Subject-To DOES NOT Mean Mortgage Payments and Repairs!

One of my viewers of the videos on my website sent me the following question and I’d like to address that here to share with everyone:

I live in Georgia and am moving to the Atlanta area to pursue that market as there are so many real estate opportunities there. I had a couple of questions and thought I would see what you said about them.

I have found several subject-to deals with TONS of equity. My long term strategy is buy and hold. I may do some flipping but I would probably reinvest the profits into buy and hold properties. If several of these subject to deals come through and they sign the papers all at once there will be no way for me to make all of the payments while making repairs or finding renters.

What would you do?

Is it possible to pull out equity from a property purchased subject to with say a HELOC or otherwise?


Sincerely,

Rich

This is what I would do:

One thing I DON’T do is sign a bunch of contracts and buy a bunch of houses sub-to and have all of these mortgage payments that I have to make. As a matter of fact, I rarely make any mortgage payments on sub-to’s while I’m waiting to find my tenant because I find my tenant BEFORE I close the deal.

I go into the sub-to deal saying, “Here’s what’s going to happen Mr. Seller, I’m confident that it’s going to work this way, but I’m not going to close until I find my sub-tenant, ready to move into the house.” Basically, it’s a standard sub-to contract. We go into the standard sub-to contract contingent upon us finding our buyer or tenant, or subject-to us finding our tenant or finding our buyer.

That way, I don’t make a single mortgage payment on that house until my guy has already paid me, has moved in, or is ready to move in. In a lot of cases, we get to keep the first mortgage payment and then the tenant starts making the second then third.

But in any case, put that contingency in your mortgage and the whole deal is contingent upon the buyer finding a suitable sub-tenant to occupy the property. That way, you get all of the paperwork done and you don’t close until you have the other guy ready to move in and you never have to make a mortgage payment while you are waiting to find your buyer.

Right now, the way the market is, you have a lot of buyers out there and lots of sub-to sellers out there. The sub-to sellers are desperate, and the sub-to buyers are plentiful. When I say “sub-to buyers”, don’t sell it to them sub-to, sell it to them lease with an option to purchase. That is the way I would do it, though note I am making a “Disclaimer” here. As you know there is more than one way to skin a house and more than one way to do this. Make sure you get the buyer lined up before you close the deal, if you can.

Now, if it’s a “home run” and it has $60,000 in equity, I’ll start making that mortgage payment yesterday to get my feet into that little house, because I know that house will make me a bundle. But, most sub-to houses don’t have as much equity as a retail flip.

Now, let me answer his question about repairs. I don’t make repairs on my subject-to houses. I let my tenants do it. Here is what I do. I ask my prospective tenants how much they have for an option fee or option deposit (which is similar to a deposit because it comes off of the price of the house) and whatever they say, here is what I say. If they have $6,000, I say: “You know, I was really looking for $12,000, but I can take the $6,000 as the option fee and get you into the house, if you are willing to take it without me putting in new carpet or paint and my fixing the bathtub. Because I was going to go in and fix that bathtub and put in new carpet and paint and I know I can get $12,000 up front from somebody else. But, if you are willing to take it in as-is condition, I’ll let you in with that $6,000”. And this works almost all of the time.

I have never had a house in which I had to do the repairs that I couldn’t fill otherwise. I have sold houses that looked really bad. Remember, these option people are so happy to get a house of their own, that they are willing to fix these things. And a lot of times, it’s not as bad in their eyes, compared to where they are coming from, as it might be in your eyes or a realtor.

So, make it contingent upon you finding your buyer, and now you don’t have to make any mortgage payments until they have taken over the house. Your buyer will come in, you’ll make your option fee, put it in your pocket, and you are off to the bank. Secondly, you won’t have to do the repairs because you are going to let your tenant do that.

Thirdly, as for asking if it’s possible to pull out equity from a property purchased subject- to, with say a home equity loan, or otherwise. I personally have never been able to put a home equity line on a subject-to house. I’ve never tried and I doubt I could do it.

Here’s what I do: Here is how I pull cash out of almost every subject-to house. I don’t want $5,000 or $6,000. I want to make $15,000 or $20,000. On almost every house I take subject-to, I borrow $10,000 from a private lender when I take over that house and I pay about 15% interest. I tell the lender that I just bought a house with a tenant in there. In a year or two from now, the tenant is going to buy the house from me. I would like to borrow $10,000 from you on that house and I will pay you 15% interest.

