Perry Marshall is a lot of things.
After starting his career as a trained electrical engineer, he transitioned into becoming a direct marketing expert, and ultimately, a massive contributor to the legacy and development of the 80/20 Principle. Perry has written several books, but probably the most well-known are 80/20 Sales and Marketing as well as Evolution 2.0: Breaking the Deadlock Between Darwin and Design.
In this conversation, we cover some fascinating concepts and life changes that can (and should) come about when you recognize how the 80/20 principle works, and how it applies to every facet of life (far more than just your business).
You can also see our original video interview here:
Links and Resources Mentioned:
And don't forget, if you want to apply for the mastermind group, you can do it here: REtipster.com/mastermind
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Thanks again for joining me this week. Until next time!
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One of the most crucial steps to closing a vacant land transaction in-house is the title search.
As a real estate investor, you need to be 100% sure that the person you're buying a property from has a clear title to the property. You need to ensure that you're getting a deed and paying the actual property owner (not somebody who thinks they own the property or is blatantly lying and claiming they own it).
Why A Clear Title Matters
When I bought my first house, the concepts behind title work and title insurance really confused me, and if you're new to real estate, it may seem confusing to you too.
In a lot of ways, it's similar to the process of buying a car.
Suppose you see a car parked in someone's driveway with a “FOR SALE” sign in the window.
The car looks nice, so you walk up to the house, knock on the door and say
The person replies,
There's obviously something wrong with this picture.
A person can't sell something they don't legally own – and while it sounds like a ridiculous example, you'd be surprised at how often I've come across situations just like this in the real estate business.
How does this kind of issue come up in the first place? There are a lot of potential reasons…
In some cases, I've met people who inherited real estate from their parents or relatives and somewhere along the way, the proper paperwork was never filed to give them the “legal right” to sell the property.
I've also come across people who decided to buy properties without doing their own due diligence and then THEY ended up stuck with a property that didn't have clear title.
As weird as it may sound, a person can actually end up with their name on the tax bill (and in some cases, even on the most recent deed) – but somewhere in the historical chain of title (as recorded in the county's records) the property wasn't transferred correctly from a seller to their buyer, and even though their name is on the most recent deed, they still don't own it.
Issues Beyond Ownership
Another reason it's important to do a title search is to make sure there aren't any liens or mortgages on the property.
Especially when you're offering a property owner a very small amount of cash for their property (like I tend to do), there will be times when a seller conveniently neglects to mention that there's a $100,000 mortgage or $20,000 construction lien tied to the property.
If you fail to catch these clouds on title BEFORE you close on the deal, these issues will become your problem, along with the property itself.
When you spend enough time in the real estate business, you will inevitably run into these kinds of hiccups. Sometimes there's a quick and easy solution for getting them resolved, and sometimes there isn't.
Should You Buy Title Insurance?
Most real estate professionals (realtors, bankers, insurance agents) would like you to believe that the only way to identify these problems is to pay hundreds, even thousands of dollars for a title company to research the property for you and issue a title insurance policy.
In many cases, buying title insurance is a smart move. A title insurance policy is essentially a guarantee from a title company (which usually comes with several conditions) that your subject property's title history has been reviewed, and it is free of any liens, mortgages or other unforeseen issues (unless specifically stated otherwise). In other words – once the transaction is closed, you are the official owner of the property, and the title company will guarantee that there aren't any other hidden parties that have an ownership claim to the property.
The nice thing about using a title company (and paying for a title insurance policy) is that most title companies will be better qualified to review the chain of title an identify these hidden issues. It's literally their job to search through this kind of documentation and find these issues before you make the mistake of buying a property that doesn't have a clear chain of title.
For this reason, if you've never done your own title search and/or if you simply don't have the time or attention span to sift through this kind of documentation, a title company is probably the best option for you. A title insurance policy will give you a solid layer of protection and can save you time and bring peace of mind – knowing that the process was done right (or at least, you'll have someone to fall back on if any mistakes were made).
That being said… when you're buying a parcel of vacant land for $150 (something I see quite often in my line of work), can you really justify paying another $450 just for a title insurance policy, thereby tripling your cost to purchase the property?
Is it worth paying more for a title insurance policy than for the property itself?
Where should you draw the line??
How do you keep these costs from eating away your profit margin on smaller deals like this?
Title Research – The Cheap Way
There is a way to make this process MUCH less expensive, and significantly faster – though it will require more time and effort on your part.
The way I handle this is to order an “abstract of title” from a local title agency or a professional abstractor (oftentimes, abstractors are the people a title company will hire to pull these records for them).
Abstractors can be found a few different ways.
One way is to do a simple Google search for something like:
and see if you're able to find any local professional abstractors.
You can also call the County Recorder's office (aka – Register of Deeds) and ask if they have any recommendations on who can pull a title search for you.
I've found that most Recorder's offices have all kinds of connections and can help you find different abstractors at a very reasonable price.
Another option is to call your title insurance agency and ask them to pull a title search on the property (this is NOT the same thing as a title commitment). Most title companies will charge more for the same work (because this is one of the few ways they make money), so this may not be the cheapest way to go, but they can almost always help you.
You can also find professional abstractors who will do this kind of work anywhere in the country. Companies like ProTitleUSA and even some contractors on Fiverr may be able to bridge the gap and make the process even easier for you.
The price for an abstract of title will vary depending on who you talk to, and sometimes you'll want to get prices from a few different sources before you pull the trigger.
In my experience, the cost is usually somewhere in the vicinity of $75 – $125 for this service (if the cost gets over-and-above $150, I'd recommend looking elsewhere). It will usually take the abstractor a couple of days (sometimes longer) to pull together a full list of the historical records on that property. Once you get the records back from them, it's just a matter of examining each individual deed on record AND making sure there are no mortgages or liens hidden throughout.
When you get your abstract of title, the order of documents will typically be laid out chronologically, from the most recent to the oldest record. If done correctly, this should make it easy for you to verify that the order of ownership looks like this:
…and so on throughout the history of transfers.
For example, if John Doe sold the property to Sam Smith in 1977, then the next deed on record should show Sam Smith as the seller.
If on the other hand, you saw that the next deed on record was Jane Doe selling the property to Jim Jones in 1988 (skipping over any mention of when Sam Smith sold the property to Jane Doe), this is a major red flag. It's called a “break in the chain of title”, and if a title company sees this in their research, they would NOT be able to issue their title insurance policy because there is a clear blemish in the historical records. Until this gap in the chain of title is fixed (ideally, with a deed that shows the property being transferred from Sam Smith to Jane Doe), nobody mentioned after Sam Smith has clear ownership to the property.
If you come across one of these situations, it's worth asking the seller if they have any of these original missing documents in their files. If they do, you can ask them to get those documents recorded (or you can obtain the documents directly and do it yourself) and it may be sufficient to resolve the issue.
In most cases, when I've seen a significant issue in a title search, we will ultimately walk away from the deal. It isn't fun (because at that point, we've already invested time and money into the title search), but it's A LOT better to be aware of these problems and avoid them than to ignore them and end up with a property that we never actually owned (because the seller never had the legal right to sell it in the first place).
Knowing When It's Worth The Price
Admittedly, doing your own title search will open you up to some risk.
There is always the possibility that you will miss a crucial piece of information along the way.
These days, I try to avoid doing my own title searches for a few reasons:
The only time I ever do my own title search is when the market value of the property is less than $5K (I'm talking about some very cheap, “rinky-dink” properties). As soon as I start dealing with properties that are worth more than $5,000, a full-blown title insurance policy is more than worth the cost.
There's something to be said for making sure this job is done right and (more importantly) someone else is on the hook for any mistakes. This goes a LONG way towards my peace of mind (and to me, that's worth a lot).
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Real estate in coastal, metropolitan cities is expensive.
I mean really expensive.
Two analysts at CityLab looked at the average price-to-income ratios in cities across the country and compared them to historical averages.
In a healthy market, average home prices are historically 2.6 times the average income.
In Los Angeles, average home prices are 9.6 times the average income.
L.A. isn't the only market with overpriced real estate. Here’s a map (courtesy of the Brookings Institute) of metro areas across the United States, color-coded based on price-to-income ratios:
With values so skewed in these high-priced coastal cities, it’s no surprise that real estate investors there are looking elsewhere.
The Rise of the Long-Distance Real Estate Investor
They say all real estate is local.
Well, not anymore; with the rise of virtual tours, virtual reality, 3D imaging, better communications technology, and turnkey investment property marketplaces, real estate investors are increasingly buying properties sight-unseen.
In fact, a study by Redfin found that in just 16 months from mid-2016 to late 2017, sight-unseen real estate purchases nearly doubled, DOUBLED, from 19% to 35%. These numbers aren't skewed by professional real estate investors either… that group was largely composed of homebuyers, a finicky group less making a far more personal buying decision.
Turnkey marketplace Roofstock disclosed that a full 62% of all transactions on their platform involved a buyer over 1,000 miles away from the property.
