larry Goins is a coach, author, trainer, and real estate investor.  His critically acclaimed new course Filthy Riches http://www.FilthyRiches.com contains more information on deals for low end real estate for the real estate investor.  Visit Larry’s website at http://www.LarryGoins.com

Six Benefits of Owning Rental Property

By Charrissa Cawley

During a real estate downturn it’s easy for someone to overlook the big picture and question why they should be interested in investing in the residential real estate market. It can be difficult not to listen to media reports and members of Congress talking about how hard it is to be alive. Don’t forget that before this real estate downturn, real estate was the hottest investment you could find. While it’s true that what goes up must come down, it’s also true that everything that falls eventually reaches the bottom, and bounces back up. Here are six reasons to invest now and be ready for the big bounce when it does come.

• Passive Monthly Income – By investing now and using your head by performing some simple calculations, you can ensure that you have more money left over at the end of the month than you need. This positive cash flow is like a gift that keeps on giving because it will show up in your mailbox every month whether you’re there to meet it or not. $200-$300 per month may not seem like a lot of money, but when you have 5, 10, or even 20 checks like that coming in that you don’t have to earn doing some repetitive or backbreaking job, a seemingly inconsequential amount of money can suddenly look pretty good.

• Security – A small child may rely on a blanket, a pacifier, or a thumb for a sense of security. Recent events have demonstrated that — while we may be older — we still like to feel confident that we have options during scary times. Owning real estate gives you that same feeling because you know that regardless of what happens you still have options.

• Depreciation – Thanks to the generosity of the U.S. Congress, real estate allows you to take an annual tax deduction for the loss in value of your real estate. Ironically, while you are busily taking a tax deduction for the lost value, the actual worth of your property is going up. Real estate has taken a temporary hit, but you get the depreciation credit even when real estate values increase (which is most of the time).

• Capital Gains Taxation – whenever you purchase something and its value rises while you own it, the federal tax code requires you to pay a special tax on that item when you sell it. Fortunately, no tax is due until you sell it. While there are a couple of steps involved, you can also extend the time you have to pay that tax in the event that you do sell it, which is a major benefit to all those who are able to capitalize on this little quirk of the tax code.

• Appreciation – Real estate appreciates – increases in value – far more frequently than it loses value, and with these increases come the opportunity for you to add to your net worth. You’ll still have the monthly income your positive cash flow provides so you have a second way to cash in on real estate – a third way if you bought it at a great price. You could look at the trickle of monthly income as a down payment on the flood of cash that will come your way through appreciation – value you can benefit from by selling or by pulling equity out to help fund future purchases or use for anything you like.

• Pride of Ownership – Do you remember how proud you felt when you got your first car? It may have been a beat up Volkswagon, but it was yours. Imagine how your chest will swell with pride when you drive down the street and look at your house, and you realize that you own another just like it across the street, and several others that are even nicer around the corner. There’s no better feeling in the world than knowing that you own something that so many others only dream about.

There are lots of great reasons why you should want to own real estate; these are just a few of them. I can appeal to your desire to build a portfolio of appreciating assets that will add to your net worth on a year to year basis. You can look at your net worth on paper and try to comprehend what all those zeroes mean, but the biggest prize will be the looks of adoration in the faces of your family when they realize that your time is their time, that they have your undivided attention, and you can go anywhere or do anything you want to because you had the good sense to start investing when a lady named Charrissa told you it was a great idea.

So invest now, and reap all of the rewards that are waiting to come your way.

About The Author Charrissa Cawley has a long standing reputation for excellence as a gifted speaker, real estate trainer and wealth coach. Her passion is bridging the gap between learning and doing. She has helped thousands of entrepreneurs all over the world seeking financial growth by equipping them with the tools, resources and specialized knowledge to succeed. She offers accurate and proven strategies to investors of all different levels and is the founder of www.reiconferences.com, one of the fastest growing real estate investment training organizations in the US in addition to www.rewexclub.com , the top rated Real Estate Investor Community on the web today.

