I pay double digit returns on your hard-earned money

As the real estate cycle changes I now find myself investing again in bank-owned properties. This is how I began 11 years ago at the bottom of the last cycle. What a ride that was!!! Currently the market is much more appealing to a real estate investor than it was back then. What I am buying currently cashflows at 15-20% without financing! Imagine the returns using financed money! As we all know, the banks are in a mess, and getting financed can be a long process. They are so over-whelmed that the simplest transactions take 45 days. Enter…. Private money. This is business with the people for the people! Back to basics! Most people are getting watered-down returns (if any), in part due to the fact that there are too many middlemen and also due to the fact that investments open to the general public have to be ’sanitized’. By this I mean, it has to be ’safe’ and that anyone can do it without using their brain. Unfortunately too many people rely on others to make the most important decisions of their life. We need more accountability from ourselves. Nothing ventured, nothing gained. If you don’t want to think for yourself, you are stuck playing someone elses game, by their rules, and getting paid for your involvement. If your involvement is less, you are paid less. If you really get involved, you will really get paid! This is true for many things. Why not earn more on your money? Numbers don’t lie. I know I can pay these returns day and night no matter what happens, because I do the numbers every day. Whether a property sells or not does not matter with the cash flows that can be generated by these properties. The valuations are so low right now compared to the height of the market, that to build these properties you would be paying double the current prices. I’ll get off my soap box for now, but feel free to contact me and learn how to put you back into control of your finances!

FHA Loans and your retirement

What is the link between FHA financing and retirement? It’s the easiest and most powerful way I know of for realizing a retirement that isn’t at poverty level. This way can actually make you a millionaire and you can start from $0 as long as you have 2 years work experience, a certain level of credit score, and are able to qualify for the payment. As long as you can document all this, you are on your way.
If you understand 3rd math, you can do the numbers! Real estate investing in essence is truly simple, and open to the masses. Obviously there are almost infinite variations on any given scenario, and this is one of the greatest parts of real estate investing. You can tweak it in so many ways according to your specific goals, talents, etc. I’ll start at the bottom (which is where I started) from next to nothing. When you start with a first home with 3% down (FHA financing) and have seller pay closing costs, you are actually in the most powerful leverage position. You can even have the 3% gifted to you! If you figure an average appreciation of 5% and a house value of $100,000, after 1 year you would have $5,000 in equity buildup. Since you only started with $3,000 your return would be 166%! That is only the average-that is why it is so important to put in the sweat equity into your first home-the returns are astounding! Once you buy investment property your average return with the same appreciation would be 25%, since you have to invest more of your own money, typically 20% down. Make the most of your situation!
The actual dollar numbers are not very exciting to begin with, but as an investor you need to look at return on investment to understand the power of real estate. I would regard this as a lousy return and try to tweak it by working on the house and creating more value (spend a small amount of money & create the biggest bang for my buck). When you get into millions of dollars worth of real estate the percentages turn into big money.
Progress can seem slow in the beginning, but remember you are living in this house doing whatever it is that you do, and your house is doing this by itself on the side. These returns can be much bigger if you buy this house at a discount (if it’s bank-owned or a short sale and you bought right you should have equity by the time you move in), buy it at a low point in the real estate cycle, create some sweat equity yourself, buy the dump on the block (my personal favorite), etc. As you acquire more rentals, you are making the same percentage return but on a much bigger dollar amount. If you own a million dollars of real estate and get an average of 5% return, that is $50,000 that first year! What follows is an example of how I came to appreciate leverage.
Our first home that turned into a rental required a $7500 investment plus approximately $5000 and alot of sweat. We sold it after 2 years and netted $55,000 after all associated costs. That works out to 440% return over two years or 220% annual return. This would have been higher had we known we probably could have got closing costs paid by the bank! Then our 3% down would have been $3,750 plus $5,000 in remodelling costs or a total of $8750. Our return would then have been 628% total return or 314% annual return! On our home, I don’t even know what kind of return we’ve gotten out of it! We took out money to buy the first duplex, and then much later took out more to buy others. We made about $55,000 after holding onto the duplex for only a year. That was 100% financed, since the down payment came from our home refinance, and the rental income covered the expense of borrowing it, so how do you figure your return on investment-it’s infinite! How’s that for a great return? This is actually common in real estate. Where else can you do that?
Once you get started and buy your first investment property think leverage, specifically 5 times what you have to invest. You are making 80% of your returns using the banks money. Another way of looking at it is whatever gains you realize on the value of the property, multiply it by 5 times. That is your return on investment.
When you have enough equity to put down 20% on a rental, refinance your home or get an equity line and take the cash out (not for vacation, boat, fancy car etc.) and buy your first rental. Do the math and make sure your rents will cover the mortgage payment plus the cost of borrowed down payment (equity line), with a little extra cash flow on top. You can get a mortgage calculator or book with tables to figure monthly costs. You might elect to have your first rental managed by a management company, usually for around 6% of the monthly rent plus 1 months rent fee per tenant moved in, until you are more comfortable with it. Our first was managed for the first year, after that we figured we could do it, and never looked back. It’s about comfort level as well as how fast you want your money to grow. There is a trade off.
Once you have your first rental, you now have 2 homes growing at 5% annually, so you are increasing your velocity of money. Your equity begins to grow faster as you accumulate. You can look at your rentals as super-charged 401ks (except way better), each one growing by itself with your guidance. After your first house or two, you shouldn’t have to work for the money to buy the next one. Your houses are now working for you. The next purchase will come from one of your existing rentals, and so on and so on…. It could take you as little as 7 years to create a million dollars of net worth if you could start with two homes ($7,500 initial investment each).
If you already have a 401k or money sitting in a CD you can get there even faster!

