Archive for September, 2011
Early on in my real estate career I was a novice investor. I was learning the ropes of the business as I went along. In my early days of real estate investing I would pay contractors and subcontractors in full, and in advance, to do some of the rehab work on my properties. The contractors I paid in full, and in advance, would often do inferior work and/or would not complete the work I assigned to them. I would have to fire the original contractor or subcontractors I hired, and hire, and pay a second time, a new contractor or subcontractors to do the work over again properly.
I lost tens of thousands of dollars because the original contractors I hired to do work did the work incorrectly or the work was not completed at all. On several occasions I was forced to fire the original contractor or subcontractors I hired to do a job and hire a new contractor or subcontractors to correct or complete a job the original contractor or subcontractors failed to complete or do properly. This cost me time and money that I could not afford to lose.
I was paying contractors and subcontractors who poorly completed the work I assigned to them, only to have the city building inspector come out and inspect the work and not approve the work that was done. Few novice real estate investors know anything about window headers, framing, rough end plumbing installation, roof work, etc. Because most novice real estate investors don’t know about these types of things, they must do everything possible to safeguard themselves from financial losses due to contractors and subcontractors poor or incomplete work. It is also important to make sure that the work completed by a contractor or subcontractor is completed to the standards of the city‘s building code.
How To Avoid This Costly Mistake
The best way to avoid this mistake is to first of all make sure you pay your contractors and subcontractors by work progression only. Only pay your contractor enough money to start the work assigned to him or her. Never pay the total amount of the work assigned to a contractor or subcontractors in full, up front. You will surely regret it if you do.
Pay your contractor and subcontractors by work progression and pay the balance owed only after the job has been successfully completed AND after a city building inspector has come out, inspected the work and approved the work completed. Pay your contractor or subcontractors the remaining balance owed in full after you receive approval from the city building inspector. This way you will ensure the work is complete and you will only pay once to have the work completed correctly.
The Rehab Construction Money Secret
Who doesn’t put a cushion on the rehab construction cost? I have certainly been guilty of it. I would prefer to have more money in the escrow account for repairs than to run out of money and have it come out my pocket to finish the job. In addition, there is another little trick that you can use to guarantee the job gets completed and puts tens of thousands of dollars in your pocket immediately after you get your final inspection from the private lender and a Certificate of Occupancy from the city inspectors.
For simple math, let’s say that you take out a loan with a private lender to buy a $50,000 home with $10,000 in “real” repairs and an After Repaired Value of $125,000. The lender will loan you 70% of the After Repaired Value = $87,500 less $8,750 closing cost (estimated at 10%) for a total of $78,750. The “real” repairs to rehab the home are only $10,000. However, you put a little cushion in the estimated repair sheet you submitted to the private lender to reflect a repair cost of $28,750. Three weeks later you rehab the home and spend only $10,000. You receive a Certificate of Occupancy from the building department, the lender inspects the home, and it passes the inspection. What about the remaining $18,750 that is in the escrow account? Guess what? The lender has to cut the check to you.
In addition, if you are handy with a hammer and nails and are willing to earn some “sweat-equity,” the Rehab Construction Money Secret works great because you can lower your expenses on your rehab construction cost and put more of the remaining rehab escrow funds in your pocket after you are completed with the project.
About the author…
Kenny Rushing is a remarkable tale of a life turned around. A resident of Tampa, Florida who is an evolving account of transformation that is simply extraordinary.
Kenny is best known for the moving story of his humble and troubled beginnings, and his phenomenal success as a real estate investor – in spite of the seemingly insurmountable odds he faced. He is a phenomenally successful real estate mogul, civic leader and devoted philanthropist. His company, Rehabbers Superstore, Inc., now grosses millions of dollars per year through real estate transactions and investments. Kenny Rushing is quickly becoming known for the life transforming impact his uncommon wisdom is having on the lives of those who have benefited from his knowledge, wisdom, training and coaching. His goal over the next five years is to teach 1 million people how to achieve financial independence and flip their life through real estate investing. Kenny Rushing is a living testament that: If KEN Can Do It – So KEN You!
