« March 2009 | Main | June 2009 »

May 29, 2009

Use Your Education to “Deal” Your Way into Long-Term Holdings in Real Estate

By: Matt Fagerness

The three primary financial reasons to be a real estate investor are quick cash, long-term wealth, and residual monthly income. In this article, I’m going to focus on quick cash and long-term wealth pursuits because they are closely linked.

Quick cash is your immediate payout from a short-term real estate transaction. These could include wholesale deals, rehabs, lease options, and even foreclosures. Depending upon how actively you are working your business and what kinds of deals you are pursuing, quick cash deals can add up fast, bearing the question “What are you going to do with all of it?”

I like to use a series of levels to illustrate how quick cash is used by real estate investors. Everyone is different, so these are not intended to be across-the-board descriptions, but I think you will see where I am going with this.

Level One use of quick-cash proceeds from deals would be to put food on the table, pay bills, and cover business-operating expenses. For most new real estate investors, I suggest you focus on Level One use of quick cash because this can help liberate you from your current job and empower you to work your real estate business as much as you would like.

Level Two use of quick cash is to follow the middle-class formula and use it to buy “stuff,” creating the illusion of a better quality of life. What I’m talking about here is the bigger house, the new car, etc. Your choice of how to use your cash is entirely up to you and I’m not here to lecture. That said, this is a type of spending that has no long-term value to you and thus, is one with which I suggest you be cautious. However nice it is to show off your newfound success to the neighbors, it does little to promote your long-term success.

Level Three use of quick cash is to reinvest it in appreciating assets. This is standard operating procedure for the wealthy, and is a practice you should give strong consideration to once your business is generating cash. Reinvesting proceeds from your business into other assets (including real estate) is a proven way to long-term wealth and success.

The reality will set in at some point (usually after you have done a few really grueling rehab deals) that you can make a lot of quick cash in real estate using the training that you’ve had, but it also will not make you healthy, wealthy, or wise. True wealth comes from investing in appreciating assets and having your investments and money work for you. Fortunately, real estate does offer this opportunity, but only when you hold onto some of the properties in which you invest. This, of course, begs the question “Where will the necessary money come from?”

One of the easiest and most convenient sources of capital for your real estate investments are proceeds from your own business. “What about OPM?” you may ask. Yes, there are plenty of upsides to using other people’s money, but follow with me here and you’ll see what I’m getting at.

Let’s say you start in the same way as many investors, by wholesaling and quick turning single family homes. This is as common as it is potentially lucrative, so it provides us with a good example scenario. In this example, your current household income is $50,000 per year. In one year, you wholesale or quick-turn 10 properties, representing a total revenue influx of $100,000. That’s a good start, and questions will abound as to what you’re going to do with that money.

A Level One approach to using these quick cash proceeds would be to use them as fuel to replace your current household income, giving you the option of giving your boss the pink slip and/or more time to work your business. A Level Two approach, even though I still don’t favor this one, would result in a new car, a bigger house, and that fancy home theater system, none of which benefit you all that much long-term.

What would happen with a Level Three approach to the same scenario? In this example, you could take a percentage (say 75 percent) of your real estate proceeds and reinvest them in a small multi-unit building. Using your training and your instinct for good deals, you find a four-unit apartment that you can purchase for $350,000, even though the rents suggest a value of $500,000. The approximate numbers for this example are shown below:

Market Value: $500,000
Purchase Price: $350,000
Down Payment: $70,000 (20%)
Mortgage Balance: $280,000
Monthly Pmt.: $3,000
Rental Income: $4,800 ($1,200 per unit)
Monthly Expenses: $600
Net Monthly Income: $1,200

How does a Level Three use of cash affect your overall financial situation? You would still have your base income (at least for now), plus an extra $25,000 a year (leftover deal proceeds) to cover your business operational expenses and put some extra money in your pocket. But it gets even better. You have an extra $1,200 a month in net residual income, an increase in net worth of $220,000, ownership in an asset that is paying for itself, and a legal tax shelter for a large percentage of the revenue your business produced. This is what the wealthy do!

Now, imagine repeating this same process for a few years in a row. Your overall income and quality of life will improve, but only at a pace that works for you since you are in control. You’ll be increasing your monthly income, but more so from the cash flow given off by your real estate assets, which means that you aren’t having to work more in order to earn more. The best part of this equation is that the whole time you are accumulating valuable assets that pay for themselves, you are building for your future. You simply have to love this business!

A simple commitment to reinvesting a portion of the proceeds from your business back into your business can put you on the fast track to long-term success. There’s an old real estate adage that I really like and that applies here: “We buy and sell real estate to create the capital, so we can buy and hold real estate for long-term wealth.” If you practice this in your own business, you will be well on your way to building your own real estate business and creating a life of success and the wealth that you deserve.

May 27, 2009

Deal or No Deal

On the hit television game show, Deal or No Deal, there are 26 different briefcases, each representing various amounts of money ranging from $0.01 to $1,000,000. The contestants choose which of the briefcases is opened next, and the last briefcase opened reveals the amount of money the contestant wins. The ultimate goal is to open all of the briefcases except the one representing the $1,000,000. If the last briefcase opened is the $1,000,000 case, the contestant wins that amount, and is a very happy camper indeed!