Stepping Outside the Real Estate “Box” with Self Directed Retirement Accounts

By Laurie Bachelder

Investors tired of watching their retirement accounts ride the Wall St. rollercoaster are searching for other ways to create wealth in their retirement accounts. If you turn to most business or financial publications or websites you will find many articles about investing in real estate with a Self Directed Retirement Account (‘SDRA’). The majority of articles written about investing with a SDRA pertain to real estate as a popular choice for an alternative investment, and why wouldn’t it be.

Real estate offers several advantages. For one, most people understand real estate. Many investors own a home and understand how real estate performs; they understand that real estate typically appreciates in value . With real estate it is unlikely, not impossible, that the value of a given property will decline to zero and the investor will lose their entire principal. Compare this to stock investments. It is very possible to lose your entire investment in an individual stock if you are not in charge of the company, or if the company’s assets are highly leveraged

Real estate investors like the fact that there is a physical asset they can see and touch, and in some cases exercise some control over. This can help curb any uneasy feelings when the market is volatile.

But what if an investor is not interested in investing their SDRA in real estate? Or maybe an investor already holds a portion of their portfolio in real estate and understands they need to further diversify their holdings. After all isn’t diversification one of the founding strategies for risk management of a successful portfolio?

True Diversification

SDRAs allow investors to truly diversify their portfolios and to invest in an almost endless range of investments, with a few exceptions per the Internal Revenue Code. SDRAs allow people to invest in their core competency. If they understand stocks, then they can invest in the securities market. If they understand real estate, then they can use that knowledge to invest in real estate. If they understand farm animals, show horses, domain names, the restaurant business, construction, and so on then they can take that knowledge and passion to invest in those assets.

The bottom line is – SDRAs allow people to pursue the investments that they know and understand. As long are the rules and regulations are adhered to their imagination and passion become the only limitations.

What is your passion? What are you knowledgeable about? What do you think will grow your retirement account wealth? These are the questions one has to ask themselves. These are the questions that many investors have already answered and have been enjoying rewarding returns within their SDRAs.

Turning Passion info Profit

Investor Joe, a businessman with a background in business development and business analytics, has always had a passion for horses. Joe also understands the potential that dressage horses offer for a healthy return on investment. His experience arms him with the knowledge that there is a difference in value between what a horse is worth in Europe and what it would be worth in the United States.

Joe’s Business Plan states: A well trained horse in Europe may sell for $40,000, but that same horse may bring forth a value of $80,000 in the United States. The difference in value is the profit margin for this asset.

Coupling his knowledge and passion with his savvy business sense, Joe was able to put together the right people with the right synergies to incorporate his passion into an investment for his SDRA. He already had a working relationship with a horse stable and he had in-depth knowledge on buying, training and selling horses. Joe also has a close working relationship with trainer, vet and a transportation company. Joe coordinated a new venture to import, train and sell dressage horses using his SDRA as the investment vehicle for this new venture.

Don’t have a passion or understanding for dressage horses? Maybe you have an understanding of the process of excavating and how to make money from raw land and dirt.

Investor Ike makes his living in excavation. Ike knows that when excavating land there are many aspects that can bring income other than just getting paid to clear the land. The trees that are cleared can be cut and sold as lumber or firewood, the dirt that is removed can be sold as fill and once the land is cleared it can be divided up and sold to developers.

Ike, armed with this knowledge and an SDRA, uses the SDRA to purchase 50 acres of wooded land in a highly sought after area for residential development. Per the IRC rules and regulations, Ike will not personally perform any of the excavation work on the land that is owned by his SDRA, but he will contract the work for the clearing of the trees and removing of the dirt. He will also decide where to sell the wood and fill. The profits from the sale will flow back into the SDRA and will continue to grow tax deferred or tax free. The same goes for the profits from the sale of the land that will be sub-divided once cleared.

Diversification for Everyone

Even if do not have a passion, hobby or specialized knowledge that you think can be profitable, that doesn’t mean an SDRA won’t work for you. If you are creative, it is possible to come up with some interesting strategies that could turn a profit.

For example, Investor Dan, an experienced businessman, lives in New York City and read an article about the sale of covered bus stop stations to minimize the maintenance costs from the transportation agencies hands. As Dan was reading this article it struck him that this could be a good investment, not because they would appreciate and he could “flip” the stations as in real estate, but because of the cash flow opportunities. Each of the covered bus stop stations in the city provides an opportunity to sell advertising space on them. This would provide a monthly cash flow back into the SDRA and also create a viable cash flow report when the time comes to sell any of the stations. The profit from the sale would also flow back into the SDRA and continue to grow tax-deferred.

