Saturday, November 28, 2009

Goodbye 2009- A Great Year For Some

The year is nearly gone, and many of us are saying "Good riddance". And I apologize for not keeping this blog more up to date, but it has been a very busy year. I will admit it has been a tough year in many ways. And to hear most folks tell it, real estate took the biggest hit.

But that isn't quite so. Sure, those who choose to do the same things, in the same ways, even when circumstances change will find themselves behind the 8-Ball. But for those of us with many "tricks" in our bag, and with the will to innovate and come up with new ideas, this has been a boom time. Why?

Because regardless of the economy, people need places to live. And regardless of the economy, the population grows. And BECAUSE of the economy, the wise investor will find the best bargains among the many bargains available, and repackage them to make them more appealing to buyers, using unusual incentives.

During these times, sellers are desperate because there are fewer buyers. And the seller is probably in financial trouble and must sell. So here is one strategy I have been using with tremendous success...

The seller needs to get rid of that mortgage payment. He knows he cannot sell for a profit as values are down. But there are no buyers. If he doesn't find a solution ASAP, he will lose his home to foreclosure and his credit will be shot for a decade.

So I step up with a solution (money is not made from real estate - it is made from offering solutions to people's problems).

First, an example:

In an area where the average home is selling for $175,000, I find one that is worth as much, but the seller is desperate and has reduced the price to $160K. I specifically choose one where the mortgage payment is lower than average (older mortgages, as the property was purchased for much less several years ago, before the boom).

My offer: I will lease option the property and pay him a monthly payment that will cover the mortgage, so he is "out from under" and his credit is saved. I also offer the full $175,000 purchase price at the time I exercise the option - more than he was asking (but still not more than it is worth).

The option period is at least 3 years, and $500 of each monthly lease payment gets applied to the purchase price when I buy.

I then sublet to a tenant for at least the amount I am paying the seller each month, so the place costs me nothing. (I also get first month's rent & security deposit which goes in my pocket now).

In three years, the economy should be brighter, and the home value should have increased at least a little. If I can find a buyer, I exercise the option and flip the property to my buyer (which may even be the tenant).

I resell for $185K
My purchase price is $175K
Remember the $500/month being applied? Times 36 months is $18,000 applied, so I only owe $157,000 at closing, and I pocket the difference between $157K and $185K (that's $28,000 profit).

In this economy, it is not difficult to lease option at least 4-5 a month. With an average of $2500 deposit per, that's at least $10,000/month in pocket, now. And beginning in 3 years, I start flipping 4-5 per month, for a net of roughly $100,000+ per month.

Now, just try to make that kind of money at the 7-11. Or even in a cushy office job.

This is just one of the methods my students are using today. Of course, it would not be wise to try it unless you have the specifically designed contracts provided in "The Simple Man's Guide to Real Estate", as they protect you from liability and insure better profitability. And having a professional coach is great, especially if you are new to this. He or she will "hold your hand" through the entire routine.

Now, back to this blog - I will try to do a much better job in 2010 of keeping it moving for you...


Monday, January 26, 2009

What is to Come

I am often asked "What do you see in the future for real estate?" Obviously I do not have a crystal ball, but when I received an email today imploring me for some input on the subject, this was my response:

No honest person can claim to know where it is all going, for sure. This is because there are over 5000 "local" markets, each with its own, unique factors to consider. That is why some are still hot, while others will continue to sink for years to come. More important is the part that Congress takes in this. If they do the right things, much of this could blow over in 6 months. If they do the wrong things, as they are prone to do, it could take years.

The only thing we can and should do is find ways to cope with the realities of today. Think outside the box; learn new methodology. That is how I conceived the reverse mortgage in '85. We were just coming out of some rough times, and many retired folks were really in a bind. I developed the concept (which I called The Golden Years Project) to help the elders, and make a profit for myself in the process.

Regardless of the economy, it is innovation that will fix it, not government bailouts. I recall in the recession of '89, home sales were stagnant in eastern MA where I was at the time. I still had homes to sell. While everyone else was doing the same old thing the same old ways - listings, ads etc., I decided to try something different. I contacted the personnel directors of the large corporations in the area and let them know I had a few, select executive homes available, and if they had any new execs transferring into the area, please invite them to attend a Wine & Cheese Party at - and then I listed the addresses and dates/times of the Wine & Cheese parties. Execs came. They did not just see a house. They saw a home that was a super place to entertain their society friends, because they were already in such a party. Of 4 homes, I sold three on the very night of the parties.

Innovation. Sometimes as simple as Wine & Cheese. Other times, it takes developing an entirely different strategy.

Good Luck. Remember - no matter what the economy does, trust in America, and Americans. And trust in yourself. I do not consider myself as someone who just invests in real estate, stocks, bonds, gold. Instead, I see it as investing in the strength of America, and the hope that is tomorrow. Helps keep a clear perspective.