While it is a fun show to watch if you have nothing better to do, most would not see a correlation between real estate investing and this popular game show. However, every time an investor makes an offer on a property, they are essentially playing real life deal or no deal. Unlike the television show, which is purely a game of chance, real estate investors can have substantial influence over whether the seller says “Deal,” or “No deal.” Improving your sales and negotiating skills can definitely increase your chances of winning big in the real estate investing game.

As you already know, finding motivated sellers is key to the success of your real estate investing success system. However, just having a motivated seller to deal with doesn’t guarantee that your discounted offer will be accepted. If the seller doesn’t say yes, you have a “no deal,” and you don’t make any money. So what can you do to change a lot of those “no deals” into “deals?”

First of all, you need to realize that identifying good deals is just one part of real estate investing. Your numbers may look great, but in order to finalize the investment, you need to deal with people. Successfully dealing with people takes good selling and negotiating skills.

If you’re like a lot of people, you have less than positive feelings about sales people. The word “salesperson” may even make you think of someone who is dishonest and will take advantage of you just to make a sale. It is critical that you get rid of any preconceived notions you have about being a salesperson. You need to realize and accept that as a real estate investor, you are a salesperson; realize your mind will not let you be good at something you don’t believe in. True selling is about solving problems and creating win-win situations. It’s about building lasting relationships with people by being honest and having integrity. Nothing is accomplished that isn’t first conceived in the mind. So purge your mind of those negative feelings about selling, and train yourself to be a selling superstar!

As an investor, your first product is yourself. You’ve heard it before and you’ll hear it again, “People do business with people they like and trust.” This means your job is to show people you are trustworthy, honest, and likable. You are not only going to be selling yourself to potential sellers, but to potential buyers, tenants, funding sources, real estate agents, attorneys, other investors, and everybody else you deal with. In the process of investing, remember that it’s all about finding out what the other person needs and discovering a way to meet those needs. If you can’t find a way to solve a problem, be honest and let the other person know right away. If you deal fairly with people, your reputation as an honest individual will spread quickly.

Selling involves learning the techniques of positive communications. Essentially, whenever two people are communicating, elements of the sales process are occurring. Just think of the last time you tried to convince someone to do something: your young child to eat their spinach, your teenager to clean their room, your wife to go see the Monster Trucks. Yes, you were selling.

One of the biggest parts of selling is listening and comprehending, and then constructing the deal based on what you have learned. Gather information by asking questions, hearing what is said, and understanding what isn’t said. Keep asking questions until you are sure you understand what the other person has said. Then repeat to them what you think they mean and ask, “Is that what you mean?”

If the other party is receptive to your proposal (your offer to purchase their property, for example), but not entirely satisfied with your terms, you need to know how to negotiate so you can work out the details. Too many people think that in any negotiation, you must have a winner and a loser. That’s just not true. Your goal is to communicate clearly, consider all your options, and come up with a solution that benefits everyone. Both parties have to be able to give and take to some degree, but it is usually possible to come up with a win-win solution.

Here are some helpful negotiating tips:

• Before you begin negotiating, set your limits. Run your numbers, know what you are willing to pay for a property and what concessions you are willing to make, and don’t go beyond those limits!
• Don’t allow your emotions to override your common sense. Set your limits and be prepared to walk away from the deal if you can’t get it for a price that allows you to make a profit.
• Early in the negotiation process, clearly state that you want to do the deal, but that the numbers must make sense. Let them know that you are an investor, that this is your business, and that you must make a profit or you can’t do the deal. Let the seller (or buyer) know you also want them to be satisfied with the deal. By setting a goal by which everyone walks away a winner, you are establishing a positive tone for the negotiations.
• Don’t start off with your best and highest offer. If you do so and the seller says no, you have nowhere to go. Always start with a lower offer and allow the seller to negotiate you to a higher price.
• In your initial offer, ask for things that you really don’t care whether or not you get. This gives the seller something to refuse. Feeling as if he or she is getting you to give up things may make the seller more willing to make his or her own concessions in order to get the deal to work.
• If the seller rejects your initial offer because it’s too low, you can expedite the negotiation by asking, “What is the lowest price you would accept for your property?” With that number, you can decide how (or whether) to proceed with the negotiation. If the price they give you is substantially higher than you can afford to pay, then you can say, “According to my research, I can afford to pay $X for your property. I’m not saying that you property isn’t worth more, but $X is all I can afford to pay at this time.” Then be silent and wait for an answer.
• If the seller still rejects your offer, start to gather up your papers and prepare to walk away. The seller will then realize that you are serious and may call you back for further negotiation. If not, leave the seller with an open-ended offer. Tell the seller, “I wish I could pay more for your home, but $X is all I can pay at this time. Please, continue to try to sell your home. I hope you can get more for your property; you deserve more if you can get it. But know that I will buy your home for $X. So if you can’t sell it for more, please call and we can talk again.” Be friendly and concerned about them and their situation and leave on good terms. Ultimately, you will buy a lot of properties from people who told you no to start with! It is important to follow up with these folks every few weeks to see how things are going with the sale of their property. That way, they know you really care and will be more likely to do business with you in the long run.
• If you are dealing with people who are not that familiar with selling or buying property, explain all the details of the transaction and walk them through the sequence of events leading up to the final closing. Keep them updated as the process moves along. This will give them more confidence in dealing with you and your team.
• If the seller or buyer seems to be confused and unsure about your offer, you could use what is known as the Ben Franklin or balance sheet close. Tell the client when Ben Franklin had an important decision to make, he would get a piece of paper and draw a vertical line down the center. On one side he puts the positive (for) reasons and on the other side the negative (against) reasons. Then you get a sheet of paper out for them. You fill in the positive side with all the good reasons for the decision to move ahead with the deal (i.e. gets them out from under the payments, allows them to move on with their life, etc.) and then slide the sheet over and let them fill out the negative reasons. If you have listened carefully and asked lots of questions during the initial conversations, you will have lots of positive reasons to put down on the paper.
• Another technique to help with negotiations is the “higher authority” approach. If the seller comes back with a counter offer that is reasonable, but still too high, simply tell them you will have to run it by your partner, your associate, the board of directors, or some other higher authority. You can say something like, “I will run this by my partners but I don’t think they will go for it. Is that the best you can do?” The seller may just come down enough to make the deal work, creating a win-win situation.
• “He who speaks first loses.” Silence is a powerful negotiating tool. Use it often. Simply make your offer or counter offer and then shut up. Don’t run off at the month trying to convince them to accept your offer. As difficult as it may be, just wait. If you start talking again and give too much unasked-for information, it can kill the deal. Just wait, and wait. They will eventually speak, and hopefully, will accept your offer. The silence technique can be used very effectively when first inspecting a property you are looking to buy. If you go on and on about all the defects in the home, you risk insulting the owners. Better to look closely at that water stain on the ceiling, take a few notes, and say nothing. If something like a counter top is somewhat uneven, take a marble out of your pocket, put it on the counter top and let it roll to the edge. Catch it in your hand and say nothing. Silence is golden!