I know for some of you, it sounds like a huge amount. But, here is what I tell the lender. It’s a 15% flat interest per calendar year, no payments until I sell it off. So, he gives me $10,000 when I take that house subject-to. I now owe him $11,500. After one year, I’ll owe him $13,000. After two years, I owe him $14,500. I hope to cash it out before then, but I don’ really care. If it’s a good enough deal to take sub-to, and there’s enough equity in there, I don’t mind because I’d rather have that $10,000 up front and pay that $11,500 later or $13,000 later because I want that cash now.

Here’s what I suspect, Rich. I suspect that you are trying to borrow money off of these sub-to’s because you don’t have the money for the mortgage payments and make the repairs. If you follow the tips I’ve given you, you don’t need to borrow money on that sub-to house for mortgage payments and repairs! I hope this has helped you!

Persistence PAYS In Real Estate Investing

Let’s talk about persistence, you know, the ability to keep going when things keep holding you back? Sometimes both new investors and old need a check-up from the neck-up. This business can be tough at times !

I don’t care what the guru’s tell you, this is not an easy business, though it’s simple sometimes. Once you do your first deal, it’s like the gates open and knowledge flows. The confidence from your first deal is what gets you going… but you need that confidence first.

Here’s a story I want to share with you about a miner:

Back in the gold rush days, there was a guy who wanted to be a gold miner, but didn’t want to do it alone. He wanted to hire a company and do it BIG TIME. He went out and got a loan, borrowed all kinds of money, put his life savings in it, hired some guys to go out there with picks and shovels, did tons of research to figure out where the gold is… and things got tough.

Days went on, and they dug and dug and dug and dug. They didn’t find any gold and things were looking gloomy and glum. Then, the guy got out. He backed out because he didn’t have any more money to pay his people and he couldn’t take it anymore. He finally said, “there’s no gold here!” and sold out. (I bet some of you are thinking the same thing right now in your real estate business)

He sold his business to in order to pay off his loans. Now, ANOTHER guy comes in who had a little bit more education and knowledge about the business. He put HIS guys to work, and literally, 3 feet away from where the other team stopped digging, they found one of the largest gold veins in California. This guy became mega-wealthy. Go ahead and look this up online and in the history books. It’s true!

You might be “this close” to your first deal. It takes only one deal to change your life! If you could do one deal tomorrow that could make you $20,000 to $30,000… or even $5,000… how much would it change YOUR life? It only takes one deal to make a difference. Now, you couldn’t retire after one deal, but it would allow you to pay off some of your bills, maybe take a nice vacation with your family. But, you have to be persistent!

I don’t know how many of you have been in jail swinging sledgehammers breaking those big boulders. (I wouldn’t want to try it) But, from what I have read, to break them, you have to hit them hundreds of times, without seeing as much as a tiny crack first. Then, all of a sudden, with one blow, it would crumble into many little pieces because it had been weakened from the inside out.

Business is Like Sometimes. You Have to take one more smack, one more blow

That is what this business is like sometimes. You have to take one more smack, one more blow. I know that some of you feel like you have been knocked around out there. Be persistent. Stick to your guns. This business works! If you want to work for yourself and you don’t have a bunch of money or good credit to go around, this is the business for you! Think about if you want to open a McDonald’s or Subway, it could cost you a quarter to half a million dollars, and then it could take years to break even.

To get into a business on your own, this is an easy business to get into. You don’t pay for it out of your pocket, but you do pay with stress and nerves at times. I know where you are at, I’ve been there. Rome wasn’t built in a day. But once you “get” this business, you’re able to do it over and over again. But… you have to have “stickability”!

In this business, you won’t get any worse with practice. If you’ve been in the business for a few months and have made a few offers, started your education, put out a few signs, or run some ads, you are not getting dumber or less smart in this business. Every time you fail, you take a step forward. (of course the shortest path to success is getting help and training)

I’ve known guys that have done deals for hundreds of thousands of dollars. Once you have the knowledge, the only difference is the amount of zeros on the paycheck. You do the same amount of work on a million dollar house as a $100,000 house. If you spend some money on training or bought a program or two, and put a lot of hours in it, and nothing has panned out, the only way it can go to waste is if you quit. Like I said before, it’s “stickability” and having the right attitude.

