INVESTING FOR YOUR RETIREMENT

As retirement savings, 401ks, IRAs and stock portfolios have come crashing down along with home values, fear has spread throughout a large segment of the population. The fear is easy to understand. People feel that they have no control over what is happening, which is for the most part true. What isn’t true is that you can’t do anything about it. In times of great difficulty, there are always multiple opportunities for those who can recognize it. Real estate is cyclical and always has been. At the peak of the market around the middle of 2005 here in California, housing was highly over-valued. At present time it is highly under-valued. It is like a pendulum, always swinging from one side to the other seeking equilibrium. Any market in which money is made has inefficiencies whether it be real estate or the stock market. In either market to be successful an education is necessary. Being successful entails knowing how the cycle works and most critically, knowing where in the cycle you are. It also entails action. Hindsight is always 20/20. Knowing exactly where the top or the bottom of the market is impossible since the only way you know it is when it has already happened. These turning points may take a while to happen but when they do, they are relatively quick and as people realize it, everyone gets on the bandwagon. For instance waiting for the absolute top of the market to sell is risky, because as everyone else realizes this they put their homes on the market and flood the market. We all know any market is created by supply and demand. Likewise waiting for the bottom can result in missing the boat. On either end it’s like a feeding frenzy but on opposite sides; or ‘froth’ (at the top) as Greenspan coined it. At the top and the bottom many are caught either late or early to the ‘party’. Astute investors always sell before the top and also before the bottom. They are first in the market and also first out of the market. It takes alot of experience and focus to accomplish this. As Warren Buffet said (I think), when everyone is greedy it’s time to be fearful, and when everyone is fearful it’s time to be greedy. At this point fear and panic have generally taken over. Coincidently smart investors are backing the truck up and buying as much as they can get their hands on! To my point…. What are you waiting for? This has been the ‘perfect storm’. Very few people including myself ever thought the market was going to fall so far. Value will not stay this low for very long. Investors are buying properties that are half the cost of what they can be built for, and sometimes for 33% of what they sold for at the top of the market. Rental properties are now cashflowing like crazy, with values poised to climb and regain their true equilibrium. Don’t have money? Do you have an IRA? Use your IRA to buy real estate-we can show you how. If you have money in stocks and CDs, you know how they are doing if you are still even looking at your statements! 3-5 years from now there are going to be alot of new millionaires: those who take advantage of this opportunity. For those of you who don’t have the experience or the desire to be landlords we’ll partner with you to take advantage of this opportunity. Your returns will be truly amazing! For all the clouds around us, there is a silver lining. For those of you who have lost their homes, there is still opportunity for you in the form of ‘rent-to-own’ and lease-options. Just be careful about who you deal with, and realize that some of the landlords will be betting that you don’t or can’t exercise your option, and will be keeping your option money! That’s it for now! Successful investing!!!

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!

Got 3rd grade math? Why aren’t you wealthy?

Real estate investing is about the only field open to just about anyone who can do 3rd grade math. For the average person the entry requirements are about as low as you can get, with the rewards being almost limitless. (See Robert Kiyosaki, Donald Trump, etc.) In these trying times, it can seem like only the big hotshots with money have a chance at a great retirement. With downsizing, out-sourcing, benefit cutting, and corporate CEOs making monstrous salaries and bonuses, the average guy seems to be getting squeezed!

Luckily, there is still real estate!!! And despite the media doom & gloom routine, there is a huge opportunity right around us right now as we approach a bottom in this market. Nationally, there is still a downtrend in housing prices, which most of us would agree with, but you must remember real estate is local and there is always a good deal to be found even in the worst markets. Our local market here in the sacramento area is offering a great entry point right now, both for real estate newbies and the seasoned investor. Seasoned investors are snapping up the deals already, and here in sacramento multiple offers are becoming common again. The low end of the market, specifically the foreclosure market is hot, the mid-range is stagnant, and the high end is okay.

Cashflowing investment property in California on a 30 year fixed rate mortgage (principle & interest)! I thought I’d never say that again after the last several crazy years! The real estate market correction is a healthy allthough in many cases painfull! Many lessons have been learned the hard way.

