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Real Estate Articles By Larry Goins
A Game Plan For Success Investing In Real Estate
Wholesaling Properties
No Down Payment Investing
Finding Foreclosures
A Game Plan For Success Investing In Real Estate
by Larry Goins
I want to share with you some ideas on using real estate to become debt free and build your cash reserves. It has worked for me and I have also shared this with many other investors and it has worked for them also. Many investors start out in real estate thinking that you have to “have money to make money”. That is not the case at all. You will need one of two things though; either good credit or cash…remember that it doesn’t have to be your cash or credit as far as that’s concerned. It’s OK to start out with other investors until you can do it on your own. I would rather share the profits and have some of something rather than all of nothing.
We only buy when we can get paid and still cash flow the property. Let me explain. Let say you find a property that has an after repaired value or ARV of $100,000. Because the property needs $20,000 in work you can buy it for $50,000. Now you will be in the property at 70% of value once the work is done. Whether you paid cash, borrowed from relatives or got a hard money loan for purchase and rehab makes no difference. Once you have a $100,000 property you can now refinance at 80% loan to value or LTV and after closing cost pull out about $7,000 to $8,000 in tax free cash. Yes you do not pay taxes on borrowed money. But just remember that it is still borrowed money and has to be paid back, even if it is the tenants that are paying it back. I do not recommend refinancing over 80% loan to value. This way you still have some equity for your financial statement and the property should cash flow with no problem.
Now, what do you do with the cash out from the refinance that you just received? No you don’t buy a new car, go to Vegas, or anything like that. You simply pay off a credit card, installment loan, your car, your equity line, etc. You can buy real estate and get cash to pay off your personal bills and increase your cash flow from the rents at the same time. If the property you just bought and refinanced has a $200 cash flow but you also used the cash out to pay off your car that has a $300 payment, how much did you really increase your cash flow? $500! Every time that you buy a property think about what bill you will soon be able to pay off. Once you have all of your consumer debt paid off then you start paying off your home that you live in. Once your home is paid for then you go to your banker and get a line of credit on your home to use to buy and rehab properties. Then you simply refinance once the work is done and pay off the line. It is much easier to negotiate with a seller when you can simply write a check to purchase their property. Then when you ask a seller the least they will take if they can have a check by Friday, you can back it up. Sure it may take some time to get to this point but once you have become debt free (with the exception of rental property, of course) it opens up so many options for you to do things that you have never been able to do. Not to mention the peace of mind.
We have a property analysis form that we use to determine if a deal will fit into this plan. The form even shows the cash flow, cash out and equity gained by purchasing each property. If you would like a copy, please visit the “Freebies” section of www.larrygoins.com.
I hope you have enjoyed this article. For more articles on real estate investing, to sign up for our free newsletter and listen to free weekly training teleconferences please visit my website at www.LarryGoins.com where you will also find free forms, documents, EBooks, Downloads and more. Also visit www.FinancialHelpServices.com for investor financing. Thank You, Larry Goins
Wholesaling Properties
By Larry Goins
If you need to earn some extra cash to get started investing in real estate, wholesaling is a great way. Even if you are not sure of values, repair cost, potential rents, etc. you can still wholesale as many properties as you can find as long as it’s a deal. To get started you can team up with someone who is already closing deals and has a ready list of buyers. You can get an education and get paid for finding properties. Whoever you team up with can help you negotiate the sale and terms and they will follow the deal through to closing or payday as we call it! There are many ways to find deals and plenty of deals to go around. I wouldn’t suggest starting with REO properties as now the Lenders will not allow you to assign your contract so you have to have the cash or fast financing to close in your own name or do a double closing and that can become tricky especially for someone starting out.
If you are going to be in the business of buying houses, be IN THE BUSINESS! You will need cards, flyers, post cards, bandit signs, sign on your car, etc. I would rather have 10 ways to find 1 house than 1 way to have to find 10 houses.
Making the offer. I’m a firm believer that if you’re not embarrassed by your offer then it’s too high. Never put down the seller or the property though. You have to be very tactful in presenting your offer as to not offend anyone. You can always go up but you can’t come down. Well, that’s not entirely true but that’s another article. The good thing about teaming up with someone who is already closing deals is that they can do the negotiating with the seller and probably get a better deal than someone starting out. We have actually had wholesalers bring us a deal and after talking directly with the seller we were able to negotiate a better deal than the person who brought it to us so everyone in the deal made more money.
Finding buyers. You need to start building your own buyers list or you could just continue to work with who ever you are already teamed up with. We have people who continue to send deals to us even though they could do it on their on. The reason they continue to send their deals to us is that we have been blessed with the people we do business with and we can generally sell a house in a couple of hours…yes I did say hours and we generally close in 5-10 days although some deals take longer but we have closed in as fast as 2 days. The reason we can sell so fast is that we make it easy to buy. The investor gets 100% financing including the rehab cost and they even pull cash out of the deal on the refinance after repairs. Then they still rent the property out at a positive cash flow.