Real estate investing is now a global game.
Choosing a Market
When you’re no longer tethered to your home market, it’s both freeing and overwhelming.
You can invest anywhere in the world!
At the same time, the world’s a big place, with hundreds of thousands of markets to choose from.
So how do you choose where to invest? Here are a few metrics to look for in a promising rental market:
Take it from someone who has made this mistake: you don’t want to invest in cities with declining populations.
Yes, there’s a small niche here, for expert investors who go in and buy dirt cheap properties and milk them for all they’re worth. But it’s hard enough to do in person, and I don’t recommend it for long-distance investors.
Population statistics are easy enough to find, both on a town or city level and on a county level. A simple Google search will reveal a current figure and a graph – I’ll use my sister’s town of Bel Air, Maryland to illustrate:
For a broader view, you can look up population growth on the county level through the Federal Reserve. Their website lets you zoom in on recent years for a closer snapshot of growth:
Look for a town and county that’s growing in population – and the faster, the better for real estate appreciation.
Similarly, a healthy and growing town should ideally skew young. More young people, both children, and young adults, are a strong indicator of future growth.
You can see a graph of age distribution using CityPopulation.de:
What’s the local unemployment rate? How does it compare to the rest of the state, and to the US as a whole?
On the town level, check out AreaVibes:
On the county level, the Federal Reserve offers a graph to help you look at the trending direction:
Beyond unemployment, look at how diverse the local economy is. A town that is dependent on a single industry is a sitting duck for economic collapse – look no further than old gold mining towns, or coal mining towns, or manufacturing towns like Flint, Michigan.
You can find this information (and a lot more) at DataUSA.io:
No one wants to live in a bad school district. By investing in one, you’re setting yourself up for a high turnover rate, as renters move on as quickly as they can.
GreatSchools.org offers a good summary of local school quality, along with school ratings and parent reviews:
The same goes for crime: tenants will move on as soon as they can afford to if the crime is high. Look for areas with low crime.
Try NeigborhoodScout.com for crime rates and summaries:
Finally, how are housing vacancy rates? High vacancy rates a glaring red flag, indicating low demand and high supply.
You can find information about vacancies on Moving.com:
Should You Partner with a Local Investor?
One option for long-distance investors is to partner with a local investor, to be the eyes and ears on the ground.
They can scout properties, take their own photos, oversee contractors and home inspectors, handle tenant screening and show the property. All you have to do is provide your share of the funds and make joint investing decisions.
So yes, investing far from home is easier if you have a partner who’s, well, not far from home.
It's worth mentioning, though, there are also some downsides to consider.
You have to operate with absolute, 100% confidence and trust in your local partner. They could make poor decisions, from choosing bad properties to hiring shoddy contractors to bungle the property management.
Worse yet, they could actively cheat you, if they were so inclined. It’s hard to know what expenses are truly needed (and legitimate) when you're working from 1,000 miles away.
Another challenge is that investment partnerships tend to work well for short-term fix-and-flips, but the longer the partnership lasts, the more room there is for disagreements.
If you buy a long-term rental property, what happens when one partner runs into financial trouble a year down the road and wants to sell, and the other partner wants to keep the property but can’t afford to buy out the other partner’s interest?
Local partners can be incredibly effective, but they also come with their own risks and complications. If you decide to use a local partner, congratulations – you can stop reading here, because they’ll take care of everything locally for you.
If you want to invest long-distance on your own, read on.
The Long-Distance Real Estate Investor’s Survival Guide
New to the idea of buying real estate long-distance? Don’t sweat it!
Here are five tips, options, and ideas to help your long-distance investing go as smoothly as if you were investing in your own backyard.
1. Finding Deals from a Distance
There are a number of ways you can go about finding deals from a distance.
The traditional model is hiring a local Realtor to represent you (preferably one with plenty of experience working with investors). They walk through properties on your behalf, perhaps snap some of their own photos, offer their opinions on condition, market value, needed repairs, market rents.
But remember, Realtors are not your only option in today’s world.
Another route is to buy from a wholesaler or turnkey seller. The risk here is that you'll have no one specifically representing your interests; you’ll be stuck with the seller’s word for the condition (at least, until you have a home inspection done), and you’re on your own for estimating market rents. Without ever having seen the property with your own eyes.
Granted, you can still use a Realtor to represent you, even when buying off-market deals. But you’ll be responsible for paying their fee – don’t expect off-market sellers to chip in.
In recent years, another option has arisen: off-market marketplaces such as Roofstock and even Ebay.
Roofstock includes an incredible amount of detail on market conditions, property performance, financials, and estimated returns. Here’s a quick video overview of their platform:
Roofstock is designed from the ground up to help long-distance rental investors buy sight-unseen. They make it incredibly easy to buy with confidence without ever stepping foot into a property, and even offer several guarantees. Check out Seth’s comprehensive review of Roofstock here for full details.
The downside of Roofstock is that it’s hard to find outstanding deals. It’s a marketplace of rental properties, sold by professional investors, so they aren’t leaving much meat on the bone, equity-wise.
2. Out-of-State Legal Entities and Addresses
If you want to hold your investment properties in a legal entity, you’ll need to decide whether to register it in your home state, the state where you’re investing, or some other state entirely. Regardless, you will need an in-state resident agent as an out-of-state corporate owner, to receive mail and notices for you.
In every state, you’ll find resident agent services, who charge a fee to serve as your resident agent and receive your official mail (Rocket Lawyer is one such example that offers these services throughout the United States). My experience has been that you can find good services for between $100 – 200 per year.
You can also use a private mailbox service, that can either forward or scan your mail for you digitally. I personally use St. Brendan’s Isle, based in Florida. Through my online account on their website, I can choose which pieces of mail to forward, which to open and scan, and which to shred.
3. Finding Local Contractors
Contractors can be difficult, even in the best of circumstances (and overseeing repairs from 1,000 miles away is not the best of circumstances).
Trustworthiness is very important. Start by asking for referrals from disinterested third parties, real estate investors who operate locally. Look for local real estate investing Facebook groups, and ask for referrals.
If you’re using a Realtor, they should be able to refer you to trustworthy local contractors as well.
As you get referrals, you can investigate them further using tools like Angie’s List. You should also ask the contractors themselves for at least three references, and then call them and ask probing questions like “What didn’t go exactly according to plan, in your renovation project?”
Verify whether the contractors are licensed and insured, and ask them questions like:
If you use a local property manager, they can also be an excellent source of contractor referrals.
4. Vetting and Hiring Property Managers
Historically, long-distance landlords hired property managers as a matter of course. While new technology makes it easier than ever to self-manage even long-distance rentals (more on that shortly), many landlords still prefer to outsource property management to a local manager.
Seth wrote an excellent article on how to screen and hire property managers, so I won’t reinvent that wheel here. But I do want to emphasize the importance of hiring a property manager that is outstanding and trustworthy.
My last property manager cost me over $30,000. They placed a “professional tenant” in one of my properties through careless tenant screening, who proceeded to not pay the rent and draw out the eviction process for nearly a year. Unpaid rent came to over $11,000, legal fees came to $800, and they caused over $20,000 in property damage before finally being evicted.
The property manager shrugged and said,
As a final thought, triple check the exact fees that a property manager charges before moving forward with them. I believe property managers should charge at most, two types of fees:
Many unscrupulous property managers squeeze in hidden fees to nickel and dime their clients to death. Fees for vacant properties, fees for visiting properties, fees for calling contractors to make repairs.
5. How to Self-Manage from a Distance
I’ve managed rental properties from across the world before, as I spend most of the year overseas.
One of the benefits of long-distance property management is that, in some ways, it forces you to manage more thoughtfully, rather than just flying by the seat of your pants like so many landlords do.
To successfully manage properties from a distance – or for that matter, to better manage your properties even in your hometown – you need to learn what to delegate, what to automate, and what to eliminate and prevent. Here’s a quick breakdown of each.
What to Delegate
There are some things you can’t do from 1,000 miles away. For instance…
You’ll need a leasing agent: someone who can show properties for you and conduct inspections.
This could be a professional property manager, who you pay a one-time leasing fee. That’s the easiest route since no training or explanations are required (as a side bonus, they’ll be able to refer you to good local contractors as needed!).
Alternatively, you could hire a college student, grad student, neighbor, another one of your tenants, or a local friend or family member.
Leasing vacant properties is not exactly rocket science; in fact, charisma and charm may be more useful in showing vacant properties than any trainable skills.
They’ll also need to walk through the property with new tenants prior to move-in, to document the exact condition of the property, and again after move-out.
Separately, you’ll need a local eviction service. They will handle serving eviction notices for you, appearing in rent court on your behalf, and appearing at the lockout as your representative.
I can’t emphasize this enough: find an eviction service before you actually need them!
If you don’t know who to call when tenants break your lease, you’ll procrastinate, and send the message to your tenants that they can get away with paying the rent late or violating your lease agreement.
Be proactive in enforcing your lease, and you’ll find you don’t have to enforce it very often.