Blue Light Specials

Don’t want to repeat myself too much, but helloooooooooo! Is anyone out there? It is the time to buy!!!!!!!

Discount prices everywhere-it’s like being a kid in a candy store!

In many areas prices are 50% of what they were a couple of years ago, and in some areas multiple offers are becoming common (at least for bank-owned real estate). I know the nay-sayers are thinking (and the media) that prices are still on the way down, and to keep waiting, but I am seeing the smart money buying up homes that are 350K and under. Also wishing I had extra cash to dive in (or cash partner)!  In real estate a good deal is a good deal even in these uncertain times.

It’s a perfect time to find a foreclosure that needs work that’s at a discount price. Putting sweat equity into real estate is a great way to ensure that your great deal will make you money (now or later). You can fix it and flip or hold and rent it out-never thought prices would come down enough to cashflow in California again!

If you are a first-time home buyer, do an FHA loan (3% down-have seller pay closing costs and buy down your rate). If you are at all handy, you should buy a fixer and put your own sweat equity in it until you have enough to take money out and buy another. This is what we have done several times.

For those of you in the construction trades, this is a no-brainer! Did you know on average 60% of your net worth at retirement will be in your home?! (This is what the National Association of Realtors said just the other day).   That means just owning 1 home will provide as much savings as 60% of your working life.  If you work from age 20 to age 60, that is 40 years of work (60% of that is 24 years of work & savings labor!). I don’t know about you, but in my years of contracting I wasn’t able to create any sort of savings, let alone retirement. I paid bills and that was about it!  Everyone also knows that being in the trades is hard on your body. If you are self-employed (like we are), no-one is planning your retirement except you (hopefully!). As far as I am concerned there is no better way to do this. With construction knowledge, you have so much of an advantage over anyone else, as you can accumulate wealth through sweat equity for astonishly little cash.

Even if you are not in the trades, an average retirement is no picnic. Nobody wants to work their whole life and then retire in poverty that I know of.  These days everyone needs to take personal responsibility for their retirement-the days of secure jobs and great retirement are over unless you are a CEO and have a golden parachute or have an inheritance. Relying on somebody else to look out for your financial well-being for your ‘golden years’ involves a huge risk of ending up with potentially nothing.

Anyway…..Enough of the soapbox!!!!! I get frustrated when I see opportunity knocking and not enough people answering! This method of retirement only takes 3rd grade math! To be fair though, it takes alot of work, courage, and determination to do it, and many are not willing to think out of the ‘box’ and take the 1st step which is always the most important one!

It’s simple, and this could be why not so many will do it, because if it was so simple then why isn’t everyone doing it and retired already? It’s a natural tendency to make everything complicated-most of us do, me included! There are so many real estate gurus out there, and people like the idea that someone might have the secret answer to answer all their financial problems. Part of the problem is that you need to pay these people for their ’secrets’. I know . I’ve paid many of them and to be fair have got valuable information from them, but have always come to notice that there is no ’secret’ and that the actual actions needed are extremely simple and involve large amounts of common sense. Talking to people who are in the business and investing in real estate also, is one of the best ways (and cheapest).

And now for my plug! If you are going to buy real estate and using a Realtor and Lender why not use someone  (us of course!) who invests themselves  in real estate for retirement, and who will gladly help you do the same for FREE!

Thanks for reading!

Why should you use a buyers agent?