There are many other negotiating techniques that can be used. Entire seminars are taught on the subject, and you should continually study and improve your skills. But at the end of the day, if you are honest and deal fairly with everyone, and really try to solve your clients’ problems, you will have a lot of deals accepted and will make many friends along the way. Now, go out and make lots of offers so you will have the opportunity to use your negotiating skills!

May 23, 2009

Order Types

By Robert Penney

Order combinations can be very complex and confusing to the first-time trader, and one of the first hurdles to overcome when placing a trade in the stock market, virtual or otherwise, is knowing the different order types and how they are used to enter and exit trades. The goal of this article is to present the necessary information to help prepare you to begin placing orders on the exchanges.

To simplify, let’s group all orders into two types: the market order and the limit order. As complex as the market and brokerage windows might appear, there are only two order types that are filled at the exchanges. The way those two orders are placed and triggered is what complicates things.

The Market Order

The U.S. Securities and Exchange commission defines a market order as "an order to buy or sell a stock at the current market price." When you place a buy or sell order at a brokerage house, the order type will default to placing a market order. The main advantage of market orders is that they guarantee your transaction will take place when there is another party willing to take the other side of your trade (for example, a seller or sellers must be willing to part with the requested number of shares).

The biggest disadvantage is that you are not guaranteed to get the currently quoted price for that security. Your brokerage has the duty of best execution for your transaction, meaning that they are required to find the best price available for your trade, but that best price could be slightly different or drastically different from the price at which you intended to purchase the security. Let's look at two examples to help explain why and how the prices might be different:

Example #1: Slightly Different Fill Price

Suppose that you want to buy 100 shares of a stock with the ticker XYZ which trades on the NYSE. The exchange is currently open, meaning you are placing the order between 9:30 a.m. and 4:00 p.m. EST on a weekday. You look at a quote screen in your EdutraderTM software or at your brokerage and see that there are currently five lots, or 500 shares, available for $38.92. You see the quote, bring up your broker-entry screen, and enter a Buy 100 XYZ market order. In the meantime, a person sees the same quote and places an order to buy 1,000 shares of XYZ before you can get your order entered. Immediately, the shares you saw for $38.92 are all purchased, including 300 shares for sale at $38.93 and 100 shares for sale at $38.94, filling that person's 1,000 share order. Your order arrives just in time to take a piece of the 400 shares available at $38.95, which becomes your fill price. The three cents difference between what you wanted to buy at ($38.92) and the price you ended up with ($38.95) is called slippage. In this case, your slippage was relatively small and is what can typically be expected when placing a market order.

Example #2: Drastically Different Fill Price

Perhaps you want to buy 100 shares of a stock with the ticker XYZ which trades on the NYSE. The exchange is currently closed, meaning you are placing the order outside of the 9:30 a.m. and 4:00 p.m. EST or on the weekend. You look at a quote screen in your Edutrader software or at your brokerage and see that there are no active orders, but you do see that the last trade was $39.92. You consider $39.92 to be a reasonable price and bring up your broker-entry screen and enter a BUY 100 XYZ market order. Your order is now entered and awaiting the market to open the next weekday at 9:30 a.m. EST. Between now and then, positive news comes out for the company behind the ticker and the market gets excited over the stock, causing the stock price to gap up into the open. The stock that closed at $39.92 now opens significantly higher at $42.34, and your market order activates. Your brokerage does its job and gets you the best available price; however, that price is $2.42 higher than what you intended to pay when the order was entered.

