To start, let’s define a short sale. A short sale occurs when a property (usually in foreclosure) is being sold by the owner and the lender accepts a payoff amount that is less than what is actually owed on the property mortgage. In other words, the lender is willing to discount the mortgage payoff rather than go through the complete process of foreclosing on the property.

Why would a lender take a discount on the mortgage note? Why wouldn’t they just foreclose and sell the property? The truth of the matter is that the bank probably would foreclose if the property had substantial value above the mortgage balance. If a property has a current market value substantially above the mortgage balance, the bank can reasonably expect to foreclose on the property, take title, and resell the property at a high enough price to recover their foreclosure expenses and the outstanding mortgage balance. But do most properties in foreclosure today have current market values higher than their outstanding mortgage balances? Most certainly not!

When highly mortgaged properties go into foreclosure, the last thing the banks want to do is actually complete the foreclosure process, take title to the property, and try to resell. The banks stand to lose a lot of money. The proceeds from the property sale usually do not cover the outstanding loan balance, let alone the expensive foreclosure costs and fees. Loans in foreclosure, classified as nonperforming loans, can’t be leveraged into more borrowing power for the bank. The banks are not only losing money on the non-performing loan, they are losing money on the lost opportunities of making additional new loans.

By agreeing to a short sale, the bank may be losing some money, but not as much as if they completed the foreclosure process. It is a buyer’s market, and the banks know that when they do sell the property, it will have to be at a substantial discount. Most wise banks and lenders will choose to approve a short sale.

However, this does not mean short sales are easy! On the contrary, short sales can be very difficult to complete, and banks seem to take forever to make decisions. Successful short sales require cooperation between the stressed-out property owner, the lender, the property buyer (quite often a real estate investor), and, many times, a real estate agent who has the property listed. And if the real estate investor’s goal is to quickly resell the property, the investor’s end buyer needs to be included in this ever-expanding group.

The person facilitating the short sale has to first educate the property owner about how the short sale works and let him or her know what documents will be required to be submitted to the bank. If the property owner agrees to fully cooperate and try for a short sale, he or she then provides a letter of authorization allowing contact with his or her lender about his or her loan. The person coordinating the short sale then proceeds to contact the bank who owns the mortgage note and requests a short-sale package.

But who at the bank (or lender) needs to be contacted in order to get the short-sale package? It certainly isn’t the teller at the drive-up window, or any of the local loan officers, or even the president of the local branch. Sometimes just finding the right person to speak with at the bank can be challenging.

Banks have a special department, usually called the loss mitigation department, that handles loans that are in default. When a loan goes into default and the bank decides to start the foreclosure process, someone in this department will be assigned the loan. Note that individuals in the loss mitigation department can have 50 to a 100 or more defaulted loan files that they are working on at any given time. The person coordinating the short sale for the homeowner needs to locate the specific person in the loss mitigation department who has been assigned the homeowner’s loan file. This person (the loss mitigator) will be the one who receives the short-sale package and coordinates the bank’s review process that results in either an approval or disapproval of the short sale.

The short-sale package provided by the bank gives the specific requirements and instructions for submitting the documents the bank will need to review in order to approve (or reject) the short sale. Once the short-sale coordinator knows what documents the bank requires, he/she works with the homeowner. He/she assembles the package and the completed package is then submitted to the bank or lender. Note: it is very important to make sure the package really is complete and includes every document and record the bank has asked for. The price offered for the property will be based on what the investor is willing to pay and the bank will have to decide if they are willing to discount the mortgage note to that amount and accept the offer, willing to counter offer with a higher price, or reject the offer all together.

The loss mitigator usually has the authority to approve a short sale if the offer price is within a certain percentage of the value of the property. For example, if the property were valued at $100,000, the loss mitigator may have the authorization to approve offers that are within 18 percent of the $100,000 value. An offer of $82,000 or above would be automatically approved (assuming all of the other documentation is in order and shows the homeowner(s) really has a hardship and can no longer make the mortgage payments).

But if the offer were lower than the $82,000, the bank would probably counter the offer with a higher price closer to the $82,000. So, no matter how good a short-sale coordinator (usually the real estate investor) is at putting together a great looking, complete, and neat short-sale package, no matter how good they are at educating the homeowner, no matter how good they are at talking and negotiating with the loss mitigator, if their offer is not within the required percentage of the property value, the short sale will most likely not be approved.

How does the bank determine the value of the property? The bank’s loss mitigation department is probably not very close to the foreclosure property and is most likely located in a completely different state, clear across the country. The loss mitigator (or someone from his/her office) can’t just take a long lunch and go out and look at the property to determine its value. What do they do? To determine the property value, the bank has to rely on what is called a BPO (broker’s price opinion).

What is a Broker’s Price Opinion (BPO)?

A BPO is a tool used by lenders and mortgage companies to determine the value of a property in situations in which they don’t want the expense and delay of an appraisal. The BPO is most commonly performed when a property is in default and the bank or lender wants to know what the value would be if they had to take the property back and resell it as an REO (real estate owned) in the current real estate market. Thus, lenders are looking for a quick-sale value, a price the home would most likely sell at in 90 days or less.

BPOs are typically completed at the request of the REO department or the loss mitigation department. Real estate agents who work in the area of the subject property are requested to perform the BPOs, since they are more familiar with their local real estate market and are best equipped to determine a quick-sale value.

What is a BPO report?

The BPO report is a combination of information, not just a value of the property. Although it is not as detailed as a full appraisal, it still contains enough information for the bank to get an idea of the property condition, how saleable it is, and its quick-sale value. Many banks or lenders requesting a BPO will have their own forms they want filled out for presentation of the information.

What are the two main types of BPOs?

There are two major categories of BPO’s, the drive-by BPO and the interior BPO. The reason for the BPO will determine which type of BPO is ordered by the loss mitigation or REO department. If the reason for the BPO is a short-sale offer, most likely the loss mitigation department will order an interior BPO, to better establish the value of the property.

Basic Information Required in a Drive-By BPO:

In general, a lender requesting a drive-by BPO will want, at a minimum, information on:

• Property location
• Type of neighborhood
• Type of zoning (SFH, multiple units, etc.)
• Conformity to zoning and neighborhood
• Property age (when built and age of any additions)
• Property type and style
• Condition of all exterior features (roof, siding, foundation, etc.)
• Occupation status of the property
• Estimated square footage of the property
• Estimated room count
• Estimated lot size
• Type of parking (garage, carport, RV parking, etc.)
• Minimum of three photos: one of the front of the property, one photo that verifies the address, and one street scene (and perhaps one of the side or back of the property)
• Three currently listed comparable properties (with all detailed information)
• Three sold comparables (within the last three months). The most recent sales are the best, especially in a declining real estate market)
• Quick-sale value of the property
• Broker or agent information

As you can see, even a drive-by BPO requires a lot of work.