“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”
Most mobile home parks were built in the 1970′s or earlier, at a time when mobile home park residents dreamed of having their own private jukebox and pink flamingos in the yard. They were the very essence of tacky. And the park names matched the customer. Some were clever take-offs on the mobile home concept, like “Roll-A-Home”. Many were rustic sounding like “Wagon Wheel”. But rarely were they created with any marketing strategy involved. Some are so bad that you have to wonder if the owner was trying to make fun of his tenants or the whole concept of trailer living. Some parks don’t even have a name, just a 4‘ x 8‘ sheet of plywood with a phone number or “Mobile Park” crudely painted on it. Just like the grave of the unknown soldier, they are nameless plots of dirt where tenants live and die and don’t even know how to identify themselves.
The Early Creators
Many of Moms and Pops that still own parks in America don’t know diddle about naming a property. They might be good with a carbine in WWII, or great with laying their own sewer line (until it flows backwards the first time around), or building parking pads with asphalt out of the back of their pick-up truck. But when it came to marketing, they were at the bottom of the class. Just look at the marketing materials from these folks even today. A professional quality flyer is a Xeroxed sheet written by hand with a marks-a-lot (both capitals and lower case letters interchanged). These folks ruled over cheap pieces of farmland with new infrastructure and some trailers, and were not serious real estate investors. They never dreamed their parks would be worth anything some day. The bottom line is that while they may have attractive mobile home parks, they have no idea how to name a property properly. Is it appropriate to have a lousy name on an expensive park?
Naming a mobile home park is very easy. Virtually any name you choose will be better than the current one – you are probably 1,000% more marketing savvy than the person you bought the park from. You certainly have more at stake than they did. But there is a strategy to derive the ultimate name if you put a little work into it. Here’s the process: What is the number one sales point for someone moving to or living in the park? Reduce this sales point to one or two essential words. Add the name “Estates?” at the start or end of these words.
For example, if your park has huge pine trees on it that everybody loves, then the appropriate name would be “Pine Tree Estates”. Or if it’s the frontage on Lake Forest, then it should be “The Estates of Lake Forest”, or “Lake Forest Estates”. It’s that simple.
Why a classy name? Because people in mobile home parks don’t want to be reminded of the fact with a lousy name that they have to use among the rest of the world who does not live in a trailer park. What kid at school wants to tell his friends, “I live in Roll-A-Home”? Nobody. Everybody wants to feel important and equal. Give them that opportunity!
Enacting the New Name
Once you have settled on a name, it’s equally easy to put it into practice. First, notify the city of what you are doing, and make sure it is legal to change before you begin. I have never seen a city that had a problem with changing the name. Then, it’s time for a new sign for the park. This time around, get a decent quality one from a professional company, at a cost of about $2,000. Then send a letter to all the tenants about the name change. And you’ll have to change the marketing materials at all of the dealers. The final change is your yellow page ad – so keep watching for that renewal notice. That’s all there it to it. That’s not too hard now, is it?
A new, classy name will have multiple benefits to your property:
- The name alone delivers your sales message to potential customers (remember to put the key sales point in the name).
- The residents will have more pride of ownership when they can take pride in the name of where they live.
- A new name erases the park’s past ills.
- A new name is a turn-on to lenders who look at financing it (remember that the name will be throughout your loan application documents).
- A classy name will help you get a higher sales price when you go to sell the park someday.
The benefits of changing the name of your mobile home park are priceless. The cost is nominal. There is no excuse not to do it. So start immediately. You will be very happy you did. And so will your tenants!
About the authors…
Dave Reynolds and Frank Rolfe have combined forces to bring the real estate market a better perspective on the multiple successes you can have with Mobile Home Parks. Together they have a combined experience of 20+ years and over $100,000,000 worth of deals under their belt.
Dave Reynolds is a successful real estate investor that has specialized in the purchasing of
Mobile Home and RV Parks for the past 12 years. He has the keen ability to quickly assess deals, cut through hype, measure upside vs. downside risk, and make sound decisions. He has owned and operated over 55 Mobile Home & RV parks over the past 12 years in 16 different states. He currently owns over $10,000,000 in mobile home park real estate.
Dave Reynolds received a B.S. in Accounting from Mesa State College in Colorado in 1992 and attended graduate school majoring in Accounting and Taxation at Colorado State University in 1993-1994.