Let’s look at people who make big money. Real estate investors make big money. Athletes make big money. Actors make big money. Musicians make big money. Most of these actors and rock stars worked for $200 a week waitressing, cleaning, doing anything they had to do to put food on the table. Most of these actors and rock stars are “old” and that’s because they did gigs for $100 a night for ten years, before they became famous and successful. Most of them put years in first, while they whacked away at that stone, before they got that big break.

It’s the same thing in this business. Once you get that first deal, they are going to fall like bowling pins. That’s your big break… but don’t give up. Don’t be afraid to spend a little money to get some training. You have to be trained and have some support. You have to have someone you can go to for help. Go to your REIA, meet some people, and network. I do deals now that 4 or 5 years ago would fall apart, because when there was a problem, I didn’t know how to solve it. I learned that by “doing”!

I want to share a story with you:

In 1831, a man lost his job. In 1832, he was defeated in his run for Illinois State Legislator. He opened a business after that. A year later, in 1833, he failed and lost his business. In 1835, his sweetheart died. In 1836 he had a nervous breakdown. In 1838 he was defeated in another run for Illinois House Speaker. In 1843 he was defeated for the U.S. Congress. In 1846 he was elected to Congress, finally. In 1848 he lost. He was out. In 1849 he tried to become a Land Officer, he lost. In 1854 he tried to run for Senate and lost. In 1856 someone wanted him to be his Vice President, and he lost. In 1858, he again lost. Then, in 1860 Abraham Lincoln became President! This is Abraham Lincoln we are talking about. How many times did he whack away at that boulder to get where he wanted to go?

I too had to adapt recently. It’s all about education, learning, being persistent, and just keep going!

Did you know that Thomas Edison had about 1,000 ways that he failed while trying to get the light bulb to work? He always said he had 1,000 ways to make a light bulb. He only needed 1 way to make it work. But he was persistent. What if he didn’t keep on going?

So, be persistent! This business does work, and you can do it! Oh… and you can begin that training I talked about earlier by going to www.RealEstateInvestorOnline.com/vip .

Nick

How Do I Get Into Commercial Real Estate Investing?

Know the Real Score of Commercial Real Estate Investing

First of all, commercial investing is not as hard as people think. There seems to be a stigma surrounding commercial investing. People think it's the big glass 100 million dollar buildings downtown. Sure, it is, but it's not always that. There are many different kinds of commercial investing that you can get into. You can start small and work your way up. It's not as hard as people think. It's not as hard to get funded, to find deals, and sometimes not as much work, once you have the deals.

Everyone that owns commercial properties are not like Donald Trump. They don't all have their own TV shows, aren't in the news, aren't in the casinos, own sports teams, and don't have the perfect woman on their arm. It's just real people that own most of the commercial properties out there. People like you and me. It's the guy next store. The guy that owns a few Dunkin Donuts stores. There are all types of commercial properties.

The Basic Facts About Commercial Investing

Let's talk about the basics. First off, what is commercial investing? When it houses a business, it's a commercial investment. Business parks, where it's one level, and there are many different buildings, those are commercial rented condos or business offices. It consists of office buildings in office parks. There are also industrial parks which look like office parks, but they are mostly blue collar businesses like manufacturers, warehouses, and storage places. This also includes strip malls where there are Starbucks, Dunkin Donuts, UPS stores, etc. It's one building, one- story tall that's broken off into many different stores. Then we have our indoor malls where there are hundreds of stores inside, which include an anchor store, which is the main store, like a Sears or Kohls to get your attention. There are also office condos which house doctors, offices too. Also, we have warehouses, and even apartment houses. These are considered recession-proof properties. Assisted living facilities are commercial properties as well. Let's not forget about land. People are buying land and putting a cell tower or antennae on the land and making money.


Best Things About Commercial Investing

One of the things about commercial investing is that once you own the property, it's easier to maintain it because most of the time, you will let the pros handle it.