So why isn’t everybody buying rental properties, if it’s such a no-brainer? The truth is that one of the qualities you need as an investor is financial discipline which comes through education (hard knocks school or otherwise), alot of determination, stamina, resourcefullness, and a somewhat adventurous spirit. You must be okay with alot of advice given freely by friends, neighbors, family, friends who have real estate licenses. Unfortunately most of the ‘expert’ advice you get here will come from news programs, old wives tales, one-liners, and people who have never invested in real estate (or people who invested poorly and had a bad experience). This usually creates a fear among many people, and that will be the end of that great idea! If you listen to this and/or the media too much you won’t do anything period. Most of the news is reported because it’s sensational or bad-whatever gets you to listen. It’s the same with real estate-everyone has heard the landlord horror stories. Okay… enough with the chicken little stuff!

So…. If you were to find a rental property, put 20% down, rent it out, have your tenant pay for the mortgage on it, and get $200-$500 above what it costs you every month, would that be good? Since you bought it discounted from the bank for less than it’s worth, didn’t you just make money? And 1-3+ years down the line you sold it (better yet refinanced, took out money and bought another!)and made a chunk of change, perhaps 100% return on your money? Wouldn’t that be great? Sound like a pipe dream? Some people do it all the time (and in their spare time). You must take the first step.

So… It will be your 1st home and you don’t make alot of money… Even better! You can get 100% financing still if it is owner occupied, or with 3% down, and ask for closing costs to be paid by the seller. Live in it for a year or two (or more), fix it up, sell or refinance, and buy another. That is how I started 10 years ago, and that is why I’m such a die-hard real estate junkie.

Need more to get started? You know that on average, 65% of your wealth at retirement is in your own home? The 35% of the wealth we have other than that is what we’ve managed to squeeze out of a paycheck to save over 30-50 years. With real estate investing done the right way (there are alot of right & wrong ways to do it!), your tenants pay your mortgages, allow you to hold for indefinite periods of time to take advantage of appreciation, and the IRS lets you take advantage of the tax laws to reduce your income tax on top of it!

It’s really a very passive form of investing, and can be done according to your taste-you can jump in full bore, or you can do it at an almost painfully slow and boring way and end up with astonishing results either way. By the way I’m full bore in case you didn’t notice!

Another note… Please do yourself a great favor and stay away from the real estate gurus, investment clubs, etc.. I know-I’ve been there, done that, spent money there, and to be fair did learn some things, but to be truthful, I should have just bought some more real estate instead! All you need is a good real estate agent and loan officer who are investors as well. This is my pitch in case you didn’t notice. All the gurus seemingly have this new product or secret that nobody else has (salesmanship is really what it is). There are no flashy secrets to wealth building, just repeating the same thing over and over, hopefully learning by experiences and applying new knowledge to better replicate again. Sound boring? In essence it is, but I admit I can’t help getting excited about it because it’s so simple yet soooo rewarding. Unfortunately boring won’t get you to sign up for real estate seminars! Good marketing will though- it worked on me. All the seminars had the same affect on me- I got excited, ran around in circles trying the ‘new’ stuff and then realized that I was wasting time, energy and focus-it was just another diversion sidetracking me. I guess it’s human nature to make things more difficult than they are.

First Time Home Buyers-Your 1st REO Purchase!

If you are a 1st time home buyer looking for a deal, now is the time.  If you are at all handy even better, or in the trades, perfect! I started out as a Contractor and in 1998 bought my first fixer which was a bank-owned home (it was ugly!), for 3% down , or $7,000 total! My girlfriend bought one too for about the same. These two homes have financed our retirement plan which is based in real estate. We’ve since rehabbed , sold, kept, and rented out multiple properties, with the emphasis on buying discounted properties and putting in the sweat equity ourselves. All the costs associated with acquiring and fixing up have been paid by our properties. We’ve had alot of good experiences and bad of course, but the good far outweigh the bad. As 10 years have passed we have learned alot, and now are looking ourselves to start the cycle over again, since everything is on sale!!

Sooooooo… what are you waiting for? Let us help you find that perfect property for you! The Realtor expenses are paid by the seller, so it costs you nothing! Are you  thinking we will get all the good deals ourselves? There is so much available right now-more than there are buyers actually! Why re-invent the wheel? Learn from our mistakes and successes alike, and you will move forward faster. Check out our website! Click here

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!

Shortsales, foreclosures…

These are trying times indeed! It seems like that this all we hear about. Many people have been caught up in this mess. There is plenty of blame to go around, but that won’t help anybody in trouble. What will is a little basic information so people know their options, before the bank decides for them! All too often, we are hesitant to call on someone to help, especially when it comes to financial matters. The consequences of not doing anything or waiting too long can be unpleasant, and unnecessarily so.