In the two examples above, we see the advantage of the market order in terms of guaranteeing an entry on the stock of interest, no matter what the price. However, the controlled reward versus risk and the related desired entry zone that is part of the master trader plan is completely ignored, resulting in the potential occurrence of very large discrepancies between the original plan and the final result. The limit order (to be discussed in next month’s issue) gives the trader some additional control over defining what price is too high when making a stock purchase.

Use a Market Order…

1) When you would like to exit a stock immediately and have a reasonable expectation that the price of the stock will not move significantly during the time between the placing and filling of the order. Stocks that are actively traded (a large number of shares available on the Bid and Ask at any given time, i.e. liquid (improper)) are prime candidates for using market orders for immediate exit. The master trader might use a market order when sitting in front of the market, and needs to exit stock before an earnings release.

2) In combination with stops (triggers) for use in exiting trades on a move against the position, either taking a loss at the initial risk or locking in a profit. The master trader will do this for virtually all of her/his trades.
3) When you absolutely have to get out of or into a stock at any price. This sort of action should be a very rare occurrence for the master trader.

May 21, 2009

Trading Systems 101

By Joe Inman

I am amazed at the number of people who continually try to devise an electronic method of trading so they do not have to think. Professionals will usually do well with them, so why don’t these proprietary indicators and trading systems usually work for the novice trader? The biggest problem I find is that they are so wrapped up in finding ways for someone to think for them that they never take the time to learn to trade properly. They want the computer to do the trading for them.

Don’t misunderstand me; I am not saying that trading systems and proprietary indicators serve no purpose. On the contrary, I think there are some very good ones out there.

I have a good friend who is a knowledgeable trader; he is consumed by these types of bells and whistles. After constant urging from him, I took a couple of days to evaluate chat rooms and systems. I have avoided them since 2001, and now I remember why! One chat room gives trading signals with their own proprietary indicators. Another has a chat room that shows the trades, but you have to buy or lease their expensive system, and indicators, all in an effort not to think. In either case, you have to pay for the chat room.

I try to help my students understand that the most important thing they will ever learn in trading is support and resistance. If they understand that, and more importantly, how it works, they can trade. I’m not attempting to over-simplify things, but it is that simple: you either understand over-bought and over-sold, or you do not. When these special indicators and trading systems think for you, you still have to monitor your own charts and indicators so that you can compare the two. The two days I spent in chat rooms this week were a waste because the monitors did not understand this basic principal of trading.

First, let’s discuss “Ralph’s” trading room. Ralph has a proprietary indicator that he manifests to be “the bomb.” Ralph’s new indicator rules! I concede that the indicator seemed to work well, but as I said, one must still monitor his or her own time frames in order to have knowledge of over-bought and over-sold positions.

Ralph was using a 3,000-volume chart and a 133-tick chart. That is fine if you want to use these charts for a trigger, but please pay attention to the time frame into which you are entering with this trigger. I watched this gentleman make trade after trade in the wrong direction. He was shorting over-sold positions and going long on over-bought positions! If he had ignored these triggers and used the ones to go long at over-sold positions and short at over-bought positions, he would have been fine. I guess it doesn’t really matter whether or not your trades are profitable if you have enough people in your chat room at $200 per month!

The other chat room had an exclusive system for sale, and was a bit pricier at $300 per month. This guy writes software, so he is not cheap. Let’s call him “Frank.” I would have liked the opportunity to evaluate Frank’s trading system, but for $5,000, I would have been slightly disappointed if it did not work as promised. Borrowing the system from someone who had purchased it previously was not an option, since the terms of use prohibits the moving of the system from one computer to another, and is enforced by a security feature on the system..

Frank’s trading system is impressive, and it gives some good entries. The first two trades trading the ES or S&P 500 eminis were good. They picked up a full point on both trades, so I decided to follow them on the next trade when it set up. It set up and went short. As I watched this, I knew we were at the low of the day and were extremely oversold, so I did not take the trade. Surely enough, they got stopped out and lost two points, exactly what they had made on the previous two trades.

The rest of the day, I just sat and watched. At about 10:30 a.m., the trade started basing sideways, and that continued for the remainder of the day. I was amazed at the chat room monitor; he started doing the same thing Ralph had done! When we would get to the top of the range, he would go long, and when we would get to the bottom of the range, he would go short. Anyone, who has taken any basic stock courses, knows that these trades cannot work if you do not break those support and resistance levels. For heaven’s sake, this is something we learn in stock elementary school! Again, if you have enough people in your chat room at $300 per person, I guess it just doesn’t matter.

Remember, if you ever decide to pay for a chat room that promises to do the work for you, make sure the people using the indicators and/or the trading system are experienced traders who understand this basic law of trading. If you understand support and resistance, you can trade successfully.

May 19, 2009

What is Estate Planning?

By Mich Christensen

Estate planning is not a fun topic, but it is one that should not be avoided. There are many explanations of estate planning, but, simply put, it is your plan.

This plan determines the process of who, what, how, and where your possessions go upon your passing. It includes your personal and real estate property, and everything you own. Estate Planning helps ensure your assets will be allocated in an organized and efficient manner to the people, places, or corporate entities you designate.

Many people don’t even think about a will—why?

Some feel superstitious about making out a will; others don’t want to think about their own death. Some people feel they don’t have anything to leave behind, and still others just don’t create a will because they don’t know they should.