One of the things about commercial investing is that once you own the property, it's easier to maintain it because most of the time, you will let the pros handle it. You will have a management team to handle the payments, as well as attorneys and accountants handling the day to day work. There will be less day to day work once you own that commercial property, versus a residential property. Let's face it. If you own one piece of property with tenants in there, you know how much work that is. If you have a few properties, it's even more work dealing with tenants not paying, collections, disappearing tenants, and cleaning it out and finding new tenants. It's a lot of work! Virtually, you can pretty much have the pros do it for you. You can hire a management team, attorney, and accountant. Properties generally throw off enough monthly cash flow so that you can have it all taken care of for you.

Anything you do with residential properties, you can do with commercial properties! You can buy and hold a house and rent it out, as well as a commercial property. You can wholesale it, get a contract on it, find someone to pay more, flip it, and step out of the deal. You never owned it. You get your finders' fee or spread, but instead of making $3,000 or $8,000, you can start making $50,000 to $200,000 just by flipping commercial deals. Just add another zero or two! Don't let it intimidate you!

Don't Let Commercial Investing Intimidate You

You can also lease commercial properties with the option to buy and make the big bucks!

All of the same techniques you can use with houses, you can use with commercial properties. Note that one of the main differences is how you get the value. For houses, we run comps. For commercial properties, we appraise it on how much cash it's throwing off. You can have two apartment buildings across the street from each other or in the same complex, and both apartment buildings can be identical. But, if one is 30% occupied and one is 70% occupied, and the first one is worth $700,000 and the next one worth 3 or 4 million, the only difference is how much it's occupied. How do you make big money fast in commercial investing? You find the one that is 30% occupied, find 5 or 6 tenants and bring it up to 70% occupied, and then you sell, get out of it, and make the spread. You can double or quadruple the cost or equity of commercial property by controlling it, filling it, and then getting out of it. It's a beautiful thing!


Don't let commercial investing intimidate you. Add a couple of zero's to the profit! Consider opening your mind about commercial investing. Start thinking big!

Don't Quit

I want to share something that you "old-timers" might remember. Remember the old Timex watches? When we were kids, the big campaign was "Takes A Lickin, But Keeps on Tickin".

It's a good time to be in real estate, as long as you change your tactics. There are a lot of investors getting out of investing right now because they are trying to invest using old methods. They are doing what was taught 5 years ago, in the heyday when it was so easy to sell a house, find a buyer, and get people financed. It's not like that anymore!

Sometimes you see successful people and they are so successful and you wonder, "What makes me different from him? Why is he doing 6 deals a month? Why is he making the big money, when I've been out here struggling?" It took me a year before I got my first deal closed. There is only a little teeny tiny difference between successful and non-successful people. The difference is that the successful people don't quit and they keep on going. Think about it. If you put a successful and non-successful guy right next to each other, they look pretty much the same. We have the same amount of hours in a week. We have brown hair or we are bald, we're short or we're tall, we're fat or we're thin. There's really not much difference between successful people and unsuccessful people, except successful people have oodles of money, they have the big bucks!

The Only Time you Fail in this Business is When you Quit.

You wonder why. It's because they kept on going when things got tough. They didn't listen to people that were telling them that they can't do it. They didn't listen to people that told them it didn't work. Think about it. When you first decided to get into investing, I bet you that half or more of the people you told, especially the people you are close to, told you it wouldn't work, and that you should get a real job. Everybody "knows" someone who lost their butt in real estate, right? You hear the stories and I heard the stories too, from relatives. Don't listen to outside people.

Look at the people that are successful and keep on going. The ones that make it work just a little bit harder, maybe they did just a little bit more, that extra 2%, that extra 5%, that extra 10%. If you don't give up on yourself, it will make you rich. That's the difference. Don't give up on yourself.

Almost all investors struggle. We all do. I was in the business close to a year before I got a deal done. I just refused to give up. My Wife and other people told me to give up. It made perfect sense to give up, but I wouldn't. The difference is, is that I was too stubborn to quit. The only time you fail in this business is when you quit.