Basic Information Required in an Interior BPO:

An interior BPO generally requires all of the information included with the drive-by BPO and the following additional information:

• Detailed square-footage measurements (of the home and property)
• Individual room measurements
• Exact room count (number of bedrooms, baths, etc.)
• Interior features (fireplace(s), special treatments such as decorative molding, custom kitchens, hardwood floors, etc.)
• Condition of the interior
• Specific interior damage, including repair estimates
• Estimate of costs for removing trash
• Estimates for cleaning of the property
• Detailed pictures of the interior and its condition
• Specific pictures of areas needing repairs
• More exterior pictures showing condition of the yard and any out buildings
• Comments on how to secure the property if it is vacant
• Comments on need to board up the property if it has broken doors and windows
• Other information as required by a specific lender

Banks and lenders use these BPOs to establish the value of the property and then use that information to evaluate the short-sale offer price. If the BPO comes in too high, it will kill the short sale.

Investors working short sales need to be involved in the BPO process. They need to do their own BPO and make sure the comparable properties being used truly are good comps and reflect the condition of the subject property.

Despite all the best intentions, few people achieve their lofty goals. In fact, some studies suggest that fewer than 30 percent of New Year’s resolutions are kept! Most goal setting experts believe this is due to ignorance concerning how to set goals properly. So what can you do to minimize your chances of failure and maximize your chances of success to achieve your resolutions for 2010?

2. Make a list of your goals and think them through, weighing their importance. Examine your reasons for wanting to achieve the things on your list. If it is something that is not important to you, cross it off the list.

3. After making the list, narrow it down. Choose three or four important goals to focus on and prioritize. Don’t overwhelm yourself by setting more goals than you can realistically accomplish.

4. Set goals that challenge you, but are easily attainable with a good amount of hard work and dedication. If you must set a huge goal for yourself, break the resolution into mini-resolutions and tackle those one at a time. Be realistic about the obstacles you will encounter as well. Envision the hurdles you will have to face and overcome, and form an action plan for how you will respond to those problems as they arise.

5. Be specific. For example, rather than setting a goal to lose 20 pounds, write down that you will lose 20 pounds over the course of six months at the rate of one pound a week by eating three healthy meals and two healthy snacks a day, eliminating sodas and fast food, and taking an hour-long speed walk before dinner five days a week.

6. Set measurable goals. For example, don’t say that you are going to work on spending more quality time with your children. Instead, describe how you will spend the time. Some examples: I will read a short bedtime story to my children every night; one night a week will be family movie night; I will spend at least three hours playing with my children outside every weekend; and one Saturday a month I will take my children on a fun family outing, such as a trip to the museum, zoo, or a picnic at the park.

7. Ask for help. Tell supportive members of your family and friends about your goals, and ask them to help you by offering you encouragement, advice, or assistance in meeting your objectives.

8. Be positive. Believe in your ability to accomplish great things! Always exude optimism and confidence when you are talking about your resolutions. Even if you have your doubts, fake it ‘til you make it—psych yourself up to believe that you will absolutely accomplish your goals this year.

9. Set deadlines for goal progress and completion. Evaluate your progress at regular intervals. When you approach things in this manner, you can recognize and identify the things that are not working and come up with a Plan B while it is still early in the year. Also, put yourself on a deadline to accomplish certain things. Be sure to reward yourself for meeting your goals. For example, if your goal was to cut down your cigarette smoking a little bit at a time until you quit, come up with a day of the week in which you will reduce the cigarettes you are allowed to smoke. Every week that you successfully cut back, spend the money you have saved on a special treat, such as a movie rental or a magazine that you enjoy.'

10. Be resilient. If you fall off every now and then, do not become so discouraged that you just give up all together. Try to look at every setback and failure as an opportunity for you to learn something constructive. Analyze the situation and form a new plan if necessary, but get back on the horse and try again! If all else fails, grit your teeth and tough it out! Remember, the experts say that it takes 21 days of faithfully putting into practice and living a new behavior before it becomes habit, and six months of doing so before it becomes so ingrained into your behavior that it becomes almost effortless. So if you find yourself discouraged and feel as if you just can’t go on, commit to doing it for just 21 more days, come hell or high water, and stick to it! If you are feeling particularly ambitious, circle July 1 on your calendar and commit to yourself that you will absolutely not abandon your pursuit of realizing your goals prior to that date. Remember this: a little bit of hard work and determination never killed anybody. Go the distance; you will be glad you did.

Before you have to deal with tenants, you must first purchase rental property. The first, and most important thing you need to do when getting involved in rental real estate is to buy right. If you don’t buy right, then you may be doomed to failure no matter how good a landlord you might be.

Before you have to deal with tenants, you must first purchase rental property. The first, and most important thing you need to do when getting involved in rental real estate is to buy right. If you don’t buy right, then you may be doomed to failure no matter how good a landlord you might be.

What does it mean to buy right? Buying right requires you to be extremely selective about the properties you buy that you are going to keep as long-term rental properties. In his book, 7 Habits of Highly Effective People, Stephen Covey argues that successful people “always begin with the end in mind.” This is critical in the real estate investing business. You need to know what you are going to do with a property before you buy it. This is really quite simple if you keep this one thought in mind: If you are buying a property to keep as a rental, buy a property that will be easy to rent and easy to manage. Do your homework before you buy:

• Check the crime statistics in the area; avoid high-crime areas
• Find out the ratio of rental properties to owner-occupied properties
• Find out what the current vacancy rate is for rental properties similar to the one you are considering; a high vacancy rate means you will have a harder time finding a tenant and may have to cut the rent to attract new tenants
• Find out what the current unemployment rate is in the city
• Determine the proximity to schools, public transit systems, and shopping
• Know what you can charge for rent based on what similar properties are renting for, not what you are told by the seller or their agent

Once you have identified a property that will be easy to rent, you need to negotiate a purchase price that will provide you with positive cash flow. This is very important and easy to do. You simply take the monthly rent you can reasonably get from the property and subtract all of the monthly expenses (property taxes, insurance, utilities, and maintenance). Be sure to include a proper vacancy factor, a management fee (even if you plan to manage the property yourself), a maintenance fund fee (for future repairs), and the positive cash flow you desire to get from the property. The net rent you have left (after deducting all expenses and your desired positive cash flow) is the amount that you will have available to pay the principal and interest on a mortgage payment.

You then need to calculate in current interest rates and terms. Use a mortgage calculator to determine the dollar amount you can borrow that results in the payment amount available to service the loan. This is the amount you can afford to pay for the property in order to get the desired positive cash flow.

Remember, if the property needs repairs before it can be rented, the amount of those repairs needs to be subtracted from the purchase price that was determined by the cash-flow analysis formula described above.

If you buy the property right and have positive cash flow, you can more easily tolerate the problems you might face due to the occasional bad tenant. That positive cash flow every month will bolster your attitude when dealing with problems. However, if you saddle yourself with a negative cash-flow property, your problems will seem 10 times worse than they really are. Buy right or don’t buy at all.

Assuming you have purchased a good rental property, one that will produce a decent positive cash flow, the next step is to find tenants. If you purchased wisely, then you also set some funds aside to cover mortgage payments and expenses during the time it takes to find a new tenant. Don’t feel pressured to rent to the first person that comes along just to get a tenant in the property. You need to choose your tenants wisely. If that takes a little time, it will be well worth the extra effort. Trust me on this one: it is far better to have no tenant than to have a bad tenant!