What to Automate
Now we’re getting into one of my favorite topics.
In today’s world, technology can handle much of a landlord's workload with ease. There are online landlord apps that post your rental listings to multiple websites, that let you request rental applications and tenant screening reports with the click of a button, that import that data into a lease agreement for you.
Then, on an ongoing basis, they collect the rent from the tenants for you and deposit it into your bank account.
Good systems will generate income and expense reports for you on command, and generate your Schedule E tax statement.
As it so happens, I’m the co-founder of one such online landlord app provider. Here’s a quick video showcasing many of the automated property management features in under 100 seconds:
But SparkRental is not the only option available, and you have your pick of competitors to help you with many of these services.
What to Eliminate and Prevent
Turnovers, evictions, and major repairs are a landlord’s worst nightmares.
They’re extremely expensive, and in many cases preventable.
One way to avoid major repairs is through preventative maintenance – here’s a detailed breakdown of preventative maintenance that can save you thousands of dollars in avoidable repairs.
As mentioned above, one way to prevent evictions is by, ironically, filing them.
Tenants will push your boundaries; it’s human nature. It’s your job to rigorously defend those boundaries, by sending informal rent notices if the rent isn’t paid on the first, and formal eviction notices if it’s not paid by the fifth or whenever the grace period expires. The same goes for other lease violations.
Once tenants know their rent can’t be postponed, they’ll prioritize it over other bills.
Another way to prevent turnovers is to go out of your way to retain good tenants. Periodically ask them what repairs they’d like to see, and consider making them if they appear high-ROI. Send them holiday cards. Ask about their children, their spouse, their job, their hobbies when you call them.
It’s a lot cheaper to keep good tenants than to replace them.
In today's world, it's easier than ever before to do business from a distance.
As a real estate investor, the world is your oyster, and you have plenty of pearls to choose from.
However you choose to invest, do so strategically, with a thorough business plan before spending your first cent. Research markets in exacting detail before investing and decide exactly how you plan to find deals once you’ve chosen a market.
Map out the personnel you’ll need in that market, and start networking with them. Once you have a strategy and the right people in place, you’ll be positioned to succeed no matter how far from home you choose to invest.
Have you ever invested long-distance? What were your experiences with it? Let us know in the comments below!
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The term “side hustle” has become a major buzzword over the past decade or so.
If you haven't caught wind of it yet – a side hustle (which is fairly self-explanatory) is simply a project, business and/or entrepreneurial endeavor that can help you earn extra cash in your spare time – apart from your day job and your other daily responsibilities.
As author Chris Guillebeau defines it,
When I think of a side hustle, I think of hope and freedom.
This is a great way to create more financial freedom for your future so your wellbeing isn't completely tried to the existence of your day job.
The good news is – in today's world, there are more opportunities than ever to make money with a side hustle.
Many of these opportunities can be used to generate a few extra bucks on the side, or they can produce a full-time income, it's just a matter of how seriously and diligently a person is willing to work at it.
If you're looking for other ways to make money – there are a TON of options available in the real estate industry. Here are five ideas you might want to consider…
1. Become a Notary
One of the easiest ways to start making money in the real estate business is to become a notary.
The purpose of a notary is simple:
When a document has been notarized, it is presumed by law to be valid and to have been signed by the people identified in the document.
Becoming a notary isn't difficult or expensive (though, the paperwork and process can be slightly confusing). Notarizing documents isn't difficult either.
Depending on where you get your jobs from, most notaries can make anywhere from $75 – $200 per appointment, and if you're able to arrange for one signing per day, that can add up fast!
One way to get notary jobs is to work as an independent contractor for a title company, attorney or escrow office or to get your name listed on a website like 123notary.
I've notarized hundreds of documents in my time, and if you're looking for an option that's relatively easy, this is one of the best ways to get your feet wet.
2. Birddogging / Wholesaling Real Estate
If you're gifted with a personality that does well with sales and networking, another way to earn income (without requiring much money) is to simply find great real estate deals and refer them to other cash buyers who are actively looking for investment opportunities.
Depending on the market conditions where you're working, real estate deals may be easy or difficult to find, but one thing is for sure – there are always real estate investors who are actively looking for great opportunities. If you're willing to invest the time into building a network and searching high and low to find these opportunities, you could easily start earning thousands in referral fees, simply for finding deals.
If you've built a good, trusting relationship with a buyer, it could be as simple as collecting these referral fees from the end buyer when the deal closes, but for most intents and purposes, it usually makes sense to get a contract involved (to make sure you actually get paid).
One way to do this is by signing an Option Agreement or a Purchase Agreement with the intent of assigning it to the end buyer. This process is explained more thoroughly in this blog post.
Birddoggers and wholesalers can make anywhere from $5,000 – $10,000 per property (personally, I wouldn't even consider wholesaling a deal if it paid less than $2,000), and it's possible to make a lot more.
3. Real Estate Agent
Getting licensed as a real estate agent is one of the most common ways that people start working in the real estate industry.
The funny thing about real estate agents is – the majority of licensed realtors are treating this business as a part-time gig. I've heard from some of my realtor friends that as little as 20% of agents are actually listing and selling properties as their full-time career, so if you only have time to put together a few deals each year, you definitely won't be the only one doing this in your spare time.
The cost of getting licensed in most states ranges from $1,500 – $2,000 all-in (this includes pre-licensing classes and training, examination and licensing fees, real estate broker fees and membership dues, among other things). You should also plan on paying an ongoing membership fee each year, in order to be an active member of the board of realtors. Again, this cost will vary depending on the board, but the cost for this (and any continuing education) will usually set you back $750 – $1,500 per year.
All this to say, there are costs associated with being an agent – so if you decide to go this route, you'll want to make sure you're actually selling some properties and bringing in some income to offset the costs of being an agent.
The standard commission that most real estate agents will collect is 6% of the sale price of the property. Do the math and you'll see how much money you stand to make, depending on what types of properties you decide to work with.
4. Affiliate Marketing
One of the best ways to earn money from a product that you didn't spend hundreds of hours creating is to become an affiliate marketer.
Essentially, the idea is to find a product or service (one that you've used and you believe in) and you simply let the world know about it.
When you send traffic to the thing you're recommending, you can do it through a unique affiliate link, which tracks when a sale is made – and if a sale is made, YOU will automatically earn a small commission from the sale.
I've done numerous affiliate promotions on this blog, here are just a few examples:
Given my experience in this realm, I believe pretty strongly that there's a right way and a wrong way to do this.
As you'll notice – I don't just tell people about what I'm using, I actually explain how it works and I offer a ton of free education (even if they don't want to use it, they'll still learn something in the process). This takes a lot more time and effort to do, but it's WAY more effective at referring traffic that actually converts, and it builds a lot of trust along the way.
There are all kinds of companies out there who are actively looking for affiliates to help spread the word about what they do. If you're interested in this, two marketplaces where you can find these kinds of companies are CJ.com and ShareASale.com. If you find the right product and pair it with the right audience, you can do very well in a fairly short period of time. On more than one occasion, I've been lucky enough to make over $1,000 in one day!
One word of caution, I would only recommend promoting the products and services that you have personal experience with. Remember, you're putting your reputation on the line when you recommend something, and any negatives about the product will reflect negatively on you. The stuff I recommend is what I consider to be the best, and I wouldn't suggest you do anything different.
5. Become a Freelancer
Do you have any useful skills that you can put to work for other business owners in the real estate trade?
Think about what you're good at doing. Do you know how to work with photoshop (hint: graphic design)? Do you have a good speaking voice (hint: voiceover work)? Are you good with spreadsheets (hint: Excel specialist)? Are you a good writer (hint: business writing services)?
There are all kinds of jobs that need to be done in the real estate industry, and if you can brand yourself as an expert who works specifically for real estate professionals, that will put you miles ahead of all the other people who are marketing themselves to everyone.
Why Are Side Hustles Important?
A side hustle isn't just a way to make money on the side, it's a way to protect your future and diversify your income.
It allows you to take more control of your finances and ensure that your job isn't the only source of income you can rely on.
Side hustles aren't easy, and they aren't going to make you rich overnight… but if you work on it diligently for 6 – 12 months, I think you'll see how impactful they can be in the long run.
There are a lot more ideas than the ones I shared here – so don't be afraid to keep your eyes peeled for opportunities where you can add value to other real estate professionals and get paid for it.
Are you actively working on any side hustles in the real estate business? What's working for you? Let us know in the comments below!
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032: How to Get There Faster Through Apartment Syndications (Interview with Ben Leybovich and Sam Grooms)
Ben Leybovich is a veteran BiggerPockets member, massively successful real estate investor, apartment syndicator, author, speaker, and house-hacker.
Sam Grooms is a CPA and is a partner with Ben in syndication deals (taskmaster, organization, etc).
Needless to say, these guys know their stuff when it comes to real estate investing.
Ben and Sam have been working together on various apartment syndication deals. In this conversation, they share with us why they've chosen this niche of real estate, and we engage in a little healthy REtipster-style debate about apartments vs. other types of real estate.