No matter what your passion or knowledgebase happens to be, there is bound to be something that you can invest in to generate wealth for your retirement. Structured properly, alternative investments can benefit an investor’s SDRA just as easily as a stock or bond.

A word of caution though, alternative investing through SDRA’s typically requires additional knowledge of the rules, regulations and guidelines set forth by the IRC. It is not the same as sitting at your computer and purchasing common stock, wherein all the rules, regulations and guidelines are more straightforward. The best chance of succeeding in the world of alternative investing is to work with professionals that are knowledgeable, specialize in the industry and take the extra steps in making sure that the investment through the SDRA is in compliance with the guidelines.

Disclosures: The examples used in this article have resemblance to actual investments, but specifics have been withheld to maintain the privacy of the client and their investment portfolio. This article is for educational purposes only. There is risk associated with all investments, both traditional and alternative investments. Not all investments are for all investors, and appropriate portfolio planning, whether traditional or alternative is required prior to making any investments. Classification of risk for an investment is based on many factors, some of which is inherent in the investment and some of it is based on the portfolio and plan of the investor. Please seek professional advice prior to planning any investment whether traditional or alternative. Nothing in this article implies, either explicitly or implicitly, that NUA or the authors of this article is soliciting investors for any specific type of investment, nor is NUA or the authors providing any form of investment advice through this article. Not all information contained within this article may be applicable to all readers, and NUA shall not be held responsible or liable for any use of the information with or without seeking knowledgeable professional advice.

About The Author About NUA Advisors, LLC (NUA): an independent Registered Investment Advisory firm is bridging the gap between traditional and non-traditional investing. NUA is unique in that they have an extensive understanding of the regulatory and financial considerations involved in an SDRA. NUA is comprised of experienced and knowledgeable professionals who provide diversification strategies that go beyond traditional markets. If a client has identified an alternative investment, NUA’s risk management team can provide the fundamental analysis of the investment, as well as assist with properly structuring the transaction to avoid the common pitfalls of alternative investments within a SDRA. Interested clients that have not yet identified an alternative investment to diversify their portfolio may utilize NUA’s alternative investment platform. The platform identifies, evaluates and monitors alternative investment options for SDRAs. NUA appropriately introduces clients to strategies designed to provide true diversification that are non-correlated. For more information you can visit http://www.nuaadvisors.com; or Contact NUA Advisors, LLC at: info@nuaadvisors.com

Tax Sales, Tax Certificates, Tax Deeds: Due Diligence Matters!

By: Darius M. Barazandeh, Attorney at Law / M.B.A.

 

We have all heard the ‘infomercial’ and the Internet claims regarding tax foreclosed property: 

 

• “You will own the property FREE and CLEAR!”
• “All other liens and interests are WIPED OUT!”
• “You will hold the FIRST PRIORITY security interest!”
• “The Government Guarantees these properties!”
• “All liens, interests, and encumbrances are ERASED!”
• “You can do this part-time with nothing down!”
• “You don’t need to set up a company…just get out there and make a deal!”

While this can make great marketing material it is not in accord with the reality of tax foreclosure purchases.  As an attorney, I learned in law school that every rule of law has an exception. Knowing how these exceptions work will mean the difference between success and failure as a real estate investor on the grandest of scales!  I don’t make that statement lightly, rather I make it with as much of the emphasis and weight that the English language will allow. Please read it again, “Knowing how these exceptions work will mean the difference between success and failure as a real estate investor on the grandest of scales!” If you intend to be successful you must be able to separate marketing fluff from well researched and analyzed fact.   If you rely on marketing materials and hype your failure is nearly certain, however if you rely on well researched information formulated into a methodology then the keys to success in any endeavor are in your hands. 

 

 

What Does This Mean to Me and Why Should I Care?