Admittedly, it is hard to completely relax until you get the property rented, so getting it rented as soon as possible is something to strive for. Keep in mind, though, that a high percentage of tenant problems can be eliminated in the screening process. So from now on your goal should be not to just get the property rented, but to get it rented to a properly qualified tenant. And once you get that qualified tenant, you need to do everything you can to keep them as a tenant and take steps to make them even better tenants!

Screening and Qualifying Tenants
As a landlord, you must screen your tenants. If you don’t, you are just asking for trouble. Some landlords like to trust their gut feeling. You may luck out, but you might also get taken to the cleaners. Why take the chance when it is relatively easy to screen your prospective tenants properly? Here are eight steps you can take to help you with the tenant-screening process:

• Step 1 – In 1968, the Fair Housing Act was enacted. This law prohibits landlords from discriminating against applicants on the basis of race, color, national origin, religion, sex, family status, and disability. Get to know the details of this law. Fair housing – it’s not an option, it’s the law! Also become familiar with the laws in your specific state that deal with the relationships between tenants and landlords. Know the laws pertaining to tenant deposits, leases, month-to-month rentals, and evictions. The more you know, the easier it will be for you to stay out of trouble. A lot of professional tenants know the laws inside and out and, if you don’t, you can find yourself at a great disadvantage. Also, get a good attorney on your team who is a specialist in tenant-landlord law. If you ever have a question on any matter of law, consult your attorney immediately. This is not a time to guess at what is right or to use common sense; many times the law does not follow common sense, but it is still the law.

Hints for staying out of trouble:

1. Give all applicants the same information about your property, such as move-in costs or when the property will be available for occupancy.
2. Know the HUD guidelines for the number of occupants allowed in a certain-sized unit. Don’t tell applicants that the number of people in their family exceeds the limit for your rental if their family size is within the guidelines.
3. Process all applications. If you have found that seniors make good renters, for example, and only process applications from seniors, you could be in violation of the Fair Housing Act.
4. If you don’t want to rent to a particular person, don’t ever tell them that the property has been rented, if in fact it has not been.
5. Do not ask anyone about their race, age, country they are from, religious preference, sex, marital status, or disabilities.
6. Apply the same eligibility requirement and income guidelines to all applicants equally.
7. Do not say, “I don’t think you would be happy here,” just because you don’t want to rent to them.
8. You can screen people based on things such as income. Know the laws in your state so you can stay out of trouble.

• Step 2 – The first contact with a prospective tenant is usually on the phone. Start the qualifying process during your first conversation. Advise prospective tenants of the rent, deposit, and other facts about the property. Let them know if you allow pets and, if so, how much the pet deposit will be. Inform them what type of pets you allow (i.e., dogs, fish tanks, reptiles, birds, or cats) and the occupancy limit for your rental (make sure you are using the HUD guidelines). Tell them your fee for running the credit and background check. If you take just a few minutes telling people your guidelines, you will eliminate a lot of potential applicants, thus saving you a lot of time further screening a tenant who doesn’t meet your basic requirements.

• Step 3 – For those applicants that seem to qualify, fill out a prospect card with basic information: name, phone, reason for moving, number of people, number of children and ages, desired occupancy date, any pets, smoking, and present and past landlord references. If you experience any difficulties finding out this basic information, then they will probably not qualify for your rental.

• Step 4 – If the prospective tenant(s) qualifies based on your first contact, set up a time to meet them at the property and continue the qualification process. Note their appearance, which is an indication of how they will treat the property. Are they neat and clean? Take a look at their car. It doesn’t have to be a new car, but its condition and interior cleanliness is another indication of how they will treat your rental property. Their attitude and manners will indicate if they might be difficult to deal with in the future. Are they too critical of the property? Pointing out legitimate concerns is okay, but nitpicking too many things is an indication they may be problem tenants. Take time to tell them what your expectations are for your tenants and all of the critical items that will be in the lease, items such as yard-care responsibility, rent due dates, late fees, pet policy, and a guest-occupancy policy. If they have any concerns, it’s better to get them resolved now, before wasting time on someone to whom you won’t want to rent.

Step 5 – If you have gotten this far with a potential tenant, now is the time to start the application process. Start with a good rental application, one that collects all the information you will need to run a credit check and background search. The application should contain the legal verbiage that gives you permission to run a credit and background check and a place for the applicant(s) to sign. Have each individual adult fill out and sign an application. In the case of married couples, the application should have spots for both spouses’ data. Have them both sign the application. Let the applicant(s) know that they must fill out the application completely and that their application will be considered along with others, and that you will notify them once a decision is made. The application should spell out the screening fee you will charge for running the credit and background check. Check with your state to determine if there are any restrictions on screening fees. Collect the screening fee and run the credit and background checks. There are many companies that will run the checks for you. You can get easy-to-read credit reports, as well as criminal, eviction, sex-offender, and suspected-terrorist reports performed instantly and they are accessible 24 hours per day, seven days per week. An Internet search will give you plenty of companies who provide this service. Here are a few from a quick Internet search:

www.tenantscreeningblog.com
www.mrlandlord.com
www.landlord411.com
www.creditchecklandlord.com
www.landlord2landlord.com
www.accuratecredit.com
(Please note, we have not used these companies and are not recommending them. This list only provides a starting point for your research.)

Also, be sure to check with your local landlord association. They may give you the best price on running credit reports and background checks.

• Step 6 – Once you have chosen a qualified tenant, call them, congratulate them, and let them know that their application has been approved. Set a time and place for the lease signing. Let them know how much money they will need to bring, preferably in money-order or cash form, for the rent and security deposit (and any other deposits, such as pet deposits and mother-in-law deposits). If you accept a check, let them know that possession will be given after the check clears the bank. Many landlords require a credit card to pay rent, with an authorization for a monthly rent charge. This eliminates a lot of potential rent chasing each month and a lot of tenants like the fact that they never have to worry about late fees. Setting up a merchant account so you can accept credit card payments is fairly easy to do in today’s business world.

• Step 7 – The lease signing is still part of the qualification process. If the prospective tenant doesn’t agree to all the terms of the lease, you shouldn’t rent to them. Start with a good-quality lease that has all of the provisions you want to protect you and your property. You should have mentioned the most important items in the lease when you were showing the property, so there should be no surprises. It is critical to read the entire lease to the prospective tenant(s) and highlight on their copy the critical items. Have them initial every page, indicating that they have read and understand the lease and agree to all the provisions. Have them sign and date the lease, your copy and theirs, and sign the spot indicating that they have received a copy with all signatures, yours and theirs. If they argue with any of the provisions (other than minor items) and won’t sign, then politely thank them for their time and call your next applicant who qualified. Assuming all goes well, collect the money and give them the keys (unless they use a check that you want to clear before giving them possession). Remember, once they have moved in, if the funds don’t clear, you have to use legal processes to get them out.

• Step 8 – After a couple of days, send them a welcome letter telling them how excited you are to have them in your property. Thank them for their willingness to take care of the property and take pride in keeping it a great place to live. Have high expectations of your tenants and most will live up to those expectations.

There is no absolute right way to screen a tenant, but a good screening process will help you become a super landlord. So develop a screening system that works for you and use it on every new tenant. Never skip this step! You do not want to deal with any tenants from hell!