Links and Resources Mentioned:
And don't forget, if you want to apply for the mastermind group, you can do it here: REtipster.com/mastermind
Thanks for Listening!
Share your thoughts:
Help out the show:
Thanks again for joining me this week. Until next time!
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Housing prices have soared since 2012 and are now on pace to rise at double-the-speed of inflation and wages.
If property prices continue to increase nationwide, what’s a real estate investor to do if they want to find even a halfway decent deal?
In this kind of competitive market, investors are increasingly struggling to make it work. However, where asking prices are high, it's often the best negotiator who walks away with the best deals.
If you want a competitive advantage over the other real estate investors in your neck of the woods, here are 10 proven ways you can sharpen your negotiation skills and start getting control over A LOT more deals in the year ahead.
1. Always Know Your Highest Bid Before Negotiations Start
The seller asks for $100,000, and you plan to offer $80,000. You’re ready to make an offer, right?
Before making an offer, settle on your top number clearly and decisively. Sure, you’re going to offer $80,000, but what happens when the seller counters at $95,000? What will you do then?
Just as you wouldn’t – or at least shouldn’t – start bidding at an auction without knowing your ceiling price, the same applies when entering a real estate negotiation. You need to know your top bid, not just your opening bid, before starting the discussion.
Otherwise, you become susceptible to a slippery slope of pricing. “Well, it’s only another few thousand …” and then comes the justifications and rationalizations and exception-making.
Simply put, that's not a recipe for walking away with a strong deal.
When you know your financial wherewithal before the negotiation, you can negotiate from a place of confidence — and you'll know when to walk away versus when to capitulate.
2. Make Offers Below a Seller's Minimum Acceptable Price
The seller is going to need to feel like they got something from you. They need it to save face, feel they're fighting the good fight, and not feel like a pushover.
Far too many novice real estate investors make the mistake of aiming for an offer that the seller will accept. Instead, give the seller something they can counter.
Once you open a negotiation, you can engage in the give-and-take that the seller needs to be able to respect themselves. You want the seller to walk away from the table thinking “Well, it was a hard-fought battle, but I got some good concessions out of them.”
That friction is crucial to sellers feeling they got enough money for their property. Otherwise, they start to second-guess. “Wait a minute: Why are we just accepting whatever offer came through the door? We should be asking for more, darn it!”
To give the seller the ability to negotiate and feel like they got a fair deal, you need to set the initial offer low enough to leave room for you go up while still ending at an acceptable price for you.
3. Construct a Narrative for Your Property Offer
Why are you offering the dollar figure you’re offering, other than just aiming for below their minimum acceptable price? (Side note: Don’t make that part of your narrative!)
Tell a story as you make your offer. Or, rather, tell two stories. One should center around numbers, the market, and the rational reasons why you think the value is lower:
But don’t stop there. The other narrative is just as important and more often overlooked. Construct a human, emotional story about why you’re a better buyer than others making offers on a given property.
This is harder to do as a real estate investor than as a home buyer. You can’t say, “I can tell your kids grew up with happy memories of that swing set in the backyard, and we’re so excited to give our kids those same memories.” You and your kids won’t be living there.
Instead, try something like “This house has obviously meant a lot to you. We’d like to invest some money into it to give it some new life and prepare it for the next family to form their memories here. We actually have a few families in mind for this home, after we make some updates to prepare it for them.”
You get the gist. Whatever story you end up telling, you want to do whatever you can to forge a human connection with the seller, so they know their “baby” will be in good hands with you.
4. Meet the Sellers in Person if Possible
Forging a connection is a lot easier if you meet the sellers in person.
While it’s not always possible to meet the sellers before making an offer, doing so will give your offer an edge over any faceless, anonymous offers they receive.
Why? Because everyone prefers to do business with people that they know, like, and trust — especially when that business involves selling a home of which they have an emotional investment.
Even if you’re buying from another investor rather than a homeowner, meeting them in person always helps. Your offer will stand out to them because they’ll remember your face and associate it with your offer.
Meeting the seller in person also lets you feel them out — not just about price, but also about what else might entice them (e.g., certain concessions, specific timelines for finalizing a deal, etc.).
5. Look for Sellers’ Non-Financial Needs or Concerns
Other than a higher price, what would make your offer more attractive to the seller?
Some sellers need to sell yesterday. Whether they’re in financial trouble, going through a bankruptcy, dealing with a divorce, or moving out of state, many sellers want a fast sale.
Oftentimes, these sellers will accept a far lower price if you can settle within a short time frame.
Beyond speed, many sellers crave certainty. Perhaps they’ve been burned once or twice by buyers whose contracts have fallen through, and, now, they’re wary.
Ask yourself what can you do to reassure them that your offer will absolutely, positively, 100% settle. This could mean making a higher deposit, forgoing a contingency clause, or fast-tracking a settlement.
Some sellers need flexibility, more than anything else. It could be that they’re looking for a new home but haven’t found one yet. If you know that going into the negotiation, you can offer to let them continue living there as a renter for as long as they need to, as they search for their next dream home.
Think about what motivates this seller beyond money. What are they worried about other than financials of a prospective deal?
It’s your job as a savvy negotiator to find out and offer it to them — as a perk to counterbalance the low price you’re offering.
6. Make Your Offers Directly to Sellers, Not Through Email
Just as you want to meet the sellers in person to find out what makes them tick, and to establish a more personal connection, you want to make your offer in real time as well. This often takes the form of a phone call, but a video conference is even better.
You may be wondering, “Why should I make my offer live instead? What's wrong with a succinct email?”
The answer is simple: It lets you gauge the seller. You can weigh their reactions to your offer (that is, see their facial reaction and read their body language) and, in turn, see firsthand how interested they are.
It also serves to underscore your connection with them. The more face time (or even phone time) they have with you, the more they feel they know you — and the more emotionally committed they become in working with you.
Why? Because of cognitive dissonance: No one wants to feel like they’ve been wasting their time, so the more time they spend with you, the more they’ll want the deal to work.
7. Make a Cash Offer for a Property, if Possible
Earlier, we touched on how many home sellers want assurance that an offer will actually settle. One way to offer that assurance? Make a cash offer.
Cash screams, “I’m serious.” It means no long, tedious underwriting process from bureaucratic mortgage lenders. It also removes the possibility that the deal will through for lack of financing.
Many sellers will choose a lower cash offer over a higher, financed offer because they feel more confident that the deal will close.
Cash remains king.
8. Let the Seller Feel They’re in Control
If a seller feels coerced at any time during a real estate negotiation, like they're being pushed around or backed into a corner, they will revolt.
Instead of using pushy language or posturing, know when to give the seller a feeling that they’re participating in a two-way dialogue. Try language such as, “I know you might not be open to this, but I want to run an idea by you.”
In fact, a series of academic studies confirmed the effectiveness of the phrase “but you are free” in gaining compliance from subjects. There’s an entire negotiating technique built around it, called (of course) the BYAF compliance-gaining technique.
For example, to get someone to agree to your request, you could say something like, “We’d love to propose a path forward, but you are free to turn it down if you don't like it.”
Ultimately, it helps them feel like they’re a part of the proposal from the beginning — which is exactly where you want them to be.
9. Imply You Have Plenty of Other Options
You don’t have to be an expert on real estate negotiation to know that desperation is a losing position.
You’re interested, but you’re not desperate. You’d like to work out a deal, but if you can’t, there are hundreds of other potential deals in the same market.
The trick is to imply this without coming out and saying it, which would be a turn-off to the seller. Try language like, “I’ve been walking through a lot of properties in the area, but yours stuck with me. I’d love to sit down with you and see if we can work something out.”
Here’s another example: “There’s another property my partner likes more because it’s $20,000 less, but I like what you did with your property, it feels warm and homey. I can’t make a full-price offer, but I still wanted to reach out to you before this other seller.”
10. Use Strategic Flattery to Win Over Sellers
What else did you notice about the two examples above, other than the fact that they suggested you have other options?
They both included flattering lines about the seller or their property.
One trick in real estate negotiation – or any negotiation, for that matter – is to build on that connection with the seller that you established when you met them in person. Again, it comes down to the “know, like, and trust” factor — which you can supercharge with a little strategic flattery.
Bear in mind that flattery is a scalpel, not a sword. You don't want to be blunt or heavy-handed with it. It should feel natural, authentic, unforced, and true. Choose one or two things to subtly flatter the seller about — ideally things that they had a personal hand in themselves.
“Did you decorate these rooms yourself, or did you hire an interior decorator? It's very tastefully chosen, especially the color scheme.”
Final Word: Friction Is Your Friend
Nothing leaves both parties feeling like they should have negotiated harder than a deal that falls into place with no resistance from the other party.
To avoid that nagging sense that the other party gave in too easily, simply make sure you always get the last concession. It doesn’t matter how small the final concession is, the important point is that you ask for it.