Real Estate A Good Place to Invest

I want to tell you about someone I know. He grew up in an average neighborhood in a lower-middle class family. He lost both of his parents due to cancer when he was young and essentially became an orphan. He dropped out of college because he was broke and had no money left to pay for his education, and found himself sleeping on the streets and living in $50 a week hooker and drug hotels. He finally got a job and went out and learned how to do something. He went into sales, opened his first business after copying what he learned in his first job, soon went out of business and lost his house to foreclosure and was then $150,000 in debt. He went out, got another job, got back on his feet, paid off his debts, quit his job, and opened another business because he didn't want to work for anybody else. He was soon after that hit by a truck and suffered severe injuries! He was prescribed Vicodin and as his pain got worse, and his tolerance got higher, the doctor prescribed him more Vicodin. He found himself terribly addicted to pain meds and found a way to buy them online. He soon had a 40-50 pill per day, $2,000 a week habit. He found a doctor that literally saved his life, and got him off of the Vicodin. Because of all of that, he lost the second business that he had opened and was now almost $200,000 in debt. He got a job back in the original industry that he was in 15 years earlier, discovered real estate investing, and is now a successful investor and coach! That's me folks!

Keep on Making Offers. Don't Quit!

You know, the successful people, you don't hear about them. They don't tell you all about their trials and tribulations. You look at them driving those fancy cars, living in those big houses, and traveling all over the world. They didn't just get there by magic. They worked for it, and they didn't quit.

What's the alternative? Work for 40 years for 40 hours a week and retire with a Kool-Aid party sometime in the future? Don't quit folks. I don't care how tough it's been or how much money you've spent. Keep on plugging. And if you are doing this business smart, you shouldn't be spending a lot of money! You should be putting in your time, but you don't have to spend a lot of money to do this business right. If you think you have spent too much money, you have been trained by the wrong people. So, if you are investing, keep on making offers. Don't Quit!

Keep Hanging

Keep hanging in there because the alternative is working for someone else for the rest of your life. You are either working for yourself and making yourself rich or happy, and coming and going as you please. Or, you are working for someone else and making them rich. There are very few industries where you can write your own ticket. It works if you are a famous actor, a great athlete, or writer. There are niches that you can work for someone else and make a boatload, but there's not a lot. Now, when I say "boatload", I don't mean to get a good job and make $80,000 or $90,000 a year. I mean $100,000 a MONTH money. You are not going to make that working for someone else. It's not going to happen! Don't Quit!

Overcoming Fear In Real Estate Investing

This is for anyone who has ever had a little bit of fear keeping them from doing deals. Fear and faith are really the opposite and I want to delve into the psychology of investing and overcoming your fears so that you can take the steps forward that you need to. Nothing great is never easy and it always takes a leap of faith to accomplish something.

So, you investors out there who have never done a deal, this is for you. For those of you who know you know this business and have the tools and education to do this, this will help you too. Everybody has been there.

I sat next to a woman not too long ago at a real estate investing seminar and she told me that she had spent over $40,000 on her investing education. She had almost every book and tape available to her. She knew so much, she could teach ME the business! I asked her many questions and she knew her stuff. I asked her why she hadn’t bought a house and she told me it’s because she never had the opportunity. I asked her why she never put an ad in the paper, and her response was, “I was afraid that someone might call”. I said that that’s what we do, don’t let fear stop you! I told her she could write herself a script and if they call, she could follow the script, and she might end up buying a house. Her exact words then were, “I was afraid if I bought a house, I wouldn’t know how to get rid of it!”

If you have the education and you really want to do this business, but haven’t pulled the trigger, read on. Fear and faith are the opposites of one another. If you’ve got the faith that you are going to achieve with the fear that you won’t, it will always overlap. Deep down in your heart, you do believe you can do this, don’t you? If you didn’t believe you can do this, you wouldn’t be receiving this Newsletter, right? Would you spend the time learning about this business if you didn’t truly believe that you could do it?

Here are some tips to overcome fear:

Have a mentor. You don’t have to join a high-price coaching program to mentor you. Your mentor can be a real estate investor at your local real estate investor club that you struck a good chord with. Ask them if they mind if you give them a call once in awhile with a question or two. They probably won’t mind if you call them once a week and talk for 10 minutes.

Another way to handle it is through meeting someone in your area who is doing deals. Just let them know that you get deals coming across your desk, and you are not sure if they are good. Let them know that you are looking to do your first deal. Ask them if they mind if you give them a call to run it by them and maybe you can do the deal together and split it? Let them know you will do the work but you just need someone to run it by. A lot of investors will take you up on it and will even tell you they don’t need your money.