In order to sell properties, sellers are making concessions, such as lowering the asking price, providing home warranties, paying the buyer's closing costs, and offering seller financing. In this buyer's market, investors need to develop a clear exit strategy before they buy a property. To sell a property quickly, they need to sell it at a large discount, meaning that they must buy at an even bigger discount.

• Selling a property oneself through the use of yard signs and newspaper ads to advertise a property as FSBO (for sale by owner)
• Listing the property with a real estate agent, who will put the home in the Multiple Listing Service (MLS)
• Featuring the home in one of many for-sale-by-owner publications. Some of these services will also enter the home into the MLS
• Selling the property through the use of a buyer’s list (one of the best ways to sell a home)
• Selling the property by using another investor’s buyers list, or perhaps using the list of someone in your local real estate investors’ club holding a round-robin auction (a method of selling homes which has become very popular and if done right, can be very successful)
• Handing out fliers in the neighborhood asking the neighbors to invite their friends to look at the home
• Selling the home to another investor
There are other creative ways to sell a home, like selling raffle tickets and holding a drawing (if it's legal in your state). I've also seen sellers include an expensive sports car with the purchase of a high-end home. Sometimes it works.

Another way to sell your home is to auction it on eBay. You could call it the ultimate garage sale—you just include the home with the garage.

eBay Real Estate is huge, yet many people don't realize that you can actually auction a home on eBay. It is a good way to give your home international exposure with minimal expense, and it will typically yield a good selling price.
Before trying to auction your home on eBay, you need to understand the rules. First and most importantly is the fact that, due to the wide variety of laws governing the purchase and sale of real estate in the different states, eBay Real Estate auction-style advertisements of real property do not involve legally binding offers to buy and sell. Instead, eBay Real Estate auctions are simply a way for sellers to advertise their real estate and meet potential buyers. The winning bid does not constitute a binding contract, so if your winning bidder decides they don't want the home after all, you can merely report them to eBay and leave negative feedback for them.

Don't let that discourage you; eBay does its best to expose potential buyers to the rules and potential buyers are asked not to bid unless they intend to complete the purchase of the advertised property. Be aware that eBay's policies regarding real estate are different than its other policies. The full text of their policies and documents can be found by visiting http://pages.ebay.com/help/policies/real-estate.html.

Once the auction is over, it is the responsibility of the seller and the highest bidder to get together (usually through express mail and/or the Internet) and sign a formal real estate purchase contract. From that point on, the transaction is similar to any other real estate transaction. The purchase and sale agreement spells out the terms and conditions of the sale and specifies the closing date. The transaction is closed offline at a settlement agency, such as a title company.

Selling your home on eBay is quite different from traditional methods, but it has lots of advantages. First, you don't have to spend countless hours showing the home. No more rush cleanups when your real estate agent calls and wants to show the home in an hour! You prepare your home once, stage it properly, and place information and photos in your eBay ad, which will increase buyer confidence and generate more interest and more bidders, resulting in a higher winning bid.

What are the items you should include in your listing? Remember, your eBay listing is all that your prospective buyers are going to see, so it must be good. It has to be overflowing with information that is easy to read, and must look great. In designing your listing, put yourself in the shoes of a buyer. What would you want and need to know about a home before you would be willing to bid and buy, especially without being able to see it in person? At a minimum, include:

• Videos and photographs of the home (interior and exterior), the yard, the neighborhood, the views (if any), and anything nearby that might help sell the home (for example, schools and stores). You can do this yourself, or you can hire a professional.
• A home inspection report – this will cost you a few hundred dollars, but it gives your listing more credibility
• Floor plan of the home and a layout of the yard, showing the location of the home in relation to the lot boundaries
• Preliminary title commitment
• Rules, regulations, and bylaws if the home is part of a private subdivision or is a condo
• Mold disclosures, if required by your state
• Copy of the purchase and sale agreement you want the buyer to sign
• Details of any seller financing you might be offering
• List of the things you love about the home
Other items you could include that may help you sell your property:
• MapQuest map or Google Earth map showing the location
• Neighborhood statistics
• A current appraisal or recent CMA (comparative market analysis)
• Paid real estate tax notice
• Closing-cost worksheet
• Any concessions you are willing to make to help sell the home (for example, appliances you are leaving or yard-care equipment)

Be creative and have fun with your listing. If your extra effort attracts just one extra bidder, it could raise the final bid price by thousands of dollars.

One of the keys to getting a lot of people to look at your listing is to have a very low starting-bid price. There are entire books written on eBay-auction strategies but, to summarize, what you are trying to do is attract people's attention. You want to pique people's curiosity and get them to say, "No way! They can't seriously be selling a home that cheap." If a low-starting bid gets someone to look at your listing, you potentially have one more bidder who could turn into a buyer.

So how low is low? Try $9.97. It's crazy, but you have to trust the system. You have to believe that hundreds, even thousands of people will see your listing and, among them, will be people who will bid the price up and you will sell it for its fair market value.

For the faint hearted, you can always set a reserve price with eBay. No matter where you start the bidding, if a bid doesn't meet your reserve price, the bidder will be told that their bid doesn't meet the reserve amount and, if they want eBay to post a bid, they will have to bid higher. Details on eBay's reserve price policies can be found at http://pages.ebay.com/help/sell/reserve.html.

Another advantage of selling your home on eBay is that you can eliminate most, if not all, of the contingencies that you get with a traditional offer on your home. In a traditional offer, the buyer makes an offer and then starts their due diligence. The offer is often subject to a home inspection, to the buyer getting approved for a new mortgage loan, and to an attorney's review of the documents. This puts the buyer in control.

When selling on eBay, if you have done a good job of putting a wealth of information in your listing, you can reasonably ask and expect all bidders to have looked at the home inspection report, reviewed all of the documents, had their attorney review the documents, and looked at the photos to see the condition of the home. Thus, it is not unreasonable to expect the highest bidder to sign a purchase and sale agreement with no contingencies. Then, if the deal does fall through on the buyer's end, you usually will be able to keep the earnest money for damages. (Always have your attorney review all documents to ensure you are in compliance with all legal requirements in your state.)

Knowing how to sell (or buy) a home on eBay will increase your options in selling your property. So what are you waiting for? Log onto eBay Real Estate today, learn the rules, and have your own ultimate garage sale!

It’s important to note that tax liens take precedence over all other liens, and the government can and will seize and sell property for unpaid taxes. Generally, liens on a property are given priority based on the date the lien is recorded. The first lien recorded is in the first position, the second lien recorded is in second position, and so on, but not so with tax liens. Tax liens, no matter when recorded, can jump to the front of the line and claim first position, ahead of mortgages and other liens. This is one reason banks like to collect property taxes with the monthly mortgage payments and place them into an escrow account. The bank then pays the property taxes when due each year, eliminating the possibility of a tax foreclosure by the government.

In each of the states, after a tax lien is placed on a property, the owner is given additional time to pay the back taxes (from six months up to four years, depending on the state). If the back taxes are not brought current by the deadline, the taxing authority (usually the county) will hold a tax sale and auction off either a tax lien certificate or a tax deed. Twenty-eight states use tax lien certificates and the rest use tax deeds. However, a few states use a combination of tax lien certificates and tax deeds.