So here goes! Before you are late on your mortgage payment, call a real estate professional (get a referral ideally) and discuss your unique situation to come up with the best solution. There are 3 basic options, listed from best to worst:

• Loan modification
• Short Sale
• Foreclosure

A real estate professional with expertise in these areas will start ideally by negotiating with the bank to modify the loan in order for you to be to afford to keep making the payments and keep your home-this may consist of modifying the loan amount, interest rate, or stopping the payment from adjusting up. If the bank won’t do this and you can’t make the payments anyway, a short sale might be the answer, where the bank will accept less than what is owed on the loan. Your real estate professional will handle the sale much like a regular real estate listing, except this requires more expertise in negotiating with the bank as well as potential buyers. This can result in an adverse affect on your credit, although many times it is possible to get the bank to report a short sale as ‘paid as agreed’ to the credit bureaus, thus not affecting your credit rating much. Finally, if the bank won’t accept a short sale and chooses to move to foreclosure proceedings, it will stay on your credit report for up to 10 years, greatly affecting your ability to secure financing in general. After 2 years of clean credit history following a foreclosure, you will usually be able to get a mortgage again, although because of this mortgage mess lenders are understandably extra leery of the foreclosure word!!! Sometimes filing bankruptcy can make sense as part of getting through financial difficulties-Consult a reputable bankruptcy attorney on this.

A good real estate professional specializing in this area will outline to the bank their options in resolving the problem, in their perspective (how much will they recover with a shortsale versus a foreclosure, and also how by modifying the loan terms they could mitigate their loss even better). This is all displayed in a simple effective manner in their language (numbers, sales comparisons, net recoverable dollars) and followed through with tenacity!

Your real estate professional will have you sign a ‘do not contact by phone’ form so you won’t be bothered by the bank hounding you! You will be dealing with your agent only, not the bank. Your agent will be dealing with the bank! This way you can concentrate on moving onward and upward.

The silver lining? Real estate is cyclical-what goes up comes down and vice versa. If you can save your credit you will be able to participate in the next up cycle. In the last 40 years california real estate appreciation has averaged around 8% annually. Add to that the ability to leverage financing (20% down equals multiplying your money power by 5 times), you should average 40% return on your money! Hard to beat that!!!

If you are already late on payments, a short sale is still an option and you can stay in your home in the meantime also

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.

And the Beat Goes on…

Yes… We are still here! The market turmoil has created some casualties in big lending institutions – we have lost a few on our list!!! Our business remains in good health as the market changes. Buyers and sellers have changed considerably in the last year. Sellers are becoming frustrated and a little fearful ( Thankyou media!!!) and sometimes are in denial. Since we had such a run-up in prices over the last few years, the resulting correction was inevitable. The correction in the market as well the re-assessment of risk in the mortgage market, will actually help the market in the long run. Unfortunately, there are many who have got caught in the middle who will suffer greatly in the short run!!! Buyers are having a harder time financing homes with some of the more aggressive programs, such as high-leverage loans, option ARMS, etc. Programs are still out there but take a little longer to find, and guidelines have tightened considerably. Spec builders have been hard hit in particular and profits have dried up or even disappeared. The good news is that there are still loans available if they are willing to move into their spec homes for awhile. One option is to refinance into an option ARM. Option ARMS allow a minimum payment option every month that is usually around half of a regular 30 year amortizing loan payment, thus allowing a builder  to have less cash going out each month. This way they are able to ‘weather’ the storm and not lose property and or their credit!!! The flip side of this is that these loans can negatively amortize (if you make minimum payments), so the loan balance can grow substantially.  These loans usually offer up to 4 different payment options on every mortgage statement: A) Minimum payment , B) Interest only payment, C) Fully amortizing 30 year (principle & interest), and D) a 15 year amortizing payment. There also is another choice of making one of these payments plus an additional amount that you choose in order to have complete control of your equity. They are adjustable loans and can adjust monthly or have different periods of time that are fixed such as 3yr, 5yr, 7yr, etc. They are generally not well understood, and require a more financial savvy borrower (or loan officer who will explain fully how they work).

The flip side of the pain that some sellers are going through is the buying opportunities that abound now. There are so many great deals out there for a buyer who understands the market. Many buyers have been sitting on the fence for awhile, wary of falling prices and everything else the media shoves in our face! For the savvy buyer this is a fantastic time for deals, because they understand the real estate market has cycles, and buying after the market corrections leads to great profits. Real estate is and always has been a long-term investment. It may be a few years before we have another surge in prices but it’s coming, and there are some gems to be had right now.