If you go back and forth over price and the seller’s final, unmoving asking price is within your predetermined limit, ask for a seller concession, an inspection contingency, closing on a specific date, or the contract to be signed in purple ink for that matter.
Never let the seller think, “That seemed too easy. Maybe I should have priced it higher?” Beyond negotiating the best possible deal, your goal is to make sure the seller feels like they fought hard and won.
As long as the seller feels like they won, they will do everything in their power to make sure your deal goes through and settles.
What are your favorite real estate negotiation tips? What have you seen be effective in the past? Share your investing negotiation tips below!
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One of the primary objectives of my real estate business is to acquire income-producing rental properties that ROCK.
What makes a rental property “rock” you might ask?
It doesn't necessarily need to pump millions into my bank account each month, and it doesn't need to be a “no money down” deal either (although either of these things would certainly sweeten the pot).
To put it simply, a great rental property is one that makes every one of my investment dollars work hard. I want every penny to work overtime, producing as much revenue as possible while simultaneously paying off any debt associated with the property. When you buy properties with this goal in mind, there is basically no limit (mathematically speaking) to how far you can grow your net worth and personal income.
When I first got started as an investor, I spent a lot of time trying to find these types of properties.
I remember spending hours upon hours scanning my local MLS listings, desperately trying to find a deal that would make financial sense.
After running the numbers on dozens of properties, I was shocked at how difficult it was to find just one single property that would justify my investment.
At the time, it was 2005 and housing prices were through the roof – which made this a very difficult task (especially when I limited myself to ONLY the properties that were “listed”, with a realtor's sign in the front yard). Needless to say, it was an extremely discouraging time in my journey.
I eventually realized I was dealing with two fundamental problems:
After a lot of research and learning, I was able to find some very effective ways to solve BOTH of these problems.
Both issues are equally important to deal with but, for obvious reasons, problem #2 cannot be addressed until problem #1 is dealt with.
In other words, you can't start working on your analysis until you have something to analyze. This may seem obvious, but it's important to get clear about this, so you can prioritize and deal with first things first.
The purpose of this guide is to show you exactly how I handle Problem #2 (above). If you haven't figured out how to find motivated sellers yet, go and read this or this first and THEN come back to this case study.
I'm going to show you the entire process I go through when buying a rental property.
If you're reading this, you may fall into one or more of these categories:
This blog post is intended to show you exactly what steps I go through, what my expectations are, and how I ensure my (or my client's) return on investment.
I'm a pretty big fan of “on-the-job training”, so I figured the most practical way to show you with a real-life example I dealt with just a few short years ago.
One day in early December, I received a voicemail in response to one of my direct mail campaigns (I had used Template #3 for this particular mail campaign, and I pulled my list using the same process I describe in this blog post).
This postcard had been sent out the previous summer (over a year earlier) – and this guy had simply held onto my postcard and called me about 16 months later (gotta love the residual benefits of direct mail).
(note: caller's name and address have been removed from this recording for privacy)
Once I got this message and learned the basic details about this property (i.e. – the owner's full name and property address – which were edited out of the above audio clip), I went to work.
I was fortunate in some respects because I was very familiar with this neighborhood. I had sold a similar house a few blocks away for $88,900 in late-2009 (by which time, the market had already taken a dive), so I had some perspective on what a house like this would legitimately be worth.
Before I called the prospect back, I went through my quick property research process and learned most of the pertinent details about this property. It was a single-family home with 2 bedrooms & 1 bathroom. According to the seller, it generated approximately $750 per month in rent. Using AgentPro247, I learned that the seller had purchased this property eight years earlier for $55,000 – which gave me some perspective on where he was coming from.
Armed with this basic information, I called the prospect back.
After roughly 4 minutes on the phone with the property owner, I asked him (point-blank) if he would sell his property for $30,000 – $40,000.
He replied very quickly with,
Later that week, I called the seller back and told him our offer would likely be for $25,000. He said he would think about it.
A few days later (after hearing nothing from him), I called again to see what he was thinking. He said he was hoping for something more in the $30K – $40K like I initially stated (*kicking self*). I realized pretty quickly I should have suggested an even lower number, to begin with. Setting his expectation in the $30K – $40K range right out of the gate probably wasn't smart (it's generally easier to start low and negotiate up than to start high and negotiate down). Lesson learned.
Eventually (after a few more discussions) we settled verbally on a price of $27,500 cash, with all closing costs paid by the buyer. In other words, the buyer (aka – me) would have to cough up another couple thousand dollars in order to close the deal (this includes things like title insurance, closing fees, property insurance, pro-rated property taxes, etc).
Show Me The Money
Now, most people don't have $27,500 sitting in their checking account at any given time and at the time, I was no exception. Luckily, I knew some other investors who did.
I called one of my cash buyers and gave them a quick overview of the deal. They were very interested in finding out more. Like most people, they were stuck with Problem #1 (above). They had plenty of money to invest, but they didn't know how to find good deals. These are excellent people to have on your buyers list because, in their minds, any property at 70% or less of market value is an AMAZING deal that will get them very excited.
Luckily, I had mastered the art of finding cheap real estate in my area (FAR below 70% of market value) so when I told them about this property, I had their attention very quickly. I gave them a general overview of the property (“a 2 bedroom, 1 bathroom house on the southeast side of town, a 1.5 stall garage close to the local public school, etc.”). I also prepared a Rental Property Analysis to show them exactly what kind of ROI they could expect from this property as a rental unit (more details on that below).
After seeing my property prospectus report, my buyers said they were ready to go with cash in hand, contingent on an acceptable home inspection and verification of all of all my assumptions.
One of the most important things you MUST do as you're evaluating a new property is your projections.
“Projections” are basically just a series of highly informed guesses about how profitable a property may (or may not) be in the future. In order to figure this out, you'll have to do a little bit of homework and develop a thorough understanding of what the income and expenses are likely to be from this property in the future.
It's not difficult, but as with any real estate transaction, there are a number of things you need to pay close attention to. As you research a property and learn more about what you're getting into – certain things matter greatly, and other things matter very little. My hope is that as we're walking through this process, I can give you a good idea on what to look out for.
Many, MANY of the deals you'll see on a regular basis won't have positive cash flow (in fact, that's almost exclusively what I saw in my first year as a real estate investor) – and there are a lot of things that can sabotage the profitability of a rental property. Things like:
If a deal doesn't cash flow, don't buy it. PERIOD. This is why it's crucial for you to nail down your projections and get an accurate depiction of its profitability – because frankly, your “GO” or “NO GO” decision usually boils down to the answers you get after going through these motions.
Dealing With Imperfections
Are your projections going to be perfect? Not likely. We aren't fortune tellers after all, so it's impossible to know EXACTLY how things will pan out in the coming months and years.
Projections rarely come to fruition exactly as we plan, but when they're done correctly, using realistic data and assumptions, they will almost always set you up with reasonably accurate expectations that won't lead you astray. The numbers may turn out better or worse than you estimated, but they should at least come out somewhat similar to what you had originally predicted.
Challenge Your Assumptions
In order to come up with your “best possible guess” at what the future is going to look like, you need to be armed with the right information. Your inputs will literally determine everything here, so remember the theory of “garbage in, garbage out”. If you start with bad information (or if you just guess at the numbers without really getting them from a credible source), you're not going to have a very reliable number in the end.
The last thing we want is to invest our life savings into a property that loses money hand-over-fist.
One of the best rental property evaluation tools I've ever found is called DealCheck.
It's an easy-to-use, web-based app that allows you to plug in a few basic inputs, and (assuming your numbers are reasonably accurate) will show you some very clear results to help you determine if/when you're looking at a worthwhile real estate investment.
In the example below, I'll show you how I used this calculator to go through these motions of running the numbers so I could understand whether I was looking at a solid deal for an investor to pursue.
(Note: DealCheck is a free tool to use, but they also have a paid version of the service that will open up access to more tools within the system. If you want to try the paid version, be sure to use Promo Code: RETIPSTER at checkout and you'll get 25% off for the life of your subscription).
Step 1: Property Description
For the sake of organization, the DealCheck app starts every new property evaluation with a simple property description, where you can enter in all the basic details about the property.
Step 2: The Purchase Price, Financing and Closing Costs
As I mentioned earlier, with this deal, we agreed to a sale price of $27,500, with the buyer paying for all the closing costs.
This was actually an incredible deal from the standpoint of getting free equity. Since this seller was highly motivated and willing to accept a deeply discounted price, the investor basically walked away from the closing table with a massive amount of free real estate equity.
Normally, you'd have to make significant improvements and put “sweat equity” into a property to see this kind of “after repair value”… but in this case, the value was built into the deal because of our ability to negotiate such a low price (which underscores the power in your ability to find motivated sellers).
Now, depending on whether the property is being purchased with a loan or purchased outright as an all-cash deal – the financing picture will have a big effect on the outcome of your calculations.
In my example, the property was being purchased with cash – which greatly simplified this portion of the calculator.