Some people trip over dollars to pick up pennies… Just wanted to address a misconception that some buyers have.  Calling a listing agent will save you money-in other words maybe you can make a better deal and get the agent to cut their commission. The opposite is true actually. This is like representing yourself in court-having a fool for a client! A buyers agent is simply any agent that looks for property for you and represents you.  A good agent knows the local values and neighborhoods, knows a good deal and a bad deal, and as an agent has access to a lot of other important information such as what the seller owes, and if they are motivated, etc. All of this knowledge can be useful in negotiating a great price. Also, when a great deal comes along you need to be ready, willing, and able to move quickly before somebody else snaps it up. This is true of any real estate market whether it is up or down, because the smart money is always fast!!!  A Realtor/Lender Team is a great way to pull this off. The great news is that a buyers agent does not cost you a penny, yet can save you thousands and also keep you from buying a ‘lemon’, or getting the wrong financing. In other words you get an expert (or two)  for nothing. With a team you are leveraging talents and brainpower, like successful people do!

Why you should buy a fixer-upper bank-owned home now!

As everyone knows, there are alot of foreclosures on the market now! The smart (and big) money is snapping up the deals in large quantities often paying 55 cents on the dollar. I always think that it is good to study successful people who are doing what you would like to do, and learn from them instead of trying to reinvent the wheel! Although individuals by themselves can usually not duplicate these results on the same scale, they still may be able to gain great returns on their money, whether it is an investment property or their own home. For many reasons it is easier and cheaper to get into the real estate market right now by buying your own home this way, and also start creating a retirement at the same time (not the social security type which may or may not exist when you retire, and which may or may not be enough to live on!).  The reason for buying this type of  home now  is that it is a buyer’s market for one,  prices have come down (blue-light special, buy it when it goes on sale, buy low), and buy at a discount from the bank who does not want to be in the business of owning real estate. Banks are penalized for having properties on their books, and savvy investors know that they may sell for a 25% discount on an already discounted listing price. Now for the fixer-upper part, which is like turbo-charging the whole idea! Fixer-uppers are also another way of acquiring  a property at a discount and putting varying degrees of sweat equity in. For a first time home buyer who can get 100% financing, one of these properties can double as a home and an investment account with rewards far greater than any other investment vehicle available.  Starting with nothing, sweat equity (free), a few well-placed and frugal dollars, and some time, you can reap exponential returns!  This is not for the lazy or fearful. It requires hard work, faith, and determination, and almost always a willing partner! I know of no other way that you can start with nothing and end up in the millions of dollars, way ahead of where you would end up with a traditional financial planners recommendation. To retire these days just about everyone needs to turbo-charge their retirement plans,  unless you don’t mind the idea that you probably will outlive your money even on a just ‘getting by’ retirement plan! I don’t know anyone who wants to lower their standard of living when they retire!!! Nancy and I have personally followed this turbo-charged plan (minus the bank-owned part) for 9 years. As a Realtor and Lender, we can help turbo-charge your plans!  Shouldn’t your Realtor and Lender live their career? Do they do what they advise you to do?  We are here to help and guide (if needed or wanted). Fear is what stops most people (and our great media outlets who encourage us to think like ‘chicken little’). The unknown is what creates fear in people. For me personally the idea of a mediocre retirement is way scarier than the idea of thinking outside the box now and doing something about it. It’ never too late!!!

Foreclosures and Bank owned properties

Foreclosures and bank owned properties are a hot market these days for many reasons. Unless you’ve been hiding under a rock you probably know it’s a buyer’s market! Great deals are to be had! There are a great number of Placer County foreclosures available. The advantage of bank owned properties is that banks don’t want to own real estate, because they are penalized for having bad loans on the books, so they discount the property. Apart from this,  it’s also common to get accepted offers at another 25% discount off of this price. This results in bargain deals!!!  As savvy investors know, you want to buy when things are on sale, which is definitely now. Our last deal was appraised at $621,000,  our clients bought it at $535,000! This was a beautiful,   unique property with deferred maintenance, and a great deal! They are now looking for their next great deal.

Low Rates & Lower Prices

                    Since the real estate frenzy has settled down and prices are at more normal levels, it’s a great time to pick up bargains! Rates are still at historic lows, despite what the media would have you believe. There has been a lot of noise about adjustable rate mortgages, and how people are getting caught in these mortgages that all of a sudden have a substantial monthly payment increase. The hit to the sub-prime market was a direct result of lax lending guidelines for people with challenged credit, and allowed un-qualified people to get loans for which they were not capable of repayment. These loans were typically programs such as a 3/1, 5/1, etc. which are fixed for the first number of years and then adjust after that, enabling people to get into a home with a lower monthly payment at first, the idea being that they are expecting to increase their income or pay it off before it adjusts. Other programs with an even lower payment start are called Option ARMS and can adjust monthly or have a certain period at a fixed minimum payment (less than an interest-only payment) and/or accrual rate (fixed interest rate). All of these programs have distinct advantages and disadvantages and are not for everyone. One must have a plan! As there are many homes on the market these days, there is a lot of competition for able buyers, and smart sellers are offering incentives such as buying down the interest rate, paying closing costs, or of course lowering their asking price. Buyers are getting more for their money than a year ago, and with interest rates at about the same level more buying power also. 100% financing is still available, as are many, many other programs for people with good credit. For lower credit scores however there has been a significant tightening of guidelines, and some people will have to wait to buy. 