Entity structuring. You should form a corporation to use for wholesaling. You don’t want to be classified by the IRS as a dealer by doing deals in your name. If that happens, you lose many of the benefits of investing for long term when you start holding properties. You also want to put the properties you are going to hold in a separate entity. See your advisor.
We have created a training course that we use to teach our employees to buy real estate directly from our office. We buy 10-15 houses a month and we do all of our business by telephone, fax, Fed Ex, email and internet. The course is now available to other investors and you can get more information at www.UltimateBuyingMachine.com.
I hope you have enjoyed this article. For more articles on real estate investing, to sign up for our free newsletter and listen to free weekly training teleconferences please visit my website at www.LarryGoins.com where you will also find free forms, documents, EBooks, Downloads and more. Also visit www.FinancialHelpServices.com for investor financing. Thank You, Larry Goins
No Down Payment Investing
By Larry Goins
No Down Payment loans used to be pretty difficult to come by, only available from special government agencies, such as VA loans. Today, though, in response to increased market value and inability of first time homebuyers to put down a full 20% of the selling cost, many mortgage companies have started offering a variety of no down payment loans. This is a great way for new homebuyers to become involved in the business of purchasing a home, but can also be a great way for investors to purchase property as well. The real estate investment business was at one time thought to be only for those who had a great deal of money available to put down on homes to purchase and to repair, but with no down payment loan options available, nearly anyone can turn real estate investment dreams into a reality.
There are several different types of no down payment loans available, but some loans are better suited for investors than others. Finding the right loan for your investment or home buying needs can make the difference between whether you decide to purchase a home or not. Here are a few popular no down payment loans to consider:
Veterans Administration
The VA loan was one of the first no down payment loans originally offered to WWII veterans to help them get on their feet after the war. From here, the VA loan has turned into a loan available to all current active duty, reserve or retired military personnel who are in the process of searching for a home. While many military personnel use the VA loan as their first home loan, the loan can be used at any time. Stipulations that go along with the VA loan, though, will require a VA processing fee, which is usually a small percentage of the loan amount, although the VA loan will not require a PMI (primary mortgage insurance), which often goes along with a no down payment loan. Another stipulation is that the mortgage lender will require the veteran or current active duty personnel to prove their time in the service, either through a statement of service or through current military orders. If you are a veteran, this may require going to the branch of service and asking for this paperwork, although many lenders will take discharge papers as proof. Another factor to keep in mind with a VA loan is that only one VA loan is available per veteran at a time. This means if you plan on using the VA loan for investment purposes, you will only be able to use this loan for one of your properties. However, a VA loan might be a great option for someone looking to flip houses, since many investors only flip one house at a time.
FHA Loans
Often the loan of choice for civilian first time homebuyers, the FHA loans were started by the Federal Government in an effort to help first time homebuyers secure a first mortgage and a first home. FHA mortgage lenders are set up specifically to help first time homebuyers who have little down payment cash, bad credit history or no credit history to become involved in the home buying process. One note to keep in mind with FHA no down payment loans is that they are not completely down payment free, as they will require approximately 3% of the loan cost, although this is much easier to come by than 20%. As well, FHA lenders will be more flexible about credit history, but may require past due bills or potentially bad credit issues to be taken care of before entering into a loan agreement with the buyer. Remember that the FHA loans will have a cap on the maximum amount of the loan, depending on the area of living. For instance, in high cost areas, such as Washington D.C., the limit for one family homes is $239, 250 although in low cost areas the limit will be much less than this. Before deciding on an FHA loan, you will need to first decide how much the home will cost that you are interested in purchasing or interested in investing in. Keep in mind that FHA loans may also require PMI, primary mortgage insurance, although quite a few lenders can offer no PMI or very low rates for PMI.
80/20 Loans
A creative way that financial lenders have opened up no down payment loans to more first time homebuyers or investors without cash on hand is through the 80/20 loans. These loans are also referred to as combined financing or piggyback loans because they are often used for home improvement and refinancing as well. To avoid paying PMI, primary mortgage insurance, which can often be costly to new homebuyers, a second trust of 20% of the loan value is added together with a first trust of 80% of the loan value. The first trust is set at 80% of the loan value because this will eliminate the need for PMI, which automatically comes out if the homebuyer requests 100% of the loan cost and cannot put any money down. The second trust will be the remaining 20% of the loan cost and will be used to pay the “down payment” on the home at or before closing. It is very important to discuss the details of 80/20 no down payment loans with your own mortgage lender because some will require 3% closing cost fees, while others will be willing to wrap up even the closing cost fees in the second trust of the loan. This is a great program to use to begin investing in real estate without having to put your own money down on the line and may even allow for extra money to be taken on the second loan as a way to help pay for home repairs, if you plan to flip the house. The entire payment will be combined so that you do not have to pay two different loans, but just one loan, and many 80/20 loans will allow for up to $500,000 on the total loan value. It is important that you check with a mortgage lender on any special fees that may be charged for using 80/20 combination loans, as they will vary from lender to lender.