Why was this property being purchased with cash instead of financing? A few reasons…
For this deal, the closing costs (i.e. – purchase costs) came out to approximately $1,500 (which is actually closer to 5.5% – but not a huge variation from the 5% shown above) and the deferred maintenance costs we planned for were $2,500 (the furnace was in rough shape. It was apparent the previous owners had no idea how to replace furnace filters, so we assumed it would need to be replaced shortly after closing).
Step 3: Determine the Rental Income
For obvious reasons, one of the most important numbers you'll plug into this calculator is the rent revenue.
An investor needs to be very confident about how a property is likely to generate every month (and remember, we're talking gross income – before any/all expenses).
Now – in my first conversation with this seller, he told me the current tenant was paying $750 per month.
Can we trust him? There are a couple of ways to find out.
I started by asking him to send me Schedule E of his past two years of tax returns (Schedule E is basically an income statement, showing the amount of revenue and expenses he reported to the IRS for this particular rental property). After reviewing this information, it turned out that the $750/mo number was accurate.
I also ran the numbers on Rentometer – which gave me a quick look at what similar properties were renting for in the immediate vicinity. I found that $750 was actually on the low-end for the area, which made me a bit more comfortable with this number.
I also gave my property manager a call to see if he thought this was a realistic expectation given the property and neighborhood. He agreed that $750 was a solid starting point – and we could probably get even more if the property was in decent condition.
In the end, since I had verifiable proof that $750 was attainable based on the seller's tax returns, a copy of the lease, and the rental comps in the market, I decided to use this number in my calculation.
I also assumed the property would have no other sources of income (i.e. – no vending machines or coin laundry), a vacancy rate of 10% (i.e. – the property will be vacant and/or between tenants for 5 weeks out of the year… a pretty conservative estimate in this market).
Understanding a property's expenses can be a painful dose of reality… but it's much better to embrace these realities BEFORE you've purchased a property than after you're stuck with it.
Most sellers tend to downplay the expenses associated with their property (or just fail to mention them altogether)… but these numbers are CRUCIAL to getting an accurate and reliable rental property analysis.
Operating expenses are very real and they'll play a major role in the profitability (or lack thereof) of your rental property. You’ll have to do your homework in this section, and it’s important not to slack off during this process because if you use the wrong numbers, you'll only be fooling yourself and hurting your (or your buyer's) financial future.
Property Taxes: Property taxes have always been a depressing subject for me. Why? Because regardless of whether you purchase a property with financing or you buy it free and clear, you will always have to pay property taxes. Since this expense is permanently attached to the property, it’s important that you find the correct number and factor it into your calculation. I found this number by checking the seller's Schedule E and by checking the City Treasurer's website for the total annual property taxes over the past two years. In the previous year, this property owner paid $1,464 in property taxes, so that was the number I used here.
Insurance: This one is pretty easy. You can call any property insurance agent (I recommend trying at least a couple to compare prices) and they will be more than happy to tell you what the annual cost will be. I called my property insurance agent and gave him the rundown, and he indicated an annual cost of $550 – $600 for this type of property. Given that the seller had paid $553 – I decided to use that number for this part of the calculation.
Utilities: For most residential rental properties in my town, utilities are set up in such a way that the landlord pays the water bill, but everything else is covered by the tenant. The utilities can be set up in a number of different ways, but whatever your arrangement is, you need to get a good idea on what this number will be on an annual basis.
In this situation, the seller also had the utilities arranged so that he paid ONLY the water bill. By looking at his Schedule E, I was able to see that he had paid an average of $900 per year for the past two years. Based on my own experience with my other rental properties in the area (and based on my property manager's opinion), I knew this was a solid, legitimate number to work with.
Advertising: I use a great property management company for all of my rental properties (and I recommend all my buyers do the same). Most property managers will handle the placement and eviction of all tenants as part of their service.
HOA Fees: This property is not part of a home owner's association, so this step is easy. ZERO.
Property Management: Even if you’re not going to hire a property manager as I do (most property managers will charge around 10% of your gross rent revenue), you still need to pay yourself for your trouble. The fact is – somebody, in some way, will ALWAYS have to manage this property, so regardless of who is doing the job, this is a very real expense that ought to be accounted for.
Maintenance & Repairs: Another absolute must that you need to include in your expense column is a reserve for maintenance and repairs. I always plan to set aside at least 10% of my gross rent revenue to cover the issues that will come up when my properties start falling apart (because sooner or later, it's going to happen). Even if you have a year or two where no extraordinary expenses come up, you need to let these funds accumulate. All it takes is one roof replacement, or one pipe to burst in the basement and ALL of this money will be needed immediately – so let this money build up and don’t drain this account.
Step 5: Other Assumptions
This next step is pretty simple. If you know what effective tax rate you're working with (this will depend on the investor's situation), you can plug it in and the calculator will factor this into the final calculations of what your annual cash flow will be after taxes. I used 20% in my example.
As part of this process, you'll also have to designate the Land Value for your property. Why? Because while the “improvements” (i.e. – house) portion of a property can be depreciated over 27.5 years (thereby giving you a nice annual tax write-off), the land portion cannot be depreciated.
In this example, I gave this property a Land Value of $5,000.
Furthermore, there are a few other long-term projections you'll want to think about…
Appreciation: As an investor considers the next 5, 10, 20, 30 years they'll own a property, one detail they may want to think about is appreciation. This is the way a property increases in value over time. The problem with appreciation is, nobody knows how much a property will increase in value (or for that matter, how much it will decrease in value). As such, I don't put much weight on this number when I'm analyzing a property and making a buying decision… but as far as predictions go, 3% is usually a pretty reasonable estimate to start with.
Income Increase: As time goes on (barring any sudden, unforeseen economic collapse), there's a good chance most rental properties will be able to generate a slightly higher rent price, year after year. In this example, I went with 3% (and considering the previous owner was charging significantly less than market rent, this seemed like a conservative amount).
Expenses Increase: In the same way that inflation causes expenses to go high and higher each year, it's only wise to make room for this in this kind of rental property projection. Unless I know of some significant reason why this number will be higher, I typically use 3% in most of my rental property calculations.
Selling Costs: Whenever the day comes that an investor sells their property, it's smart to account for whatever selling costs will come into play (like realtor commissions and other closing costs). Since most realtors will charge a 6% commission, I pegged this number at 7% – just to make sure these basic costs would be more than covered.
Step 6: Summary
When all the inputs have been filled out, DealCheck will compile a summary showing all the critical details that pertain to the investment in question.
Since this was a cash deal, the summary shows the total cash required to purchase the property (taking the purchase price of $27,500 + closing costs of $1,375 + deferred maintenance of $2,500 = $31,375 cash required to close).
This is usually a very revealing part of the calculation process because it gives us a good look at what kind of net operating income the property can actually be expected to generate (both before and after taxes).
In the example below, the calculator is telling me that after all expenses, the investor would be adding another $3,563 to their annual income, and then the amount they would actually keep in their pocket (after their taxes are paid) would be $2,850.
In a very real way, this information is your final, decision-making data, and depending on whether the property is being bought with cash or with financing – the end results can vary widely.
Some of the numbers I always watch very closely are the Annual Cash Flow, the Cash Required to Buy and the Cash on Cash Return.
For example, let's go back to the worksheet and change our financing strategy to buy this property with a mortgage. If we put down 20% and get a 30-year mortgage at an interest rate of 5.00% – we now have to add monthly loan payments of $118 ($1,417 per year) into the mix.
What does this do to our numbers? Check out the differences…
When we use the financing for a property like this, it comes with some tradeoffs. Let's look at the pros and cons of using a loan to buy this property.
The great thing about financing is that it has the potential to supercharge the growth of your real estate portfolio. When you're able to purchase properties quickly without tying up your own finite sources of cash, it can be shocking how quickly you can build up a MASSIVE source of wealth and income.
Deal or No Deal?
The bottom line is this…
If we purchase this property and pay all cash for it, we can reasonably expect to be $2,850 richer at the end of each year… and it will cost us $31,375 to create this stream of income.
If we purchase this property with financing, assuming 20% down and 5.00% interest over 30 years, we can reasonably expect to be $1,717 richer at the end of each year after taxes… and it will cost us $9,375 to create this stream of income.
If you want a closer look at how I plugged all of these numbers into the DealCheck calculator – I'll walk you through the entire process in this video below…
Want to use the DealCheck Calculator?
You can get it at DealCheck.io. And remember – the app is free to use, but if you want to pay for the upgraded version, be sure to use Promo Code: RETIPSTER at checkout for a 25% discount for the life of your subscription.
When you know a deal makes sense on paper, it's time to make an offer.
On December 15, I prepared a very simple, one page written offer for $27,500.
A couple of days after I emailed this offer to the seller – he called me and we spent some time haggling over the price on the phone. He obviously wanted as much as possible – but $27,500 was literally my ceiling (if the price went any higher, I wouldn't have had a buyer on the other end – and I made this very clear to the seller).