How many people do you know who do not have a will? How about your parents, your siblings, or your friends? Wills are easy, simple, and quick. People think they “only” have their house, car, or jewelry, but these are all things that can cause family fights and avoidable taxes.

A will is the instrument to do your bidding. This document tells everyone what you want to do—it designates who should execute it, and to where and to whom everything goes. It’s your last will and testament!
There are three components to having an estate plan: your will, a living will or a healthcare proxy (a medical power of attorney), and/or the various powers of attorney. Just remember, depending upon how your estate is set up through your attorney, there are different alternatives available to you, such as a trust or living trust. Always consider state and federal laws.

Everyone needs a will

This document specifies what, where, or how you want your assets distributed, dispersed, dissolved, or presented after your death. If you have minor children, you may want to name a guardian. Your animals—who do you want your beloved pet to go to?

If you die without a will, this means you died “intestate”—without a will—which means it is up to the courts or whoever is the closest relative to you to deal with the probate. If you have a spouse, children, or siblings, they will go through the process of probate for dispersal of your assets. Additionally, without a will this process can be very costly. The probate could drain part or all of the money that you had left or could be a financial burden to your family.

Stop the fighting, the arguments; talk with your family—your heirs

By talking ahead of time with them, you make clear your intentions, your wishes, and any reservations there might be. Something you might think very little about may become a big blown-out fight between family members; so think what you want to leave behind and for whom so that everything is taken care of by your will or trust.
Start a list of all your assets. Do you have a personal financial statement? This is a sheet of all your assets—all that you own or possess. This also shows all your debts and what you owe—specifically how much and to whom. Your assets should include your home and other investments, such as properties, stocks, cars, precious metals, etc.

Money - Tax Free? Not your wise choice

Yes, you can leave money behind to your spouse; however, this may not be the best or wisest choice. By leaving money to your spouse, it could increase your spouse’s taxable estate by not utilizing estate-tax exemptions. Avoid this: talk to your attorney to determine the best strategies to distribute your assets.

What is the Federal Estate Tax and Exemption?

“The estate tax in the United States is a tax imposed on the transfer of the taxable estate of a deceased person, whether such property is transferred via a will or according to the state laws of intestacy. Here is the table currently. Over the past five years the exemption amount has been increasing and will be 3.5 million this year of 2009. The following year of 2010, there are NO Federal Estate Taxes if death occurs in that year. Then in 2011 it reverts back—see table below. This means that you will only be allowed to leave behind $1 million tax free dollars to your heirs.” —From Wikipedia, the free encyclopedia

2002 – 2003 $ 1Million
2004 – 2005 $ 1.5 Million
2006 – 2008 $ 2 Million
2009 $ 3.5 Million
2010 NO FEDERAL ESTATE TAX if you die in year 2010
2011 Currently the FET is scheduled to go back to $1 Million
—©2004 Estate Talk

“This table means simply that if you die in any year listed in the table the value of your taxable estate can be as great as the exemption amount shown for that year and you will owe no Federal Estate Tax. In fact, if your estate is equal to or smaller than the exemption amount it may not even be necessary for your estate to file a Federal Estate Tax return; however, this decision should follow a discussion between your personal administrator, your heirs, and their attorney. Among other considerations is the fact that no statue-of-limitations ever runs on an estate unless an estate tax return is filed. You should be aware of changes by Congress and the Administration with respect to this area of tax law.” —©2004 Estate Talk

Give gifts tax free and reduce the estate

There are a few ways to do this. There is a yearly limit to the amount one can “give”— $12,000 to an individual or $24,000 from husband and wife to an individual. You can also pay for medical and/or educational bills for your friend, family, or someone else only if you pay directly to the doctor, hospital, school or any institution where the bill or debt was made.

The gift of giving – charities

When donating to charitable gift funds or foundations, remember your original investment grows, and, as a charitable fund, it increases tax free, so donate those profits to your choice of charities during your lifetime and after your passing.

Here are some additional things to keep in mind

Among various duties don’t forget to file tax returns for the person who died. Final federal, state, and local income taxes must be paid, including the federal and state estate taxes as necessary. Although personal income taxes for a deceased person are due on the standard April 15th deadline, estate tax returns are supposed to be due nine months after the death, but this date can be extended. After the settlement of the estate, the estate administrator petitions the probate court to remove them from their binding, which means to remove them as the administrator or executor of the estate.

About your executor-administrator

Who do you want to handle your financial affairs? Who do you trust to carry out your wishes? What if you are in an accident, or incapacitated in some way… who will you want to charge with this responsibility? Who do you want making your medical decisions for you upon your inability to make them? Who do you want to inherit your assets? Should your estate go to your spouse, children, other family members, a corporation, or your favorite charity? As you can see, it can be a big mess if you don’t take charge now and make your arrangements.
Talk to your accountant, your attorney, and your financial planner. Most importantly, talk to your family. Remember, the person you want to administer or execute your will also must agree and accept your request to carry out this responsibility. You may want to have a backup by appointing an alternate to replace your executor in case your first choice is unable or unwilling to carry out these duties at the time of your death. You could even have more than one person as executors; however, you will need to have in writing your wishes of how any disputes are to be settled.