It could be a realtor that works with investors or even a landlord that owns a handful of houses or apartment buildings that has been around awhile. It could be a mortgage lender. Funding is a huge part of this business. Nobody knows the mortgage business more than a mortgage lender. The key is to get out there. Don’t sit in your office or sit in your living room thinking about all of the problems that could go wrong. You’ve got to network. If it wasn’t for networking, I wouldn’t be in the business. I went to as many real estate investment clubs as I could and I got to meet people, and slowly over time I all of a sudden knew the business. And you are always learning. You can’t be afraid to get out there, reach out, shake someone’s hand, and get to know them and ask some questions.

Another idea is a mastermind group with other members. There is nothing that has helped me more in my business is a mastermind group and talking to other investors. Sometimes you just need a pat on the back or a kick in the butt to get going so you are not so afraid. Don’t let fear overwhelm you!

The types of deals you can begin with are wholesale deals, bird-dogging, or option deals. There are no risks with these. With an option deal, you find a pretty house at a good price and get an option to buy it. You tell the Seller up front that you may never buy this house. Let them know you are getting an option on it so you can buy it if you want. Tell them the truth. Let them know that you are going to try to find someone else to buy it for a little bit more. Let them know that when you go to bed at night, that you are thinking about their house, and when you wake up in the morning, you’ll be thinking about their house. And you will also be thinking about their house in all of that awake time in between, looking for someone to buy your house from me when the time comes. Tell them not to get their hopes up too much. What is your risk? Maybe you will give them $50 or $100 as an option deposit. Again, what is your risk? Nothing! And you haven’t risked your integrity, because you told him up front that you might never buy the house. Same thing goes with a wholesale deal. If you are wholesaling, (typically we don’t tell the seller we are going to find someone else to buy it from us), but you could if you are afraid to go back to the seller and tell them you are not buying it. If you are dealing with the right sellers, they don’t care WHAT you told them, as long as you are trying to help them out with their problem. With wholesaling, what risk do you take? If you don’t find somebody to buy the house, you walk away from the deal.

What are you afraid of? Sometimes, “the only thing to fear is fear itself”. I know it’s an old adage, but it’s the truth. There is nothing to be afraid of.

Even with short sales, you have nothing to be afraid of. You are telling the seller up front that you are going to try to work with the bank to get it cheap enough so we can buy. Let them know up front that you can’t buy it if the bank doesn’t work with you. So, what have you got to lose? Don’t let that fear overwhelm you.

Do wholesale deals, option deals, short sales (which are a lot of work), or even bird-dog for other people. Be up front with people if you find a good deal.

Remember, everyone in this business got some help when they first started. One deal turns into two, two deals turn into three. But, you have to do that first one. Concentrate just on one type of deal then. I suggest not doing a sub-to or a rehab for your first deal, if you are nervous. Pick a wholesale or an option deal for your first one.

You can do this business! If I can do this, as well as a thousand other people, so can you! Turn your fear into faith. Wake up every morning and say, “Yes, I can!”.

To Learn more about real estate, watch videos, get free reports and more, go to: www.RealEstateInvestorPlus.com.

How Much Should I Offer On A Wholesale Real Estate Deal?

First off, we are going to talk about wholesale deals. Wholesale deals are where people first cut their teeth in this business. They are the simplest deals. Basically, you find a deal and get some comps on the property. You will find out what other houses have sold for in the same neighborhood. It is public record, and you can find this out at your local courthouse. So, find the deal, get your comps, and make the offer. But, sometimes it’s reversed. Sometimes when you are talking to someone, you can make the verbal offer right then and there to get the deal going. Then after you make the offer and it is verbally accepted, you can come back and get your comps and check out what the real value is. It’s called due diligence. It’s like doing your homework and making sure you don’t get yourself in a hole. You need to do research at this point. Any deal without due diligence, comps, research, or checking things out can get you in big trouble. I suggest you make the offer first though, and get your numbers going so you don’t waste time on deals that never get anywhere.

In most cases, the seller is going to tell you what he is asking for. You don’t have to make an offer or counter-offer on that first call, especially if you are new to the business. If he says he wants $120,000, you don’t have to know right off the bat what it is worth, especially if you are not familiar with that area. There are some areas where I know right away, what the homes are worth. When you are new, that is not going to happen. So, don’t be afraid to accept the offer on the phone and let him know that you are going to do some homework, you are interested in the house, and will get back to him soon. So, find the deal, get the comps, make the offer, get the house under contract, find a buyer, and close. Note that we are not talking specifically about wholesaling here, but that is the gist of it.