What is the difference between a tax lien certificate and a tax deed?

Tax Deeds - In states that provide tax deeds to the bidders at a tax auction, the deeds to the property are actually issued at (or right after) the tax sale. The deeds either wholly or conditionally transfer title to the subject property from the tax-delinquent owner to the successful bidder. The type of deed that is issued is different for each state, but in most states it is a non-warranty deed. This means that there is no warranty as to the condition of the property, no warranty of the condition of the property title, and no guarantee that the property even exists.

So, just because you get the deed to the property doesn’t mean you can count on moving in or selling the property the day after you purchase it at the auction. Most of the time you will have to go through a quiet title action to clear the title before you can sell. And several states give the original owner a redemption period in which they can still reclaim the property, even after you have been given the deed. The rules which govern how the redemption takes place and how much the original owner would have to pay to reclaim the property vary from state to state and even county to county. That is one reason it is critical that you understand all the rules and regulations governing tax liens and deeds and the state’s statute on redemption in a specific state and county before you bid at the auction!

Tax Lien Certificates - In the states that use tax lien certificates, the title to the property is not given to the successful bidder. Instead, they are given a tax lien certificate that creates a first-priority lien on the property with the right of foreclosure – again, subject to the state’s statutory right of redemption. The buyer of the certificate pays all the back taxes that are due and other expenses. They must then wait through the redemption period (six months to four years). In order for the delinquent owner to redeem the property during the redemption period, they must pay the certificate holder the full amount that was paid for the tax certificate, along with interest, any penalty fees, and sometimes expenses. The interest rate on the tax lien certificates is set by each individual taxing authority and ranges from six percent to 24 percent. With penalty fees in some states, the overall interest on tax lien certificates can reach upwards of 50 percent. That is not a bad return on a relatively safe investment, considering what rates banks are paying on savings these days.

Most people who purchase tax lien certificates do so for the higher rate of return they can make on their investment and not to gain title to the property. Statistically, more than 95 percent of tax lien certificates get redeemed. Very few people will let their home ownership slip away for just the back taxes. However, it does happen. So a very important rule is to never buy a tax lien certificate for a property that you would not want to own. You only want to bid on properties that are saleable and/or rentable because, if the certificate does not get redeemed, your only remedy to reclaim your investment is to foreclose on the property. The property is the security for your investment. But you need to go through the foreclosure process in most states to get the deed to the property. Again, it is critical to know the state’s rules and regulations that govern how the foreclosure is handled.

If your goal is to get a good interest rate and great return, you should probably bid on nice homes in nice neighborhoods, preferably owner-occupied homes. Owners of these properties will most likely redeem the tax lien certificates. But if you want to gain title to the property, then you should concentrate on distressed homes in distressed neighborhoods. There is a better chance of actually obtaining title to these properties in the long run, especially if they are really rundown, vacant, abandoned, neglected and/or owned by an out-of-state owner.

Which states offer tax lien certificates?

The states which offer tax lien certificates and the interest rates required for certificate redemption are shown in the following list. However, interest rates could be different if there have been any recent changes in the state statutes.

State Interest Rate

Alabama 6%
Arizona 16%
Colorado 10%
Florida 18%
Illinois 18%
Indiana 10% to 15%
Iowa 24%
Kentucky 12%
Louisiana 17%
Maryland 12% to 24%
Massachusetts 14% to 16%
Mississippi 17%
Missouri 10%
Montana 10%
Nebraska 14%
New Hampshire 18%
New Jersey 20% to 24%
New York 10%
North Dakota 9% to 12%
Oklahoma 8%
Rhode Island 6% to 18%
South Carolina 8%
South Dakota 12%
West Virginia 12%
District of Columbia 18%

Which states offer tax deeds?

The following states sell tax deeds: Alaska, Arkansas, California, Idaho, Kansas, Maine, Minnesota, Nevada, New Mexico, North Carolina, Ohio, Oregon Pennsylvania, Texas, Utah, Washington, and Wisconsin.

Some states have laws that allow for both tax deed and tax lien sales and it may vary from county to county within the state. Connecticut, Florida, Massachusetts, Michigan, Nebraska, New Hampshire, New York, North Dakota, and Vermont are the states that can sell both tax lien certificates and tax deeds. You will need to check with each specific county in each of these states in order to determine what is being sold at their tax sales.

Which states have redeemable tax deeds?

Some states sell redeemable tax deeds. The successful bidders in these states are issued a deed to the property, but there is a period of time (the redemption period) during which the delinquent taxpayer can reclaim (buy back) the property by paying the amount that was bid plus a prescribed penalty. After the redemption period is over, if the owner hasn’t reclaimed the property, the winning bidder can obtain clear title to the property, usually through a quiet title action (a court action to establish ownership of the property). States that sell redeemable tax deeds are Connecticut, Delaware, Georgia, Hawaii, Rhode Island, Tennessee, Texas, and Vermont.

What are the various bidding methods used by different states?

Make sure you understand the bidding process and how it works in your particular county. There are several different techniques that are used to determine the winning bidder for states auctioning tax lien certificates:

• Bidding the interest rate down. In some states, like Florida and Arizona, the bidding starts at the maximum interest rate set by the statute and each bidder bids a lower interest rate. For example, in Arizona (as of this writing) the maximum allowable interest rate for tax-lien certificates is 16 percent. Potential certificate buyer’s bid 15 ½, 15, 14 ½ percent, etc. until the lowest interest rate someone is willing to accept is reached. That person purchases the certificate at the ending bid rate. If the certificate gets redeemed, the delinquent taxpayer still must pay the full statuary rate, and the county keeps the spread.
• In some states, the auctioneer is auctioning a percentage of interest in the property in the event the certificate is not redeemed and the certificate owner has to foreclose on the property. In other words, the bidders start bidding 99 percent, 98 percent, 97 percent, etc. until the lowest percentage of interest someone is willing to accept is reached. In the event of a foreclosure, the certificate owner could own anywhere from 99 percent down to one percent of the property, compared to the property owner’s one percent to 99 percent. Under this system, the bidders are looking to get the statutory rate from a redeemed certificate and not planning on a foreclosure. There is some risk involved, however, as there is with any investment, if the certificate is not redeemed. You just need to know the rules and the level of risk you want to take before getting involved in tax lien investing.
• Other states, like Colorado, use a premium bid system. In states using this system, the law allows the face amount of the tax lien certificate to be bid up. In other words, there is a statutory rate of interest that is paid on the face amount of the certificate, but the bidder may pay more than the face amount for that certificate in order to win the bid. In some states, the successful bidder gets this premium back if the certificate is redeemed and in other states, the successful buyer does not get the premium back and the county keeps the premium amount. Know the rules before you bid.

For most states that are selling tax deeds, the auction is like a typical auction where the deed will go to the highest bidder (highest bid over the taxes due). Some states, however, also use sealed-bid type auctions, where there is a deadline to submit the bid and all bids are then opened and the highest bid gets the deed.