Also, if the executor you have appointed dies and you do not have a backup or alternate in your will, then the court will appoint one for you. However, if you already have a will and your executor that you have chosen dies before you, you can name a new person as executor by adding a codicil to your will. This document is used to amend the current will.

This executor may be paid

Many times family members will take on this responsibility to administer the estate and, more times than not, they won’t ask for a fee. Nevertheless, they have the right to be paid. If you had not made any arrangements or provisions for their payment in your will, then the executor may approach the Probate Court to be paid a reasonable fee. This person(s), as your executor, is taking on a heavy burden to take care of all your business so give them the respect of authorizing them to be paid. It is important to make sure you set a maximum price or limit to what amount of payment they can receive for this service.

As much as we all try to be organized and detailed, there is always something missing. Having a written will alleviates any problems or confusion. Choose carefully, and just make certain you have it all on paper. This way the administrators can carry out your wishes effortlessly, methodically, and in a timely manner for your family.

Depending upon the size, difficulty, and complexity of an estate, assistance from professionals may be needed. This may include a certified public accountant (CPA), financial planner, attorney, doctors, insurance companies, or personal friends.

May 17, 2009


It is the best of times and the worst of times! Everyone can agree that in almost all areas in the country it is a strong buyer’s market − the best of times for buying property at big discounts. But it’s also the worst of times when it comes to selling those same properties. The old rule of buying low and selling high doesn’t work in a buyer’s market. You must buy even lower and sell low. And even then, you have to be creative in how you sell.

There are many different ways you, an investor, can sell a rehabbed home. Traditional selling methods include:

• Sell it yourself using yard signs and newspaper advertising – For Sale By Owner (FSBO).
• Sell the property using your buyer’s list. This is one of the best ways to sell a home since you can have a home pre-sold before you even buy it.
• Hand out fliers in the neighborhood asking the neighbors to invite their friends to look at your home. This works well if you have developed a good rapport with the neighbors and have let them know that you are working to beautify their neighborhood and want someone special to buy the home and take good care of it.
• Sell the home to another investor. This will work if you bought the home at a big enough discount and are willing to share a good portion of your profits with another investor.
• Sell the property using another investor’s buyer’s list. It really pays to belong to your local real estate investors’ club and build relationships with other investors.
• List the property with a real estate agent who will put the home on the Multiple Listing Service (MLS).
• Put the home in one of many For-Sale-By-Owner publications. Some of these services will also put the home in the MLS.
• Run an ad on Internet ad sites.

All of these methods work to a certain degree, but there is one method that is becoming more popular every day, and, if done right, can bring top dollar for a property, even in a tight buyer’s market. That method is the Round-Robin Auction.

First, what is a round robin auction? It’s different from regular auctions where people are gathered in a room and an auctioneer rattles off numbers and encourages higher bids as the people in the room fight with one another to see who gets the property.

The round robin auction starts with a bidder’s list that has been generated at the open house. At the time of the auction, the people are not at the property, but in the comfort of their own homes. Let’s say that 10 people put their names on the bidder’s list with their initial bid for the property. At the appointed time Sunday evening, the person running the auction calls the person on the list with the highest bid, lets them know that they have the highest bid so far and asks them if they want to bid any higher. If not, their bid stands as the highest bid. The person with the next highest bid is then called and told what the high bid is and asked if they want to bid higher or drop out of the bidding. If they want to bid more than the highest bid, their bid is now the high bid and they stay in the bidding process. If they don’t want to beat the high bid, they are dropped from the bidding process and cannot re-enter the process.

The calling continues until the highest bidder is found. The highest bidder is then notified and arrangements made to get together to sign the formal purchase and sale agreement and schedule the closing. The second-highest bidder is also notified of their standing and informed that they still might get the property if the winning bidder is unable to finish the deal.

I have also seen round robin auctions run by having the interested bidders gather Sunday evening at the home for the auction. But the more common method is to call people on the phone. It makes for a more relaxed, less stressful atmosphere for the bidders.

There are several things working together that make this an effective selling technique. As with most things associated with real estate investing, the key is really good marketing. What you are trying to do is to get lots of people interested in the open house on Saturday and Sunday. Most of these people will just be curious about what is going on, but among them will be a few serious buyers. You need to identify those serious buyers and make sure they sign the bidder’s sheet before they leave.

So what can you do to get people to the open house? You could try newspaper ads,. however, in today’s world, there are many other ways, both low tech and high tech, to effectively get the word out. Here are a few suggestions on different forms of advertising to help to spread the word:

• Run newspaper ads. The key is to have an asking price low enough to catch people’s attention. You want people to think, “How could they be selling a home for that low price?” You want people to call so they can be encouraged to come to the open house. This can be done five to ten days before the auction.
• What could be lower tech than flyers or postcards? Distribute at least 2,000 fliers five or six days before the auction to immediate neighborhoods to generate as much traffic to the open house as possible. A lot of neighbors will come just to see what’s going on, but lots of traffic at the open house is what generates an exciting atmosphere.
• Run Internet ads. Don’t miss this opportunity to generate even more traffic to the open house. Many of these sites are free or very low cost.
• List the home on several For-Sale-By-Owner websites. You also want to list the property on the MLS. Some of the FSBO publications and websites will list the property for a flat fee. Key words like auction and motivated seller will attract attention. It may be helpful to specify that this is not a foreclosure auction.
• Signs – lots of signs. On the two open house days, place numerous open house signs throughout the neighborhood giving directions. These signs should also have in big letters, AUCTION. You want to catch people’s attention. You could also put out bandit signs a week before the auction, depending on the signage laws in your area.