We are going to discuss how to know what the right price is. What kind of offer should you make? That is where the ARV comes in. You have probably heard someone ask what the ARV is. The ARV is the Average Retail Value. It is how much those comps tell you how much the house is worth. Once you study the area and find out how much houses are selling for, you are going to get the comps. That is the ARV.

There are two ways to do this, assuming this home needs some repairs. Here is the first option: Let’s take the selling price of the house, $150,000 (which might be the ARV), and you are trying to come up with how much to offer for this house. You are not planning on buying it, but are planning on getting it under contract and selling it to someone else. You have to leave enough profit in there so that someone else can do the repairs, list the house or sell it without listing it, and make their profit back. They have to cover all of their expenses.

One way to do it is to take how much you figure that next person is going to sell it for, let’s say $150,000. Then, you subtract 4-6 months ,worth of mortgage payments that they will have to make while they are paying for that house, subtract funding fees (points), subtract repairs, subtract both sets of their closing costs, subtract taxes, subtract insurance, subtract utilities, etc. Am I confusing you yet? That is why I have a better system for you.

Here is your second option: What we do is we take the ARV in that area, of houses in good condition and subtract 30%. It is ARV minus 30%. Then you subtract how much the repairs are going to be. The rule of thumb is ARV (after the repairs or aka after repair value), minus 30%, minus repairs. Then you subtract how much profit you want to make on the deal. If it is a $150,000 house, don’t expect to make $30,000 or $40,000 on it. You have to leave the $30,000 for the guy who is going in and doing all of the work, making all of the repairs, plus making the mortgage payments. You are just wholesaling this. In my eyes, if you make $4,000, it’s a good deal. I have made $20,000 on homes like these in the past, but usually you are looking to make only $4,000 to $5,000. You are just flipping these.

To recap, you will take the ARV of $150,000 minus 30%. That leaves you with $105,000. Then you subtract the $20,000 in repairs. You are down to $85,000. If you want to make $5,000 in the deal, you are down to $80,000. I would then offer $79,000 to whomever I am buying it from. I would sell it for about $85,000 though.

The bottom line formula is this: After repair value, minus 30%, minus repairs, that‘s how much most rehabbers are looking for. A lot of them are looking for a specific profit, say $30,000. ARV is very universal. Good Luck!

Tenant Management In Real Estate Investing

There are a couple of different types of investing niches that would have you with tenants. One would be long-term buys and holds, in which you buy property and put tenants in them. The other would be when you are buying houses for subject-to.

I’m going to let you learn from my mistakes. I’ve made them all with tenants, unfortunately. When I first got in the business, I bought a lot of houses subject-to, still have most of them, and am slowly selling off some of them.

First off, you want to do your homework when you are screening. When we sell subject-to, we buy the house subject to the mortgage. Somebody signs you over the house. They literally give you the house. You can live in it, or rent it out. But, make sure that you know your exit strategy before you enter the deal. The exit strategy is usually to lease with an option to buy, or Rent to Own. When you put this kind of tenant in there, they will give you a lump sum up front to move in. Don’t just charge them a security deposit. You want to get at least $4,000 or $5,000 from these folks as an option deposit, up front. This gives them the right to buy the property at any time. Basically, they are paying that up front to lock themselves in at that time, at that price

Sometimes, it’s tempting to take the person with the highest option deposit. Let’s say you have two people interested. One of them has $7,000 to put down, with terrible credit, have been evicted several times, and swear that they will pay their rent. But, the other one only has $4,000 and a spotless record. You might want to consider taking the person with the $4,000 with the spotless record, because that other $3,000 could be eaten up pretty fast with attorney fees, court fees, and a lack of mortgage payments if you have a deadbeat living in your home.

There are several different websites to choose from where you can get a lot of backround information on tenants before you have them in your home. The site that I use asks me to enter their name, last 2 or 3 places that they have lived, and social security number. Within a minute, I can find out if they have ever been evicted or have gone to court for lack of making payments. I have had people that I have run through on a website, and it would show that they have been evicted three times within a year. Screen your tenants.

You can also have a criminal background or retail credit check done as well. Please note that most tenants have bad credit. That’s why they are renting from you. They either don’t have a lot of money or have bad credit.