 

What this means is that you must forget about blanket marketing statements when dealing with tax foreclosed property.  For every statement that is contained in the bulleted list (at the top of the page) there is an exception and just like any business what you don’t know WILL hurt you.  If you have contacted me by email or purchased one of my courses you know that I absolutely believe in covering all the positive and negative aspects of investment techniques.  This does not mean focusing ONLY on the benefits or making wild claims about investment techniques.  It DOES mean thoroughly covering what could go wrong and a relentless approach to risk reduction.

 In the following sections we will review some of the areas that you must consider when researching and evaluating tax sale properties.  I call them due diligence areas #1 through #5.  These are not an exhaustive list but they do set out some of the areas which are typically left out of most people’s analysis.  For a complete list please review my course materials.

 

 

Due Diligence Area # 1:

What Liens Will Survive Foreclosure?

 a

One area that really upsets me is when I hear a general rule of law blindly applied to every tax foreclosure situation with reckless abandon.  Whenever you hear that the foreclosure of a tax lien ‘wipes out all over liens’ or that the property is now ‘free and clear of all other liens’ a general rule has been overstated.  The general rule can be found in the property code of every state and the UCC (Uniform Commercial Code) which covers commercial transactions.  The general rule can be stated as: The foreclosure of the superior lien will eliminate the rights of any junior interests in the realty or personal property.  This general legal rule stands for the proposition that: that when a superior lien (one that was recorded or ‘perfected’ before all others) is foreclosed (i.e., through the state’s legal foreclosure guidelines) any junior interests will lose their interest in the property.  Remember that there are exceptions to this general rule. 

 a

Let me give you an idea of some of these exceptions:

 a

1) Federal Tax Liens – Since most liens on a property will likely be liens from the state or a municipality within the state you must be aware of the possibility of a federal tax lien.  You can ask your title company to search for this, however a good title company should spot this lien pretty quickly. 

2) State Income Tax Liens – Some states which have a state income tax may give priority to any liens for unpaid state income taxes.  As the purchaser of the property or the holder of the lien you could still have these liens surviving as encumbrances on your property even after foreclosure.

3) State Sales Tax Liens – Unpaid state sales taxes can result on a lien which attaches to the property of the delinquent taxpayer.  You should contact an attorney to find out if your investment state has a sales tax lien which could survive foreclosure.

4) Mechanics Liens and Materialmen’s Liens – Work performed on the property where improvements or repairs are made can result in a mechanics lien if payment is not made by the party who contracted for these services.  You will find many different names for this type of lien, for example: mechanics liens, materialmen’s liens, artisans liens, workers liens, etc.  

a

Don’t forget to learn more about your investment state as your state could include others or exclude some of these liens. Don’t be scared off by this list, BUT glad that you are now informed about this potential risk. Since you have the knowledge you need only perform adequate research to avoid the risks in this area.

 

 

Due Diligence Area # 2:

 Are Environmental Risks Associated with the Property?

a

In some instances you can run the risk of purchasing someone else’s environmental liability.  Congress passed the ‘Superfund Act’ (42 U.S.C. 9601 et seq.) which made every landowner liable for previous environmental contamination on a property regardless of whether they caused the damage or not.  There is some good news for lienholders since Congress has given them an exception from liability if you are a lienholder not considered an ‘owner or operator’.  Court rules and interpretations have been changing regarding this issue so don’t risk it.  I want to be sure my liability is limited therefore I believe in being extra cautious when dealing with commercial properties in the tax sale setting.  If there is some question as to the area or type of business conducted on the parcel you should contact an environmental specialist and ask some preliminary questions about the area and property you are investigating.

 

If you want to steer clear of the whole issue then you should avoid commercial properties all together. The chances of environmental damage found on residential properties in zoned subdivisions is much less.  I do tell my students to avoid commercial properties unless it’s a really good deal.  Naturally if it is a good deal you can afford to do the extra research to make sure there are no environmental problems on the property.

a

 

Due Diligence Area # 3:

What About Other Fees Not Included in the Foreclosure?

a

You should always get an idea of whether there are any other fees or dues not included in the foreclosure purchase price.  I know this sounds odd but it can occur if an entity that is owed money was not included in the tax foreclosure lawsuit.  If they did not get notice or did not decide to ‘join’ themselves in the collection lawsuit then the money simply won’t be added to the opening bid amount. The purchaser of the property would still be responsible to pay for these fee amounts.