On December 18 – I received the seller's acceptance via fax.
Whenever you're making an offer – you have to make some assumptions. There's no practical way around this.
It's okay to assume some things (if your purchase agreement gives you the necessary wiggle room to get out of the deal) – but once your offer is accepted, you need to go through the motions of verifying that those assumptions were actually correct.
As you conduct your due diligence, there will almost always be some “findings” that come up in your research process (i.e. – things you weren't aware of when you made your offer). The key is to know when these findings are acceptable and when these findings are a deal breaker.
Once we had this seller's official “go ahead”, I ordered a home inspection report from a company called House Master (for a grand total of $385 – which my buyer agreed to reimburse me for). House Master is one of many home inspection companies that operate in my area.
There are a lot of home inspectors out there who do similar work… but if you happen to have a House Master in YOUR area, I can give you my official “thumbs up” recommendation. The team that handles my inspections does a great job – and the information they provide almost always results in me negotiating a lower price.
While the inspector was there, I dropped in to do a quick visual inspection of my own.
I don't always do this (in most cases, I can trust my inspector and property manager to give me an accurate assessment), but since I live just on the other side of town, I figured it would be prudent to swing by.
Here are a few pictures I snapped of the interior and exterior with my iphone:
As you can see – it was a pretty simple, small house. Not enough for anyone to retire off of, but not a bad property for a newbie investor to get their feet wet with.
A couple of days after the inspection, the folks at House Master emailed me their full, 51-page report, giving a VERY thorough overview of every observable issue that could come up with this property (honestly, it was more than I ever wanted to know – and considering their job, this was a sign of a job well done).
Their report brought some pretty important issues to light – all things the seller didn't tell me about, and things that would likely impact the cash flow of this property within the first couple of years after acquisition.
The most pressing issues were as follows:
Altogether, we figured these repairs would cost approximately $5,000 to fix.
Now obviously, I don't expect any property to be 100% free of problems, but what I do expect is to understand what those problems are BEFORE anybody goes through with buying it (whether I'm buying it myself, or assigning the deal to another investor).
This was a tricky case because I knew the seller had already come down quite a bit with his asking price, and he had no intention of going any further.
In most cases – I would keep pressing the seller to move further down (depending on their level of motivation), but rather than continuing to push this guy, I decided to adjust the “Rehab Costs” in the DealCheck calculator from $2,500 up to $5,000 to see what the deal would look like after accounting for these extra costs.
All this to say… if this property was financed conventionally, it would still cash flow. It would simply reduce the cash on cash return from 22.9% to 18.1% (and if the property was purchased with all cash, the cash on cash return would be reduced from 11.4% to 10.5%). The annual cash flow and net operating income would stay the same.
On both accounts, it was still a good deal… the numbers would just take a slight move in the wrong direction (though not enough to be a deal-killer). Given this, we decided to take the hit and move forward (something I don't do often, but the deal was good enough that it warranted this kind of concession from our standpoint).
The benefit we had, in this case, was awareness. When these problems need to be addressed – we DON'T want to be surprised or feel “stabbed in the back” by the seller after we (or our investor) owns the property and they're stuck with it.
Once I knew our $27,500 was still acceptable after our property inspection, I emailed our fully executed purchase agreement to the title company and they began their title search on our behalf.
Now – when I'm REALLY pinching pennies, I do have the option of doing my own title search – but considering that my buyer was going to pay a significant amount of money for this property AND it involved an assignment of contract AND we needed someone to facilitate the signing of the closing documents, handing this job over to a title company was an easy decision.
With this particular property, my intent was to “assign the contract” to a third-party buyer.
In other words, my plan was to take my purchase agreement and sell the paper to another investor (a process that some refer to as “wholesaling”).
When I signed this contract with this seller, they gave me the legal right to purchase this property for $27,500 within a specified period of time.
Well – if for any reason, it's not convenient for me to buy this property for $27,500 (e.g. – if I don't have this kind of cash in my pocket at any given moment), but I know another investor who would LOVE to get this deal, I am literally allowed to sell this contract to them.
This is allowed because the seller gave me their written permission to do this (it is stated very clearly as an “assignment clause” in our contract).
This kind of transaction is completed with a 1-page form called an “Assignment Agreement”. This document is signed by ME (the “Assignor”) and the end buyer (the “Assignee”). The end buyer pays me a set amount of cash for the contract and in exchange, they can jump into my shoes and take my place as the Buyer in the original purchase agreement.
When Does Wholesaling Work Best?
This type of transaction tends to work best when a property is being purchased in an all-cash transaction (i.e. – the buyer doesn't need a bank loan to purchase the property).
Why? Because whenever a bank gets involved with a real estate transaction, they have a tendency to add a lot of restrictions and rules that make it very difficult (if not impossible) for the wholesaler (i.e. – ME) to get paid.
Luckily, I was dealing with a cash buyer in this situation – which is part of what made the whole project possible.
The Assignment Fee
There are a couple of different ways that I charge assignment fees.
Method 1: If I have a property under contract for a ridiculously low price (say, 20% of market value) – I generally feel comfortable charging a sizable fee, simply because there is a HUGE profit margin available that I can pull from. If the deal makes sense, the seller will gladly pay it because even with the cost of my fee, they are still getting an awesome deal that they wouldn't have found without my help.
Method 2: If I have a property under contract for a respectably low price (say, 50% of market value) – I will charge a 6% – 10% assignment fee (similar to a realtor commission).
Now to clarify… I am NOT a real estate agent (nor do I ever intend to become one). There is a distinct difference between what an agent does, and what I (as a wholesaler) do.
When I structure a deal like this, there is literally a purchase agreement signed between ME and the seller. Once this contract is signed, I have a marketable interest in the property.
A realtor doesn't have this kind of arrangement. Instead, they are signing an agreement whereby the seller authorizes them to market the property on their behalf in exchange for a commission if/when the property sells.
Selling property on behalf of a property owner without a license isn't legal. However, if you're selling your marketable interest in the property (via your executed purchase agreement), this is a completely different scenario. This is a very important, key difference between these two types of business arrangements.
At The Closing Table
The closing process went very smoothly. The seller met at the office of our title agency in the morning, and my buyer met at the same office later that afternoon. During this process, the following things were transferred from the seller to my buyer:
My buyer then had to complete the following items with their new property manager:
The transaction was seamless and there were no major hiccups along the way.
During their first month of operations – my buyer earned a whopping $10 of rental income from this property (yippee).
There were a few reasons for the lackluster start:
This is the reality of owning rental properties. It would be very atypical for an investor to come blasting out of the gate with their best possible outcome for the first month. It just doesn't work that way.
It's not unusual for the first month of operations to be disappointing, but there are a few things to keep in mind.
When I bought my first rental property, my property manager was very upfront with me and said:
Even though I was getting a great deal and the projections looked awesome – he was still right.
When you're dealing with some of the issues listed above, there are a lot of unknowns and things inevitably don't go as planned. Be prepared for this.
In this case study, we analyzed this property using the same process that has been proven by a lot of highly successful real estate investors. Our evaluation was thorough, we verified our assumptions and we took every feasible issue into account.
My buyer did end up having a lot of costs during their first year (judging by the age and known issues in the house) and they did eventually lose their tenant. However, in the months and years since, the rent price was adjusted upward to account for the stronger market for rentals that followed with the rebound of the real estate market.
Some of the known issues did take a toll on the property's profitability during their first few months of ownership – but once the repairs were made and the right tenant was in place – they were able to consistently generate the monthly cash flow that was projected in our initial evaluation. They were also able to benefit from the additional tax write-offs that came with owning rental real estate like this.
Again – this is not (nor will it ever be) a property that throws off massive cash flow, but for someone's first experience with a rental property, it's an ideal way to get started in the business.
It generates some small supplemental income for the new owners and will be relatively easy to sell whenever they decide to liquidate the property (because this is a very generic, affordable property in a densely populated part of town). These are great attributes to have in a property when it comes time to sell.
As with any real estate investment – buying rental properties takes a lot of homework. Rental properties don't necessarily come with the glamour and huge paychecks that “flipping houses” is known for – but it is a proven method of building multiple streams of permanent income.
If you're looking to supplement your retirement income with something that comes with significant opportunities for appreciation, passive cash flow and tax benefits – buying properties (the right way) it a great way to make do it.
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As I've started investigating farm properties on a deeper level, I've been surprised (though, I probably shouldn't have been) to learn that there are a lot… and I mean A LOT of different components that can affect the value of a piece of farmland – for better or worse.
In this blog post, I'm going to show you the full list of things I look for when I'm evaluating a piece of farm ground for purchase.
Disclaimer: This list doesn't cover every possible variable, but in the many hours I've spent evaluating farm properties, I believe this touches on the majority of things that matter. Nevertheless, don't look at this as the ultimate, authoritative list. Make sure you understand what unique variables are at work in the areas where you're looking (because some of these things matter a great deal in some geographic areas, while some of them matter very little in others).
What Influences the Price of Farmland?
