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Real estate is the only investment I know of that pays you 7 ways. There are many other ways in addition to these 7, but these are just some of the big ways to get paid. The words start with PICA DILY! P = Positive cash flow I = Instant equity C = Compounding A = Appreciation D = Depreciation I = Inflation L = Leverage Y = Because your investments are all about YOU! Assessing a Property for Purchase To be sure you have accounted for ALL the expenses prior to purchasing a property, always include estimated costs for: Principle, Interest, Taxes, Insurance, Maintenance, Utilities, Property Management, Vacancy, etc. (PITI-MUMV) To find good deals in real estate, consider talking to realtors and brokers. They know first hand where the deals are. Become a member of your local real estate group and clubs. Attend seminars, forums, etc. Looking on the Internet at various web sites is also a good idea, such as www.craigslist.org, www.realtor.com, www.foreclosures.com, etc. Consider developing a relationship with your lender and tell him or her that you are interested in purchasing their REO (Real Estate Owned) properties. Smaller lenders are typically much better in working with investors directly. It’s been my experience that the larger lenders work directly with realtors that specialize in foreclosed properties. Warnings about purchasing properties AS IS Often properties are on the market being sold as is. If you are intending to purchase a property as is, be sure to do your research. Check comparable prices for what homes sold for in the last six months in the neighborhood. Quite often, you can purchase a property in need of few, if any, repairs for the same price the as is property is being sold for. Keeping the Value of Your Properties Up To keep values up in your rental properties, consider meeting every six months with your property manager and physically walking through the property to check for any repairs that may be needed. Water issues are always a huge expense, so check the bathrooms, kitchen, under sinks, shower areas, roofs, etc. Create a list for your property manager to work from while correcting the repairs. NEVER over improve a rental property. You will most likely never recoup your cost. Consider making improvements to update it with cost-effective products, etc. Instead of granite, consider using tile, 12 x 12 squares of granite or Silestone. In many cases Formica is just fine, too. Consider replacing carpet and upgrading the pad. A better pad will usually enable the carpet to last a few more years. Renting or Selling Difficulties If you have difficulty renting or selling your property, take a look and see if it's appealing to prospective tenants or buyers. Is it clean? Is the paint in good shape or does it need repainting? When was the last time you updated the fixtures (lighting, faucets)? How does the flooring look; does it need to be replaced? Sometimes it's a good idea to tour other rentals or open houses on the market. This will allow you to see what is needed to get yours rented or sold. Good property managers can give you some pointers on what could be done. Also, most realtors have experience in this area. Consider asking them for their input. The longer a property goes un-rented or is not sold, the more costly it is for you! When making updates to your property, always purchase quality items. Never purchase the least expensive and never the most expensive. Example: If you purchase an inexpensive faucet for $50, pay a plumber $300 to install it and the faucet only lasts two to three years, you will be replacing it again in a few years time. You will have spent $350 today and in a few years another $350, or a total of $700 over a three-year period of time. However, if you purchase a faucet that's a better grade, say $75 - $85, and have the same plumber install it for the same price, but the faucet lasts seven years, then you have spent $385 and not $700. Many landlords/property owners make this mistake because they think they are saving money. It has been my experience that most tenants will not ruin a faucet and most of the time this is a repair that, if done properly with quality products, can save you money over the years. Always hire reputable contractors and be sure they have workers' compensation and insurance. If they do not, you could be liable for any injuries they incur. Creatively Financing Real Estate Consider using other people’s money for the purchase, make them a partner in the deal or consider paying them a higher interest rate than they would receive from a bank for the money they put into the deal. Consider getting a partner – and structure the partnership by using their credit, their money, etc. Your position in the partnership might be the field partner (someone who does all the leg work in the deal). Having contracts and agreements in place prior to doing any business is critical. Both protect you and the other party in the event of any disagreement. Have your attorney review all agreements and contracts that you are planning to use. Carefully review all documents and be sure you are comfortable with them before signing. In the event that any legal issues should arise, always have a good real estate attorney. To find a good attorney, ask local realtors, property managers, title companies, or insurance agents for references. Only work with attorneys that have experience in real estate. Have all your team members in place prior to investing in any location. You will need a Strategy Team and a Field Team. Your Strategy Team might consist of specialists in foreclosures, money lending, insurance brokers for non-owner occupied properties, title and escrow officers, etc. Your Field Team might consist of a property manager, experienced realtor and broker, and licensed contractors (plumber, electrician, painters, carpet layers, etc.). Talk to other investors in the area and see who they might be using. Look in the Yellow Pages, on-line, newspapers, bulletin boards, recommendation boards, realtor.com, etc. Consider talking to real estate agents, property managers, the State Board of Realtors, and homeowner associations. These groups work with many quality people and they might be able to refer you to them. Planning, Preparing and Protecting You and Your Tenants in the Event of a Disaster
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