 a

Here is what I suggest that you do:

 a

 Contact the tax collection entity or authority (typically the tax assessor)

Ask them which entities they collect taxes for

Then ask which entities are outside of their collection area

Create a list of entities whose taxes are not collected by the assessor BUT may still be owed by delinquent taxpayer

Call and ask the entity the amount of back taxes, dues or fees

Add this amount to your bid analysis

 

 a

Again, by following a simple step-by-step methodology you can greatly reduce you risk and boost your success rate ten fold.  Make sure you go through this checklist of tasks with every property you consider purchasing.

a

Due Diligence Area # 4:

Bankruptcy of Delinquent Property Owner

a

You must check to see if there is a looming bankruptcy associated with the property.  I see very few tax sale products covering this issue.  This is an ABSOLUTE MUST in your analysis of any property.  You can access federal bankruptcy records through the federal bankruptcy court in your state.  Some of these records may be online.  There are generally two main possibilities that you must be wary of:

 a

1) A Bankruptcy has occurred prior to purchase – Sometimes you will find that a property is tied up in a bankruptcy administration while it is being prepared for tax sale.  You should avoid properties which are on a tax sale list which have a pending bankruptcy suit.  

a

2) A Bankruptcy has occurred during the redemption period – This scenario can be problematic as well.  Here the property has been sold to tax sale investor but while the redemption clock is ticking the delinquent property owner has declared bankruptcy.  Now a trustee has been appointed to protect the assets of the estate.  The biggest risk to the tax sale purchaser is that the trustee will attempt to argue that the tax sale purchase was a ‘fraudulent transfer’.  For such an activity to occur there must at least some dealing or scheme between the debtor and the purchaser such that an attempt is made to avoid liquidation of the estate by transferring property to a 3^rd party.  While the tax sale purchase really should not be classified as such a transfer if the trustee raises this argument it can interfere with the tolling of redemption period, your ownership rights and the final disposition of the tax sale property or lien.   Keep in mind that if the trustee wins this argument you won’t lose your initial investment, but you will lose any of the anticipated profit.  It is not an easy argument for the trustee to win but just be wary of this possibility. 

a

The best thing to do is to avoid situations where you know the property is involved or will be involved in a bankruptcy.  You should check in the owner’s district of residence for any bankruptcy filings.  Lastly, don’t be too frightened by this issue because doing your research will help you greatly reduce your risk of being affected by a bankrupt estate.

a

Due Diligence Area # 5:

Doing Deals in Your Own Name

a

This is an area that is very critical to apply and apply correctly.  If I could refuse to sell my products to someone who does not have a legal business entity from which they will make these purchases, I would do it. That means that if I find out you are buying tax sale property in your own name I will come and take my course from you!  No seriously…this is a very critical issue and I just want you to understand how much it worries and keeps me up at night knowing that some of you will ignore my advice and buy tax deeds as ‘John Jones’ instead of ‘Jones Real Estate, Corp.’

a

Why is this such a bid deal? The reason is that when you purchase a property as an individual you are now personally liable for the anything that goes wrong with the property.  This could include someone getting hurt on the property (yes, even a trespasser can sue you), environmental issues with the property, liability from ‘unknown’ liens, and a myriad of other problematic scenarios.  

a

However, when you form an entity you generally will not be personally liable for these acts, omissions, or hidden liabilities.  What will happen is that the corporation, partnership, or LLC will take the hit.  Now why did I say that ‘generally’ you will not be liable?  I said that because if you do not maintain the entity using the proper formalities you will lose that protection.  In a landmark business law case the courts determined that to “preserve equity and prevent injustice” it could “pierce the corporate veil” and hold the shareholders or owner(s) liable for the acts and/or omissions of the corporation if proper formalities were not met.

a

If you go to any real estate investing seminar and they tell you, “Just do a deal or two then worry about forming your company”, please run out the door!  It will only take one bad deal to make you liable thereby risking everything you own.  Before you attempt a deal you should find an attorney to help you determine which form of business entity will serve you:

 Corporation – C-corp or S-corp.; 

    Limited Liability Company (LLC) (Taxed under Subchapter K or S)

 Limited Partnership (LP); 

You should then have the entity up for you and teach you how to maintain its formal status in the eyes of the law.  I have helped individuals with the matter and I can tell you that you must have an attorney who will listen to your needs and spend time educating you.  The reason I think education is important is that if you don’t maintain the entity correctly its the protective shield will not exist in the eyes of the law.   It will be as if you never incorporated at all.  What good will the slick corporate minute book and fancy company logo be if the attorney did not teach you how to keep the entity separate from your personal dealings?  Unless your attorney takes the time to teach you how to maintain your entity status it will be worthless.   