Your ads and signs could have your cell phone number, but you would be very busy answering calls and repeating the same information over and over to callers. With today’s high-tech systems, it would be smart to have a 24-hour number on your signs so that interested individuals receive a professionally recorded message with the details of the auction, the times of the open house, and directions to the property. These phone systems also capture the phone numbers of everyone calling. You would then be able to have the phone system call each of the captured numbers the day before the open house to remind them to come and see the property. Why not go high tech? It’s really not that expensive and it will save you a lot of time.

You can also set up a website that contains property details and pictures. The 24-hour recorded message can direct them to the website. It’s best not to put the website address in your ads or on your signs; by pushing people to call the number, you are able to capture phone numbers. Another option is to require basic information before a person can enter the website. Be aware that you risk losing potential visitors because many people will choose not to give personal information over the internet.

It goes without saying that before the open house, the property should be in pristine condition. Spending the money to stage the home is money well spent. There is a lot of information available on staging homes and there are professional services that can do the staging for you.

It is helpful to get a good appraisal on the property and have it available for viewing at the open house. It also pays to get a complete home inspection report and also have the report available at the open house. The auctions I have attended had two tables set up, one with the appraisal and one with the inspection report. Of the possibly hundreds of people who come through the open house, usually only those who are serious bidders will stop and take time to look at these documents. Make it a point to meet these people and get to know them. They will most likely be the ones bidding in the round robin auction.

When people show up at the open house, give them a bidder’s packet that explains the details of the auction. You need to have several people helping with the open house so questions can be answered. At the home’s exit, there should be a table with the initial bidding sheet. People should be encouraged to place a bid, even if it is a very low bid. Let people know that in order to be included in the Sunday evening auction, they need to have their name and phone number on this initial bidding sheet. Serious bidders will leave an initial bid on the sheet.

Leave several hours between the end of the open house on Sunday and the start time of the round robin auction. This gives you time to review your notes, have a nice dinner and relax before the excitement begins. Then at the appointed time, with the initial bidding sheet in hand, start calling. If you have generated enough interest to have lots of people at the open house you will have lots of interested bidders and, even though you advertised a low-starting bid, the bidders will bid the price up to a reasonable number and, many times, to a price that is much higher than you would have expected. Bidding continues until you have the highest bidder. From that point on, the sale is like any other sale. A purchase and sale agreement is signed listing all the specifics of the transaction and setting the closing date. Home sold!

People using the round robin auction technique sometimes worry about the bids not getting to a price at which they are willing to sell. This rarely happens if you have enough bidders. Unless you have advertised that there is no reserve, you can opt not to sell your home to the highest bidder if the bids don’t reach a point that you are willing to sell. Bank-run auctions function this way. The bank has the final choice to either accept the highest bid or to not sell the property. You, as the homeowner, have this same right. However, it is always wise to check with your attorney to make sure you are complying with any state laws pertaining to real estate auctions.

May 15, 2009

Power Team 101 – Working with Realtors

State regulations require all real estate agents and brokers to be licensed. However, not all licensees are Realtors. When a licensee becomes a Realtor, they join a local organization, a state organization, and the National Association of Realtors. They pay dues to these separate groups and abide by the rules of each. There are many benefits of being a Realtor, including continuing education, networking with other Realtors, and associating with a broker or office that provides support and oversight.

An important benefit of an agent being a Realtor is that they have access to the local Multiple Listing Service, or MLS. This is vital to you, the investor, because you need information from the MLS to help determine the market value of properties you are considering. The Realtor will also be able to show you listed properties that you are interested in seeing.

All Realtors are not equal. It’s important to understand this so you don’t waste a lot of time with the wrong agent. You don’t want to find out that they don’t like to or know how to work with investors. Investors need a Realtor that is willing to submit low and multiple offers and are willing to bid on multiple properties with a relatively low chance of the bid succeeding. Finding the right Realtor for your Power Team is integral to your success as a real estate investor.

So what would I look for in a Realtor? I want one who knows the territory or is willing to learn. I want one who returns my calls promptly and calls me when they have found a property that I might be interested in. I want an agent who will make multiple low offers on properties because that is the only way I can buy and make a profit. I want an agent who can introduce me to new sources for financing, hard-money lenders, title officers, inspectors, and insurance brokers. I would like an agent who is or has been an investor themselves; that way, I won’t have to teach them as much.

So how do we find such a Realtor? I would get the names of agents used by your family, friends, and neighbors. Ask them if they were satisfied with their agent. Did they return phone calls promptly? Were they really interested in serving your needs? If no referrals come from your network, then it’s time to pick up the phone and call some real estate offices or get names and numbers from for-sale signs. You could even try attending a local real estate investors club meeting.

I like to use scripts, and this is one I would use in my first phone contact with an agent: “Hi ____, my name is ____ and I’m a real estate investor. Your name was given to me by _____. I am looking for a good Realtor to represent me on the properties that I buy and sell. Have you worked with real estate investors before? I buy single family homes, duplexes, and fourplexes. Some I will hold and rent out, and others I will fix up and sell. I buy all my properties at wholesale prices so I will be making a lot of offers. Will you be okay with that?” This last question is very important because if they are not okay with that type of bargaining, then it is better to find out now than down the road a few weeks.