In the next article on tax liens and tax deeds, we will discuss several additional items:

• Where is the best place for you to invest in tax liens?
• Should you invest in tax lien certificates or tax deeds?
• Advantages of buying “after” the tax auction.
• The importance of doing due diligence on tax lien properties.
• Buying tax-liens online.
• How to take a tax lien vacation.
• Where to find information on the thousands of tax sales being held in counties all across the country.

As you can see, to be successful in investing in tax lien certificates or tax deeds, you need to know what you are doing. Knowing the rules of the game is one of the most important factors to successful investing in tax liens and/or tax deeds. It is a great game, with lots of money to be made, but you must do your homework before you play or you could get hurt.

Intrinsic Value:

Intrinsic value or IV can be defined as the amount an option is in-the-money. The deeper in-the-money the option, the more IV it possesses. For a call option, the formula to calculate IV is: stock price minus strike price. For a put option, the formula is: strike price minus stock price. Let’s practice calculating IV on stock XYZ, currently trading at $50. Suppose the 45 calls are trading at $7.50. To calculate how much IV is in this call option, we would plug the stock price (50) and strike price (45) into the aforementioned formula: 50-45= 5. Thus the 45 strike call has $5 of intrinsic value. This should be quite intuitive as the option is indeed $5 in-the-money. Now let’s look at a put option by calculating the amount of IV in the 60-strike put, currently trading at $11.75. Once again just plug the stock price (50) and the strike price (60) into the put IV formula: 60-50 =10. There is $10 of intrinsic value in the 60 put because it is $10 in-the-money.

Extrinsic Value:

Extrinsic value or EV is the amount of money an option is worth over and above the IV. EV can be thought of as the amount of money option buyers pay for time and implied volatility. EV is often referred to as time value. Generally, the more time an option has to expiration, the more EV it possesses. The formula to calculate EV is: premium minus intrinsic value. Let's compare a one-month 45 strike call option to a six- month 45 strike call option on a $50 stock. Because both options are $5 in-the-money they possess the exact same amount of intrinsic value. However, that doesn't mean they will be worth the same amount. Since the six-month option has more time to expiration it will invariably posses more extrinsic value. Let's check:

Stock XYZ @ $50
1 month 45 call premium = $6.50
Intrinsic Value = 50 - 45 = $5.00
Extrinsic Value = 6.5 - 5 = $1.50

6 month 45 call premium = $11.00
Intrinsic Value = 50 - 45 = $5.00
Extrinsic Value = 11 - 5 = $6.00

As you can see the six-month option has four times as much extrinsic value ($6 vs. $1.50). Implied volatility is another variable that influences the amount of extrinsic value that an option contains. If we were to compare two-similar options (same strike price, same time to expiration, but different underlying stock), one trading at 100 percent implied volatility and the other trading at 25 percent implied volatility. Which do you think would contain more extrinsic value? If you said the option with 100 percent implied volatility you are correct! As implied volatility increases, options accrue extrinsic value, as implied volatility decreases, options lose extrinsic value.

Hopefully you know by now that options are decaying assets and lose money as time passes. It is crucial to understand the differences between intrinsic and extrinsic value because it aids in measuring exactly how much value your option will lose due to time decay. Options don't lose all of their value at expiration; rather they lose all of their extrinsic value. Let's look at a covered call example to illustrate:

Suppose you buy a stock at $50 and sell an in-the-money 45 strike call for $6. Some traders may think that they can make $6 of profit in this trade since that is the amount of premium they received for selling the call option. That would be an incorrect assumption! The 45 strike call option possesses $5 of intrinsic and only $1 of extrinsic value. As a result, your max profit is only $1, not $6! Assuming the stock stays at $50 or above, only the $1 of extrinsic value will erode out of the option premium as time passes, not the $5 of intrinsic value.

Although we used a basic covered call in our example, differentiating between intrinsic and extrinsic value is important in any type of options trade. Making it a priority to grasp the nuances of intrinsic and extrinsic value will assuredly help in understanding more advanced option strategies.

In reality; however, creative financing simply means finding an alternate way to solve a financing problem. When faced with a challenge in financing a property, choose the easiest path to the finish line. The goal is to get the deal completed and make some money, not to impress yourself and your fellow investors by using complex techniques.

Whether you are a brand new investor, just getting your feet wet, or a seasoned professional, one of the most important things in real estate is maximizing the return on your investments, while minimizing risk. One way to help maximize your profits is to negotiate a discounted purchase price; another way is to get the least expensive financing possible for each deal.

Whether you are dealing with banks, mortgage brokers, hard-money lenders, private lenders, or good old Uncle Charlie, a well-written, easy-to-understand loan package will help you get money faster and, quite often, cheaper.

Most often we use loan packages when we are dealing with traditional financing, like banks, credit unions, and other mortgage lenders. There are basically two different types of traditional loans - residential loans and commercial loans – each with their own qualifying criteria. Residential loans are for single-family homes and buildings with up to four units, such as duplexes, triplexes, and fourplexes. Commercial loans take over when an apartment complex has five or more units and cover most other types of real estate from office buildings to industrial complexes.

Residential loans are split into two different categories, owner occupied and non-owner occupied. Investors, for the most part, will be getting non-owner occupied loans for properties they are fixing to sell or fixing to rent. However, there are occasions when an investor will actually move into the property and live there while they are rehabbing, in which case they may qualify for an owner-occupied loan.

There are also three different types of residential mortgage loans – conventional, FHA, and VA. Briefly, VA loans help veterans get into homes for little or no down payment, and FHA loans are loans insured by the government, allowing more people to qualify to get into homes by requiring smaller down payments.

There are many different specialty loans and loan programs which will be discussed in future articles; however, they all require a loan package to be submitted in order to qualify for the loan.

Just what is a loan-request package? For the serious investor, it is more than just a loan application with a few attachments; it is a sales tool! Yes, you are trying to sell the lender on the fact that it will be in their best interest to loan you the money for your project. A well-written, easy–to-follow loan package will show the lender that you are prepared and have thought through the project.

Especially in today’s financial environment, when you apply for a mortgage loan, lenders tend to ask for enough documents to destroy a small forest. Just as you want to minimize your risk in your real estate investment, lenders want to minimize their investment risk that you will default on the loan. Thus, they require lots of documentation to verify facts about you both personally and financially, and facts about the property you will be pledging as security for the loan. Each lender will have a list of the minimum documents they require. Be sure to give them everything they ask for.