Get More Information about Your Tenants

You should also call and talk to their old landlord. A trick I use is this: If their old rent was $825 a month, I would call the old landlord and purposely give them a wrong dollar amount. I will tell them that I had a tenant of yours apply to rent a property of mine. I will tell them that they said they paid $875 month in rent. Then I will ask if that is correct. I want that landlord to come back to me and say, “No, they are paying $825 a month for rent”. I am doing that because I don’t know if they are really renting a house from these people. How do I know it’s not their Cousin, that they gave me their phone number for and have asked the Cousin to pretend to be a landlord? I might even screw up the address a little. I want to see that they know some things that they might have forgotten to tell their Cousin when they set the Cousin up to do this.

You also want to verify their employment. If they say they are working somewhere, call there! Most places, all they can do is verify information. You will say their name and how much they are making, and they can say “yes” or “no”. Usually they can tell you if they think the prospective tenant will be there for the next 24 months or so.

Another trick I use is to leave a piece of paper out of your screening, or forget something. Come up with some reason to drop by where they are living now, to ask a question or talk to them. You want to make sure they really live there. More importantly, you want to see the condition of that house. I can guarantee you that within 2 weeks, whatever condition their current home is, your place will look the same.

I have had people take a perfect house with new carpeting, painting, and everything clean and have had them turn it into a wreck in 6 weeks time. I have thrown tenants out after 6 or 7 weeks. One tenant left 2 to 3 feet of stuff on the floors in every room. There was mold on the walls because there was so much urine in the carpets. A neighbor told me they had 7 or 8 cats, 2 or 3 dogs, and a whole bunch of bunnies. The carpets were ruined and it took me several tries to find a company to come clean it. We also filled up a huge dumpster to clean it out. Be careful. Please go see what they live like. Also, don’t disappear after they move in. Drop by to say hello every now and then. Your contract should say that you should be able to inspect the house whenever you want to, with 24 hours notice. You might get a really good tenant that pays on time and you think they are sweethearts, but your home may be trashed. Please, go check it out.

You have to be careful and not discriminate, or ask how old they are. You can ask if they are over 21, though. You can’t discriminate due to age, sex, race, or religion, but you CAN discriminate due to their lying to you.

Also, be tough on these people, especially at first. Some are professionals at not paying their rent. They know the loopholes and the legal system. If it gets to be the 5^th of the month and you don’t have your rent, if you don’t have your rent, they should get a certified eviction notice on the 6^th. I know this because I was dumb and kind with my first tenant. I had a $2,200 a month mortgage payment, and her rent was $2,500. The first few months were good, but she was a mortgage broker, and when the mortgage industry fell apart, so did she. She would call and tell me about her problems and apologize and I would tell her how thankful I was that she was trying, etc. Before I knew it the 1^st came, the 15^th came, and she said she’s getting paid soon, and eventually, she was 6 months behind and I was Mr. Nice Guy, falling for her stories and lies. I finally had to go to court and evict her, and making all of the mortgage payments. As soon as they are late, you let them know that you are not fooling around.

Now, I tell people up front that as long as they make their payment on time, you will love me. I will be the best landlord they will ever have. I tell them if they don’t pay their rent, they will hate me and they will hate me fast. And I tell them that. I want to intimidate them a little bit. I will be a good landlord. If they need help with something, I will be there. If they want to buy the house, I will help them find a lender to get them into the home. I will bend over backwards for someone. That’s my property and they better take care of it! That’s the attitude you have to take up front. Let them know that you are not going to take “it” from them. If you send them their notice that they are going to be evicted, make sure you follow through in a few days, evict them when you say you will, even get a letter from a lawyer to them if they don’t leave. It’s a game with these folks, so you have to let them know you mean business. It will save you a lot of problems in the end. I have spent many sleepless nights wondering how the heck I’m going to get some bad tenants out of my property.

On another note, reward your good tenants. At Christmastime, why not give them a $50 gift certificate for Jewel or something, or even take a visit and look around and see what type of improvements you can make for them? If you have a 3 bedroom house with no ceiling fans in those bedrooms, why don’t you go ahead and tell them you are going to install some fans for them? They will love you for it. And if they love you, their chances of renewing that lease will increase for you! You want to keep them as your tenants as long as possible! Good Luck!

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