Frank Rolfe was born in Missouri, the “Show Me” state, and has been starting up businesses since high school. He has had two big successes: a billboard business that he sold to a public company in 1996, and a mobile home park business that he sold to various buyers beginning in 2004. He always has several start-ups in the hopper – currently an old time photography business, a web-based educational products business, an art school, and a return to the billboard business. Frank Rolfe holds a B.A. in Economics from Stanford University.
- Privacy: In today’s information age, anyone with an internet connection can look up your ownership of real estate. Privacy is extremely important to most people who don’t want others knowing what they own. For example, if you own several properties within a city that has strict code enforcement, you could end up being hauled into court for too many violations, even minor ones. Having your real estate titled in land trusts makes it difficult for city code enforcement to find who the owner is, since the trust agreement is not public record for everyone to see.
- Protection From Liens: Real estate titled in a trust name is not subject to liens against the beneficiary of the trust. For example, if you are dealing with a seller in foreclosure, a judgment holder or the IRS can file a claim against the property in the name of the seller. If the property is titled into trust, the personal judgments or liens of the seller will not attach to the property.
- Protection From Title Claims: If you sign a warranty deed in your own name, you are subject to potential title claims against you if there is a problem with title to the property. For example, a lien filed without your knowledge could result in liability against you, even if you purchased title insurance. A land trust in your place as seller will protect you personally against many types of title claims because the claim will be limited to the trust. If the trust already sold the property, it has no assets and thus limits your exposure to title claims.
- Discouraging Litigation: Let’s face it, people tend to only sue others who appear to have money. Attorneys who work on contingency are only likely to take cases which they can not only win, but collect, since their fee is based on collection. If your properties are hard to find, you will appear “broke” and less worth suing. Even if a potential plaintiff thinks you have assets, the difficult prospect of finding and attaching these assets will discourage litigation against you.
- Protection From HOA Claims: When you take title to a property in a homeowner’s association (HOA), you become personally liable for all dues and assessments. This means if you buy a condo in your own name and the association assesses an amount due, they can place a lien on the property and/or sue you personally for the obligation! Don’t take title in your name in an HOA, but instead take title in a land trust so that the trust itself (and thus the property) will be the sole recourse for the homeowner’s association’s debts.
- Making Contracts Assignable: The ownership of a land trust (called the “beneficial interest”) is assignable, similar to the way stock in a corporation is assignable. Once property is title in trust, the beneficiary of the trust can be changed without changing title to the property. This can be very advantageous in the case of a real estate contract that is non-assignable, such as in the case of a bank-owned or HUD property. Instead of making your offer in your own name, make the offer in the name of a land trust, then assign your interest in the land trust to a third party.
- Making Loans “Assumable”: A non-assumable loan can become effectively assumed by using a land trust. The seller transfers title into a land trust, with himself as beneficiary. This transfer does not trigger the due-on-sale clause of the mortgage. After the fact, he transfers his beneficial interest to you. This latter transaction does trigger the due-on-sale, but such transfer does not come to the attention of the lender because it is not recorded anywhere in public records. This effectively makes a non-assumable loan “assumable”.
As you can see there are many creative and effective uses for the land trust, limited only by your imagination!
About the author…
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who’s Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996.
I did this – and am still doing it 30 years later, and teaching thousands of people like you to do it, too – by buying distressed properties from distressed sellers. Maybe the properties just need a little love to spruce them up, maybe the buyer is desperate to get rid of them, and maybe it’s a little bit of both. It’s what I called “forced appreciation”, and it’s the cornerstone of my proven real estate investment method.
“Ok Russ,” you say, “I get it. I‘m ready to achieve financial independence, quit my chump job, and have the freedom and the control I deserve. I‘m ready to roll.”
But there’s one thing still holding you back – you’re not sure how to find those distressed properties and distressed sellers. When you’re trying to get started, and you’re still working for someone else, you don’t have the time to search for them – and you may not yet have the experience to recognize them. So what do you do?
Find yourself a good Realtor, that’s what. I don’t mean the ones with their pictures in the paper, with their lipstick just so and a scarf knotted to one side around their neck, talking about a property’s granite countertops and the neighborhood pool. These types are what I call the “cream of the crop” Realtors. Hey, they work hard and help people find lovely homes and they can make a lot of money at what they do. But that’s not who you want when you’re looking for investment properties.