Typical List of Documents in a Loan-Request Package

1. Personal Information

• Lender application form – will include name(s) of applicant(s), current address, phone, type and amount of loan required, as well as other personal and financial data
• Driver’s license and social security card photocopies
• Divorce settlement papers, if applicable, no matter how far back in time
• If not a U.S. Citizen – permanent resident alien – copy of green card (alien registration card) or non-permanent resident alien – copy of Visa
• Your personal resume

2. Income Documentation

• W2 forms for the last two years
• Last two pay stubs, covering at least one month
• Signed tax returns for the last two years – be sure to include form 1040 (long or short form) along with all schedules
• Business tax returns for the last two years if you own 25 percent or more of a business
• Current business income statement
• If self-employed, many lenders want verification that you have been in the same line of work for at least two years
• Rental/lease income (proof required will vary by lender)
• Proof of social security income, pension, disability income, 1099 income, or any other income you want to use to qualify for the loan

3. Employment Verification

• The lender will request verification from your employer that you are indeed an employee
• The lender may also request a statement from your employer indicating that you will most likely continue to be an employee for the foreseeable future

4. Asset Information

• Bank statements for the past two months
• Last quarter investment or trust accounts (if applicable)
• Copies of stocks, bonds, or U.S. savings bonds
• Current statement for 401(k) and/or IRA accounts
• List of all real estate you currently own, including address, current value, loan balances, monthly payments, and rental income (if any)
• Value of autos, boats, and any other personal property
• Listing agreement and sales contract if you are selling your current home
• List of any life insurance cash value

5. Liability Information

• Complete list of current debts and minimum monthly payments (may be taken from credit report)
• List of any loans on which you are a cosigner
• If debts are owed to individuals, lender may require a statement from payee as to the current balance, payments, and if payments are being made on time
• If the loan requested is for a refinance, a copy of the current mortgage and payoff amount

6. Proof of Housing Payments

• Last 12 months of cancelled checks paid for rent (if applicable) or payments on a land contract
• If you rent your home and it is managed by a professional management firm, they can verify that you are current on your rent and that rent has been paid on time

7. Property Information (for investment property purchase or refinance)

• Property address, legal description, and location on map
• Purchase agreement (if applicable)
• Copy of earnest money check (if applicable)
• General description of the property with pictures of property and neighborhood
• The year the home was built
• Type of construction
• Renovation proposed (if any)
• Details of renovation plan and schedule, including the budget, the contractors to be used, and the added value to the property when the project is complete
• Copies of any appraisals available

8. Miscellaneous Information (may be required)

• Gift letter (if applicable) signed by the donor and proof of receipt and ability to gift the funds
• Landlord’s contact information (if applicable)
• Realtor’s contact information (if applicable)
• Insurance agent’s contact information
• Contact name and phone number for the lender’s appraiser to access the property
• College diploma if you graduated within the last two years
• Cosigner’s complete information (if applicable)
• All pages and schedules for any bankruptcy filing within the last seven years and the discharge sheet for any type of bankruptcy (Chapters 7, 11, or 13)

9. Loan Request

• The purpose of the loan (purchase, refinance, consolidation, or expansion)
• Summary of calculations showing the requested loan amount (and financial justification for the deal for an investment property)
• Preferred type of loan with preferences for rate and term
• Statement of your ability to pay the loan back from proceeds of a sale or rental income

Once you have this documentation gathered, make several copies so you will have ready- made, loan-request packages for future loans (probably only requiring a few updates to bring the package current).

Applying for a loan can be time consuming and very frustrating at times, especially when the lender keeps requesting more and more documentation. However, if you spend the time now to put together a great loan-request package and then make sure you have all of the information the lender requests before you submit the package, you will increase your chances of getting a loan approval sooner rather than later. Be proactive and develop a good sales package that creates a positive image for you and your business.

In the next article on creative financing, down payment requirements for investors in this current financial market will be discussed. We will also discuss front-end and back-end debt-to-income ratio requirements and credit scores.

David Boyd is a real estate investor and owner of Wasatch Front Homes, LLC in Farmington, Utah, working in short sales and loan modifications. He is also a licensed securities agent with Regent Capital Group, specializing in 1031 Exchanges and tenant-in-common investments.

The inexpensiveness of the options may be alluring inexperienced traders into thinking they are cheap, thus an obvious buy. The reality is just because an option is inexpensive, it doesn’t mean it’s cheap.

For example, on April 26, BAC was trading around $9.40 and the May 12.50 calls were trading at $.37. There’s no doubt that $.37 for an option is inexpensive, but is it cheap? Well, let's look at the facts. We have a mere three weeks to expiration and BAC would have to rise to $12.87 just for you to breakeven (assuming you hold to expiration). That’s a 37 percent move in a very short period of time. This suggests that the 12.50 calls are trading at a very high-implied volatility, as an option trading for $.37 that far out-of-the-money with three weeks left would have to be. Under a lower-volatility scenario, those 12.50 calls may only be trading around $.05. So the bottom line is you can’t look at an options price to determine if it’s cheap. You have to take into account its strike price, time to expiration, and current levels of implied volatility. Oftentimes when implied volatility is pumped up too high, inexpensive out-of-the-money options can rise to unjustifiably high prices.

The inexpensiveness of the options may be alluring inexperienced traders into thinking they are cheap, thus an obvious buy. The reality is just because an option is inexpensive, it doesn’t mean it’s cheap.

For example, on April 26, BAC was trading around $9.40 and the May 12.50 calls were trading at $.37. There’s no doubt that $.37 for an option is inexpensive, but is it cheap? Well, let's look at the facts. We have a mere three weeks to expiration and BAC would have to rise to $12.87 just for you to breakeven (assuming you hold to expiration). That’s a 37 percent move in a very short period of time. This suggests that the 12.50 calls are trading at a very high-implied volatility, as an option trading for $.37 that far out-of-the-money with three weeks left would have to be. Under a lower-volatility scenario, those 12.50 calls may only be trading around $.05. So the bottom line is you can’t look at an options price to determine if it’s cheap. You have to take into account its strike price, time to expiration, and current levels of implied volatility. Oftentimes when implied volatility is pumped up too high, inexpensive out-of-the-money options can rise to unjustifiably high prices.

The most inexpensive options you are going to find are short-term, out-of-the-money options. Statistically speaking they have the lowest probability (versus longer-term ATM or ITM options) of being worth anything at expiration. These options are priced inexpensively because they are a low statistical bet. Thus, if you decide to buy them, you better be sure the stock has the ability to reach the strike price prior to expiration. Remember, the options market is quite efficient so don’t think that you are getting a steal of a deal if an option is ostensibly cheap.

In an introduction to economics class I took in college, I was introduced to a phrase that sheds some light on this scenario: “there’s no such thing as a free lunch.” The options market does not have a track record of handing out freebies. For everyone buying an option, there’s someone on the other side of the table selling it to them. Odds are if the option was such a great deal (read: too inexpensive), then option sellers would be asking more for them. So don’t be too quick to think that those selling these ”inexpensive“ options are idiots...you never know, the idiot may just be you.

Myth #4: Options are Riskier than Stock

Due to the myriad of strategies one can trade with options, it is impossible to make a general statement that options are riskier than stock. It depends completely upon how you use options.

Options are merely tools. Although some use them to speculate or take on risk, others use them to reduce or hedge off risk. Due to the leverage inherent with options, it is quite easy to blow up an account when they are used improperly. This option myth is probably fueled by the occasional inexperienced option trader who loads up on an exorbitant amount of call or put options in an effort to amass large profits. All too often these traders lack any semblance of a sound money-management plan and blatantly disregard the drawbacks of leverage. In short, they commit financial suicide.

Are there certain scenarios where trading options could be considered more risky than stock? Absolutely. One such scenario will be explored in a minute. But there are also a plethora of situations where options can be used to reduce risk (covered calls and protective puts being two obvious ones).