Farmland values can be affected by all kinds of different factors. Coming up with a solid, reliable value for a piece of farmland is anything but simple (regardless of what a seller might tell you).
Sure, there are resources like AcreValue that can give you a high-level idea for what producing farms are selling for in the area, but this doesn't come close to accounting for the specific characteristics of any single property.
For example, these are just some of the factors that come into play when determining what a parcel of farmland is legitimately worth…
As you can see, there's a lot of information you'll need to consider in order to make a good decision.
As with any type of real estate, most of this data can be collected online, but some of it will require some kind of phone call or in-person visit, usually with the current landowner and with some local sources of information (like the county office, local lenders, other farmers, etc).
When I think of the things I can only find out by asking the property owner and/or verifying through other sources, these are the issues that come to mind…
My Due Diligence Checklist for Farmland
Now, I'm not saying my checklist if the end-all be-all, but so far, it's been a pretty helpful resource to make sure I don't forget any important points as I'm talking with the landowner about their property. Here it is…
Want To Use My Checklist?
When I first started learning about farmland (and how VASTLY different it is from any other type of real estate), it took me a long time to figure out which questions I needed to ask and what information truly made a difference in my purchasing decision.
Even if you're coming from the world of investing in vacant residential lots, you'll find that farmland is significantly different.
If you need a quick reference guide to help you ask the important questions, I'd love to help you out. If you sign up for the REtipster email list (below), you'll see a free download button where you can get my pdf for free. I hope it helps!
Note: I only send emails to my list when they're particularly relevant and important – so don't worry, signing up for this email list will NOT result in piles of junk emails in your inbox.
Also keep in mind – if you want to fully automate your “information-gathering” process, be sure to check out my detailed blog post on How to Create a Buying Website (you might be surprised – it's easier than you'd think). Best of luck!
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If you've spent any time searching for free real estate investing education online, you've likely stumbled across BiggerPockets along the way.
BiggerPockets is BY FAR the biggest single website for real estate investors today, and Brandon Turner is arguably the most influential voice behind this online platform.
In this episode of the REtipster Podcast, we chat with Brandon about his rise to the top and other interesting tidbits like:
You can see our interview on YouTube here as well…
Links and Resources Mentioned:
Thanks for Listening!
Share your thoughts:
Help out the show:
Thanks again for joining me this week. Until next time!
Right-click here and “Save As” to download this episode to your computer.
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These hideously ugly “Quick Response” codes are nothing new, but over the past decade, people and companies have started getting more and more creative with where and how they use them.
Now, I'll be the first to admit – I generally don't do anything with QR codes when I see them (because they're usually not explained well and I have no idea what will happen if I scan them)… but it wasn't until just recently that I realized – these things can be used for all sorts of different purposes and placed on all kinds of different things.
I've started playing around with QR codes in some of my recent direct mail campaigns and in the process, I've realized – with a little bit of creativity and planning, they can actually be quite useful.
What Can QR Codes Be Used For?
Not long ago, I got an email from a guy named Jordan Crawford. He runs a direct mail service called Scout.
From what I've seen of the service, they're doing some pretty innovative things with direct mail that I've never seen before.
They can generate a unique QR code for every individual recipient on a mailing list. Each QR code is designed to trigger a very specific action from each recipient and then track which people are scanning the QR codes.
Now – this kind of sophistication is WAY above and beyond what I've done with QR codes in my direct mail campaigns, but it's fascinating when you realize what's possible with this technology.
QR codes are incredibly versatile. They're also very simple to create, and they can accomplish all kinds of creative purposes.
The most common way I've seen QR codes used to send users to a website URL… but the possibilities extend far beyond this.
If a QR code is utilized and presented well, sending users into a thoughtfully designed funnel – it can greatly enhance the desired outcome (again, assuming the recipient actually scans the QR code in the first place… more on that later).
There are billions and billions of ways QR codes can be used.
Here are some of the most common uses…
1. Visiting a Website
Probably the most common use of QR codes is sending users to a website URL.
Whether you're trying to build an email list, sell a product online or get people to engage with your content – you can send people anywhere on the internet.
Just let that sink in for a moment.
This is a powerful thing.
Of course, you'll want to be smart about which URL you send people to. Most smart marketing won't just send people to their homepage. They'll create a specific landing page that continues to push users through a marketing funnel (e.g. – getting them to submit some information, watch a video or learn more about the company's product or service).
It's not a bad idea for the landing page to reference and acknowledge how the user got there. For example, if you created a unique QR code and placed on your business card, your landing page could say,
If you created a unique QR code and placed it on your mail piece, your landing page could say,
If you created a unique QR code and placed it on your powerpoint side, your landing page could say,
Don't just send them to a generic page with no personality. Treat them like a real person and usher them along to the next stage of your business relationship.
2. Dialing a Phone Number
QR codes are also a great way to get prospective clients to call you. Whether you choose to send these callers to a pre-recorded voicemail message or answer the calls live, this can be WAY easier than making people type in your phone number manually.
3. Linking to Social Media Accounts
If you're working on building your social following (and you probably should be), QR codes are a great way to send users directly to your various online social profiles so they can like, follow, subscribe and connect with you on social media.
QR codes are kind of ugly, to begin with – but the good news is, you can tweak the appearance of your QR codes quite a bit. This goes for the colors you use, the images you incorporate into them and even the shapes that make up the design as a whole.
Here are four designs I created for free through QRcode-monkey.com.
Pretty cool, huh?
And this is just the tip of the iceberg. Here are some other creative things you can use QR codes for…
4. PDF Downloads
5. YouTube Videos
6. Google Maps Locations
7. SMS Messages
8. Email Messages
9. PayPal “Buy Now” Links
10. Image Files
11. Dropbox, Google Drive or One Drive Links
12. Sharing Contact Information
13. Attendance Tracking
14. App Store Downloads
15. View Business Locations
16. Directions to any location (starting from the user's location)
17. Promotions, discounts, raffles, and giveaways
18. Issuing Receipts
19. Calendar Invites
20. Online Store, Menu or Product List
…and the list goes on, and on, and on.
You can even create dynamic QR codes. Meaning – you can edit an existing QR code in the future and change the type and/or the information it contains. If you change your mind about what a particular code will make the user do, you can make it happen!
Where to Place QR Codes
Want to know what's even cooler? You can put QR codes on virtually anything.
As long as people can see the QR code through the camera app on their phone (currently, the iPhone is able to scan these with the native camera app), they can get where you want them to go.
Here are a few practical (and creative) places you can place a QR code:
The Problem With QR Codes (and How to Fix it)
In my opinion, there's still a big problem with QR codes. Most people don't understand what to do with them.
These things are supposed to be easy to use (and once you know what to do with them, they actually are), but most of us don't automatically reach for our phones and point it at every QR code we see.
Part of the problem is – most people don't realize how easy it is to use these things. iPhone users can use the native camera app on their phone, and Android users can do it fairly easily as well. You don't need to download a special app.
If you want your target audience to do something with your QR code, you have to “hold their hand” a little.
For example, suppose you see this on the side of a bus one day – with no explanation:
Would stop what you're doing, reach for your phone and try to scan this thing?
If I have no idea what it's about, what it will do, and no compelling reason to engage with it – why would I exert any effort to scan this thing?
And yet, this is how most companies employ QR codes today.
Remember, most people still have no idea how to use QR codes, and even if they do understand how to use them, they need a compelling reason to take out their phone and scan it (not to mention, they need to trust the source to some degree).
One subtle way to encourage people to use your QR codes is to give them some instructions (even if you simply include the words “SCAN ME” somewhere with the image, that's better than nothing). Here are a few examples:
Note: These were created FOR FREE on qr-code-generator.com.
Be Smart About QR Codes
QR codes can be pretty brilliant little pieces of technology, but they're only as brilliant as you are.
You think carefully about how you're going to use them.
Remember, people are going to scan your QR code on their phone… which means we need to remember a few key things:
Most QR codes are pretty ugly, to begin with – so it's also smart to think about where and how you're going to incorporate it into the overall aesthetic of the object or image, and whether it will stand out or blend in with its surroundings.
Free QR Codes Generators
Do a quick Google search and you'll find that there are a TON of free sites out there that will help you create your own QR codes for free (and of the few sites I tested out, they all seemed to work pretty well). Here are a few I've had a good experience with:
QRcode-monkey.com – This was probably my favorite one. Easy to use. Easy to customize in a number of ways. No account required.
QR-code-generator.com – Another solid QR code generator that offers lots of different options and variations on what the code looks like and what it does (a free account is required to use the site). It also has some impressive QR code tracking functionality built into it.
QRstuff.com – I haven't used this site much, but from what I've seen, it seems to be a huge resource for all things related to QR codes. They even offer some tracking functionality (if you're a subscriber) and the ability to create dynamic QR codes.
Have you used QR codes for anything in your business? What did you use it for? Where did you place the code? Did you get any worthwhile results from it?
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Write something about yourself. No need to be fancy, just an overview.