You also don’t want your nephew Louie who got his real estate license on the side three years ago and sells one or two houses a year for extra money. Nothing against nephew Louie, but he probably doesn’t know much about the type of real estate investing you want to do. You’re not in this to help Louie make money, you’re in this for your own financial independence.
What you want is what I call a “scrap Realtor”. What’s a scrap Realtor? It’s a Realtor who deals almost exclusively in low to moderate income housing, much of which is multi-family and most of which is sold to investors – which is what you want to become. Scrap Realtors know the neighborhoods, know which properties have potential – and many of them are investors themselves. You may think that the term “scrap Realtors” sounds insulting, but that‘s the point – these guys don’t care. They’re not in real estate for the glamour or prestige; they’re in it to make money. And so are you.
I’ve said it before and I’ll say it again – nine out of 10 Realtors don’t know anything about investment properties. Yes, they all have access to the same information on the MLS, but that’s where the similarities end. Real estate is really about circumstances – what’s the vacancy rate in the neighborhood? What is the rent now? What’s going on with the seller that makes him or her motivated to sell (and possibly offer financing)? No computer system can tell you that – to get that type of information, you have to pound the pavement and build relationships.
Sure, once you’re experienced and financially independent you can do that yourself – or hire others to do it for you. But when you’re just getting started, a good scrap Realtor is invaluable.
You may have never noticed scrap Realtors before, but once you start looking I bet you’ll see plenty of them. Their ads are smaller, and don’t usually include a photograph. Their listings are usually for multi-unit properties, and are usually in the working class neighborhoods, not the hot parts of town. You won’t see words like “charming”, “quaint”, or “cozy” in their property write-ups.
But these guys can help you make money. And if they’re good, they’ll be willing to spend some time educating you on opportunities in your area, because they know that once you start getting the positive cash flow that comes from a good real estate investment, you’ll be coming back for more.
How to Find a Scrap Realtor
- Look for independent real estate agents. Most scrap Realtors don’t work at Century 21 or ReMax. Independent agents are more likely to also be investors who understand the types of properties you‘re looking for.
- Check out the classified ads in the paper. I don’t mean the big splashy ads with photographs. I mean the small column ads that list properties for sale and express interest in buying properties. Many of these agents will work with investors, too.
- Ask questions. Making blind calls to real estate agencies can be intimidating. Here’s a sample script to get you started: “Hi, my name is _________. I’m a real estate investor and I’m trying to find a real estate agent who specializes in income properties such as apartment buildings, duplexes, five-units, etc. We also look for properties that need cosmetic repairs. Is there someone in your office who fits that description?” When you get a prospective scrap Realtor on the phone, ask about his or her experience with private financing and seller financing. Ask about his or her’s own experience investing in real estate, and their results over the last several years. The reactions and responses you get to these questions will give you a good idea if the Realtor knows about real estate investing – and if he’s able help you learn more, too.
ABOUT THE AUTHOR:
Russ Whitney, a pioneer in real estate investing and training, became one of the youngest self-made millionaires at just 27. From his humble beginnings as a high school dropout and a $5 an hour slaughterhouse worker, Russ began his investing career at age 21. Within a few short years, he achieved financial independence thanks to a unique system he developed that virtually eliminates the risk in real estate investing and creates cash flow for investors to achieve their financial goals.
A countless number of investors have come to rely on Russ’ books, home study courses as well as his coaching and personal mentoring programs with up to 60,000 people being trained every month. Today, Russ continues to share his passion for investing and training by teaching beginners as well as experienced investors how to create wealth for themselves and their families in real estate.
Russ Whitney, is the bestselling author of Building Wealth, Millionaire Real Estate Mentor, and The Millionaire Real Estate Mindset and is also the author of some of the world’s most popular home study courses including Starting from Zero and the Building Wealth System.
Yet, Russ has never forgotten how difficult life can be and strives to share his good fortune with others. He’s worked with correctional institutions in helping inmates receive a second chance at a productive life. He’s provided safe, clean housing for the elderly. And he continues to support the youth in his community with his time and money. Russ Whitney is a living proof that anyone can achieve the American dream.