If this phone conversation goes well, I would meet with them, not for lunch, but at their office. At the meeting I would say, among other things, “I’m going to look for owner financing or owner carry-back. Are you okay with this strategy? Are you open minded and willing to learn? I’m looking for a long-term relationship with my agent.” The following is a list of questions that you may want to ask:

1. How long have you been an agent?
2. Do you specialize in any type of real estate?
3. Do you specialize in a particular area of town?
4. Do you depend on real estate for a living?
5. Are you willing to and do you have the time to put in to help me find properties?
6. Do you have any banking connections in town?
7. Can you recommend a good closing agent?
8. In your opinion, which way is the market headed?
9. Is this a good time to buy? Why?
10. Do you own any real estate in town?
11. How many properties do you have listed?
12. How many properties did you sell last year?
13. Does your broker give you flexibility in how you work?

If the feeling at the end of the meeting is good, offer to begin a working relationship. If you get a bad or unsure feeling, then move on to the next Realtor.

Remember, it’s your business and you have to manage it. A good agent is a great asset. Nurture the relationship. Recognize an agent who is not helping you and make a change in a timely manner.

May 13, 2009

First Deal By Dick Pexton

Many investors find the first deal to be the hardest. Maybe it is. Did you think it was going to be easy? If it was easy, everybody would be doing it. Let’s talk a little about firsts.

There are many firsts in life: first steps, first word, first day in school, first pet, first date, first job, first marriage, first child, first home, and, unfortunately, first debt.

I will never forget my first offer. I had been meticulous in stacking papers in my Samsonite briefcase in the order I would make the presentation. I had a suit and tie on. My Ford station wagon was washed and polished. I pulled up in front of the seller’s home. It had big picture windows and I was sure that he was watching me. I got out of the car, opened the back door, and grabbed the briefcase by the handle and swung it out. The lid had not latched and it flew open. All my papers spread across the street like a fan opening up. By the time I had gathered them up I was sweating, my throat was dry, and I wanted to get in the car and drive away. Instead I knocked on the door, went inside, and presented my offer. After it was refused, I retreated to the car and drove home.

Encouraged by my Mentor/partner, I soon made an offer on another property. It was an older three-story home across the street from Fullerton Junior College in California. There was also a duplex behind the house as part of the package. When the offer was accepted, I became the proud but inexperienced landlord of 12 tenants. Experience came quickly though. My first experience at property management was a baptism by fire. It wasn’t easy managing a boarding house full of college students, but it was worth it.

In about a year, I was offered an old 40-foot wooden-hulled yacht and a buoy in Newport Harbor for my equity. The buoy was worth more than the yacht. This offer was tempting, but could have ended my career in real estate because I would likely have spent my time scraping and varnishing the boat. Instead, I sold the property to an associate on a contract and bought a new boat on a trailer so I could haul it behind me wherever I wanted to go. His payments to me made my payments on the boat. I got rid of a headache property and I still have the boat. That was my first sale of an investment property and my first experience with owner financing.

My first refinance was on my personal residence in California. I had purchased it for $40,000. On the refinance I pulled out $37,500 in cash and that became my seed money for investments. I soon purchased an eight-unit property that had a long-term tenant who was retired and handy. Gene became my first on-site manager. That experience worked so well that I used tenants as on-site managers for the next multiple unit properties and for several properties purchased through the years.

I used the term “we” purchased because friends and acquaintances, seeing my activity and success, wanted to get involved, so I organized my first partnership. More partners meant bigger deals and more profits. Donna, my life partner, and I purchased our first Corvette, our first Cessna, and then our first Mercedes. We had to drive it somewhere so we headed to Denver, Colorado where we were introduced to a gentleman who was selling his apartment complexes. We ended up buying, with our partners, a 156 unit, a 48 unit, a 44 unit, a 12 unit, and a 24 unit, all in Colorado. With that many properties we needed professional management so we hired our first management company. They didn’t work out well so we formed our first management company and our first maintenance company. We ended up moving to Colorado where we bought our first custom built home in Columbine Country Club.

In time, we bought 161 units and 202 units in Colorado Springs, 160 units in Tulsa, 20 or so single-family homes, and some land near Vail. I have been sole owner or partnered in 872 rental units and houses.

Prior to getting into real estate, I had been unemployed for two years. When I got my license we had $500 in cash and equity in a home. Within a year, we were enjoying a comfortable lifestyle. One daughter managed our real estate office. Her fiancé spent a summer painting a 44-unit complex with one of my sons. Four of my sons painted their way through college – skills they learned painting our rental properties.

My first offer didn’t result in a purchase. My first deal was painful, but profitable. It never would have happened if I had quit after my first offer laid spread out on the street. Some of us fear success. Some of us fear failure. Some of us fear the unknown.

For many years, my life has been enriched by using daily affirmations. One that is appropriate for this topic is: I will be master of my emotions. If I feel fear, I will plunge ahead. If I feel insignificant, I will remember my goals. There are many deals in the current market. If you blow the first one or the second one, you can quit or you can persist. If you persist long enough, you will win.