To learn more about business entities, tax choices and avoiding risk, please listen to our free AUDIO SEMINAR! (no downloads required!)

I want to wish you the best of luck in your endeavors and email me if you ever need help!

If you plan to invest in Texas please see: Texas Houses for Pennies™

 If you plan to invest in tax lien certificates states, please see: The Attorney’s Step-by-Step Guide to Investing in Tax Lien Certificates 

                 ______________________________________

Information contained within this article was not intended to be, nor should it be taken by the reader as legal, financial or tax advice. The above article was written for educational purposes only.  If the services of a Texas attorney are desired please contact Mr. Barazandeh or seek the services of another attorney.

So What is Equity Buildup?

Building wealth. A simple statement. Everyone wants to “build their wealth”, or just simply “get rich”. One of the most widely recognized paths to this wealth building has historically been through Real Estate Investment. I use the word “path” deliberately as the road to real estate riches is not normally one of “overnight success”.  It has long been, and continues to be, one of the surest paths to wealth. It can be a sure path if you do your homework, and it does involve study, planning, research, some degree of risk, and most of all, a plan of action.  Nothing happens without taking action.  So, how does the term equity buildup apply here?  Equity is the difference between what is owed on a property (the mortgage or the loan) and the actual market value of that property, or what it will sell for. It’s the cash you take away from the closing table after you’ve sold the property. Before you cash out it is equity.

Now that we have defined equity, we can talk about equity buildup. One of the most powerful tools in acquiring wealth through real estate investment is equity buildup. How does it grow?  It can happen naturally, or it can be forced.  When it happens naturally, it is generally over a longer period of time, and is the result of natural appreciation. Buy a property, hold it for a long time, let the rental income cover the mortgage, taxes and insurance, and then sell it for more than you paid for it. Many people have use this method as a means of building a secure retirement portfolio.

The second method, or forced appreciation, occurs as a result of specific actions on the part of the investor, and can happen using several different methods. You can buy right (right meaning low) and have instant equity, you can buy something in need of repair and improve it – thereby creating instant equity, or you can build it from scratch and sell it, also creating instant equity.  Any of these last three ways are generally used to develop fast real estate cash. By far the quickest of these is to simply buy a property in good shape, from an extremely motivated seller, and then re-sell it as soon as you can for a short term profit.

Buying a property to fix up or “rehab” as it is usually known in the business, is the second quickest.  Buying a piece of land, building a house, and then selling it would come in third.  Any of these three can usually be accomplished in less than a year.  Buying low and immediately re-selling could be anywhere from a day to a few months. It all depends on your methods of marketing.  One other way which does not involve equity buildup- but can produce quick cash, is called “assignment of contract”.  Contract for a property, add on a small profit, and sell the contract to a buyer who wants to do any of the above. That’s a whole separate subject, and will be covered in another article.

I’ve purposely left out any quotes of profit numbers here, as they can range anywhere form a thousand to five thousand or more for a simple assignment, to that much up to even six figures on any of the other methods. It all centers around your market, your research, your savvy, and your exit strategies.

If you’d like to learn more about these, and other helpful strategies, visit my website, as shown below.

Michael Perry has been a successful Real Estate Developer and Investor for over 30 years. He has purchased and/or built properties in New York, Hawaii, and Florida. He has authored a Real Estate Book for first time homebuyers, (Buying A House-The First Time Homebuyer’s Guide- – available through AMAZON.COM and major bookstores), and has owned and operated numerous small businesses. He presently resides in Central Florida. Go To http://www.FreeRealEstateInfoandDeals.com