The Advantages of a Real Estate Team

Most everyone would agree that teamwork leads to a better result, no matter what the objective is. Many real estate professionals promote their teams as they should.  Each member  brings their own expertise and personality into the mix, and as time goes by develop a rapport and knowledge on how best to serve their client. A Realtor/Lender partnership results in a smoother transaction, and a better understanding of their client’s and wants. The truth is that homes and loans go together like peanut butter and jelly, unless your fortunate enough to be able to write a check for your new home! Other members of a great team include loan processors, appraisers, title & escrow officers, home inspectors, and pest control companies. Great teams also consist of referral partners such as tax accountants, 1031 exchange companies, insurance agents, architects, contractors and other tradesmen. Everyone loves a referral instead of calling out of the yellow pages! Teams are especially great for out of town buyers who are unfamiliar with their new surroundings. A good knowledge of specific areas and neighborhoods (i.e. which side of the tracks do you want to be on) help with ensuring that clients are investing in value (location, location, location) and getting referred to ethical expert professionals. Even knowing great restaurants, clubs, events, etc. are invaluable to your clients. It all adds up to make the difference that counts!

Great time to buy real estate!!!

As we hear the media speak about the growing foreclosures and falling prices, we might be led to think that real estate investing is a risky proposition!  In fact the opposite is true! As prices ‘correct’ to more realistic values and mortgage rates remain at historic lows, the longterm potential of real estate appreciation becomes more sustainable. One cannot expect the enormous rates of appreciation of a few years ago to continue without these corrections.  There are many bargains around us now, and many sellers are all too anxious to negotiate! Also, the recent fallout of the subprime lending market was a ‘correction’ of another sort. The lax lending guidelines for credit-challenged people in the middle of the real estate appreciation frenzy and froth resulted in lenders tightening their guidelines, and resulting in more common sense lending. It is true that some people may not be able to purchase homes right now because of credit issues, but with credit counseling and financial education  and a little time, they will! The subprime correction has really not affected people with good credit and financial stability, and by tightening guidelines for lending less people will be likely to go through foreclosure.  These corrections are healthy for the market and the industry.

Buying Property in Auburn

What? Buying real estate in this market?>#@! Of course!! Just made an offer today. Why? Prices have come down from their previous high for sure, so we are in a more realistic market with more supportable values. Many buyers are sitting on the fence waiting for prices to come down. As they are doing this, the reasonably priced homes are getting snapped up within days by other more savvy buyers. Too much attention to the media and too many ‘friend of a friend of a friend supposedly in the real estate business’ giving their expert opinions, has completely confused a major portion of the consumers who would otherwise buy property. People also forget that many of the high prices that were ‘posted’ at the height of the frenzy last year were merely some sellers fishing for a buyer who might pay an exorbitant price for their home, and not based on any market comparables. A good buy is a good buy in any market, or in other words if the value is there, it’s a good investment. Another factor in this market is the fact that many sellers actually over extended themselves either in buying too much home or racking up too much consumer debt, or both, so some sellers are actually desperate and will sell under the market price. Bargain properties are available, even though the general public may not believe it.

As a long time resident of Auburn also, I believe it is a great place to invest for a variety of reasons. One reason is the location-2 hours from San Francisco, 1 hour from Lake Tahoe and on route 80 which is a major freeway. There also are many outdoor recreational activities in Auburn, such as beautiful & extensive hiking trails, river rafting, etc. There are major employers nearby such as HP, Intel, Oracle, Coherent, Hospitals such as Kaiser and Sutter, and major shopping areas also. Auburn still retains it’s small town atmosphere, so it’s the best of both worlds. The rental market is good also since prices tend to be more here, than in the surrounding areas because of the desirability of Auburn. Land is less available also which keeps values up. People who can’t afford to buy here will rent instead. The movie ‘Phenomenom’ with John Travolta was filmed in old town Auburn, at the Shanghai Bar (the name of the bar was changed in the movie). Another movie was filmed at the Foresthill Bridge, over 700 feet high over the American River.