Suppose I'm bullish on IBM, currently trading at $107, and am considering buying 100 shares of stock. My total capital outlay would be $10,700. The theoretical risk would be the entire $10,700 (this is of course assuming you would be foolish enough to ride the stock all the way to zero) and the potential reward is unlimited.

Scenario #1: The SMART idea

Instead of tying up $10,700 of capital to control 100 shares of stock, I could buy one October 105 Call for $880. This call option gives me the ability to control the same 100 shares of stock at a drastically lower cost. I then have the option of using the other $9,820 in whatever manner I want. I could merely place the cash in an interest-bearing account for the duration of the trade, or use it for other strategies. Because my maximum risk is $880, this is a scenario where using options is much less risky than buying stock.

Scenario #2: The STUPID idea

Instead of using the $10,700 of capital to buy 100 shares of stock, why not just use the same $10,700 and buy as many call options as possible? At $880 a pop, I could buy around 12 contracts ($880 x 12 = $10,560). Some erroneously assume that since they are paying the same amount of money, they have the same amount of risk. WRONG! To lose the $10,700 in the stock trade, IBM must fall to $0. To lose the $10,700 in the option trade, IBM only needs to reside beneath $105 at August expiration. There is a much higher chance of losing your money in the call-option trade. Furthermore, by buying 12 contracts, you now control 1,200 shares, not 100.

Scenario #2 presents a good example of how an improper use of options and their leverage can present more risk than buying stock outright.

Bottom Line: It's fair to say that the biggest risk of all is ignorance. With proper education and application, options serve as superb vehicles for minimizing risk and are indeed less risky than stock.

It goes without saying that a good real estate education is vital to one’s success. Successful real estate investors know the basics, and are continually getting additional education and learning new skills and tactics. In the past, one had to learn the basics from another investor or from the school of hard knocks. In today’s world, there are numerous educational and coaching programs that can teach you the basics of real estate investing in record time. Take advantage of all the education you can get. Novice investors are prone to making costly mistakes that those who have received proper preparation are easily able to avoid. You can save yourself a lot of time and money by learning from the mistakes that others have made in the past.

Look in the mirror and ask yourself the hard question, “Am I taking action, or simply making excuses?” The list of excuses is seemingly endless—I don’t have my office organized, I don’t have my Power Team put together, the real estate market is bad right now, I don’t have the time or the money, and so on—but they all have one thing in common. Beneath every excuse is fear.

Most new investors are fearful of making offers, and rightly so. They are fearful of making a mistake by entering into a deal that may end up costing them money. This is a valid concern, which is why a sound education is so crucial. With the proper training, you will know how to conduct business in such a way that minimizes your risk. For example, any offer you make should be subject to a final inspection and approval by your associates. Then, you are able to back out of the deal while you are still within your inspection and approval period, and you can go back to the seller and let them know that your associates did not approve the purchase or that the property did not meet final inspection. With the proper conditions in your contract you can make offers without fears of becoming trapped in a deal that is later discovered to be disadvantageous. Many new investors also fail to make offers out of fear that their offers will not be accepted, yet there is only one absolute rule in real estate: 100 percent of the offers you don’t make will not be accepted.

Let’s take a look at two friends, Bill Action and Fred Excuse. Both Bill and Fred have good jobs, but both are tired of the corporate rat race and long hours of commuting to and from work. Bill sees an ad for a real estate seminar coming to town, and he and Fred decide to attend. They like what they hear and get excited about the prospect of investing. They decide to invest in their real estate education, and both attend a three-day class on the basics of real estate investing. Over the next few weeks, they continue their education by reading books and attending online real estate classes. When time permits, each one schedules some additional, live-training classes.

They are both on the road to success. Bill starts making offers on properties right away, as he continues receiving his education. He knows enough to make offers that limit his risk, and he sets himself a goal of making five offers every week. He is on the “earn-while-you-learn” program.

Fred, on the other hand, feels as if he needs to know more before he starts making offers. He lets fear keep him from making offers; he feels that just one more class or book will prepare him to make that first offer. After all, the real estate market really stinks according to the local news. Not a good time to be getting into real estate, right? He studies more and more, but makes no offers.

A year later, the two friends get together to review the progress they have made. Fred is still working his full-time job, still commuting, still going to seminars on the weekends, and is hoping to turn his first deal in the near future. Theoretically, he knows everything there is to know about real estate investing, but still has not done his first deal. Bill has enough income to do as he pleases and is closing on his seventh property. By his projections, he can rehab and sell the property within the next six weeks for a $30,000 profit. What made the difference between these two friends? Bill took action! He took his education and put it to work. He began making offers right away. He was frightened at first, but after making more than 20 offers in the first month, he was no longer intimidated by doing so. He became accustomed to talking with sellers, finding out their level of motivation, and making the offer. He knew how to quickly analyze the property to determine what price to offer, and he had streamlined his offer process so that it only took him a couple of minutes to write up paper work. As time went on, he created a system that allowed him to screen potential sellers and make dozens of offers every month.

Most of the things needed to become successful real estate investors are easy to do. The problem is that those same things are also easy not to do. It is really easy to pick up the phone and call 10 potentially motivated sellers every day, but it’s also easy not to make those calls. The best advice comes from a famous shoe company: “Just Do It!” And do it now! Acting now is always better than acting later, and nothing helps you overcome fear better than taking action. Those 10 calls a day add up to over 200 calls a month, which equals more than 2,400 calls per year. With a total call volume that high, you will find the motivated sellers in your area, which is crucial to making money.

Decide to take action now! And be prepared to work! You need to take responsibility for your own success or failure. There are no excuses. If you take action, there is a high chance that you will be successful. If you do not take action, it is certain that you will not succeed. What can you do to break the cycle of no action and start a cycle of taking action? Get out a piece of paper and write “it” down! Write down four action items that you will do this week. Just the act of writing these items down is taking action. These four action items should be actual money-making activities. We are not talking about doing market research, developing your Power Team, or setting up your business entity. These are all important things to accomplish, but don’t let them divert your focus from making offers.

Remember, you will never make any money unless you are making lots of offers!
Here are some examples of action steps that will lead you to make offers and, in turn, make money:

• Distribute 300 fliers within your area. You can distribute them yourself or hire someone to do it for you, as long as the task is completed.
• Speak with 10 to 15 sellers every day. You can locate sellers by calling the phone numbers that you see on signs and in newspaper ads, as well as by contacting people who have previously contacted you in response to your fliers or other forms of advertising. Don’t stop calling around until you have reached your goal.
• Make five really low offers on REOs (real estate owned by mortgage companies). If the bank rejects your offer, make an even lower offer a couple of weeks later.
• Send out 100 letters of intent to expired listings in your area.
• Make five backup offers on properties that are already under contract through the real estate agents on your team.
• Go to the court house and research 20 to 30 properties in your area that are in default. Make house calls to the property owners who have received a notice of default (NOD) and offer your services.
• When driving in your area, stop at five properties that are for sale by owner to ask if you may see the property. Talk to the owners to determine whether or not they are motivated sellers. If you determine that they are, make an offer!

Get going and take action. Make quick decisions. Ready, aim, fire! You’ll never hit the target if you don’t pull the trigger!