I hope you have enjoyed this article. For more articles on real estate investing, to sign up for our free newsletter and listen to free weekly training teleconferences please visit my website at www.LarryGoins.com where you will also find free forms, documents, EBooks, Downloads and more. Also visit www.FinancialHelpServices.com for investor financing. Thank You, Larry Goins
Finding Foreclosures
By Larry Goins
The real estate investment market is ever growing as a place where investors are trying to cash in on great deals and investment opportunities that will eventually pay off as lucrative investments. While many investors turn to rental properties, still others have become involved in the world of wholesaling and flipping houses. With the right advice and a little help from other investors and real estate agents, flipping houses can be an extremely lucrative business. Even if an investor only starts off small spending a few minutes or few hours a day searching for homes and then putting time into repairing that home, this can pay off with a large output of cash.
While there are many excellent opportunities for homes for sale to flip on the market, these homes may be flooded by offers from real estate investors and may be difficult to compete with when first getting into the flipping business. An unsuspecting place to begin the investment search is in foreclosures. Basically, foreclosures are homes that have been seized by lenders or government agencies, such as Housing and Urban Development (HUD), because a homeowner was unable to make loan payments, tax payments or insurance payments on the home. From here the lender or government agencies will hold a special auction or a special bidding session where potential buyers and investors can try to purchase that property.
The best bet when becoming involved in foreclosures is to find a real estate agent or broker who you enjoy working with. Although some foreclosure processes will allow for an individual investor to go in and purchase the property, others will require an agent who is knowledgeable about the business to be present at an auction or bid closing. Most real estate agents will also be able to tell you the best places to begin searching for foreclosures, as they are not always available on the main realtor websites in the area.
When deciding to search for foreclosures, it is also important to find a home inspector who you trust to tell you the honest truth. Many investors who regularly purchase foreclosed homes will tell you that the best option for foreclosures is to have an investor inspect the house before placing a bid on the home. Remember that foreclosures are sold “as is” meaning no repairs will be made by the lender or government agency selling the home and a homeowner is no longer in the house to make repairs to that home before closing. Once you have already placed a bid on the home, it may be too late, as you may be stuck with a real money pit that could take more than your budget allows to fix it up. So be sure to have the home inspected before beginning the bidding contract part of business.
While it is helpful to have a real estate agent help with finding foreclosures and seized properties, this should not stop an investor from searching on their own. If you work a full-time job elsewhere and do not have the time or energy to invest in searching for foreclosed homes, you may want to consider making friends with real estate investment scouts. Often times scouts are investors who will search for houses, put an initial contract down on the house and then sell the contract to an investor who want to spend the time and money fixing up the house. The investing scout will simply make a few thousand dollars with the difference in contract prices, but the real money is left up to the flipping investor, who can make thousands of dollars on a home that was way below market value, simply by shaping up the house.
Other great places to independently look for foreclosures are in county court records for divorce hearings, family estate hearings, and bankruptcy hearings. Often a notice of a foreclosed house will be made available with that legal information. From here you can contact the county to find out where the house is located or when an auction will be held to sell the foreclosed property. You may also want to do your own personal searches with places like the Fannie Mae Foundation, the IRS who often lists foreclosed real estate for sale, as well as the Veteran’s Administration who lists VA homes that have been seized.
Once you have determined that you will invest in foreclosures and have begun looking for foreclosed houses, before placing a bid on a home or even asking for an inspection, it is best to know exactly what your budget. If you are willing to spend $100,000 total on a home, including repairs, then you will need to look for homes that are selling for $70,000 but will need no more than $25,000-$30,000 worth of repairs. Remember that when considering how much you will spend on the home overall, you will also want to consider how much of a profit you will make once the home sells. This will require getting together with your real estate agent to do a market analysis of the area and determine exactly what well-maintained homes sell for in the area.
I hope you have enjoyed this article. For more articles on real estate investing, to sign up for our free newsletter and listen to free weekly training teleconferences please visit my website at www.LarryGoins.com where you will also find free forms, documents, EBooks, Downloads and more. Also visit www.FinancialHelpServices.com for investor financing. Thank You, Larry Goins
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