Save for That Down Payment on Your First Home

If you've been dreaming about buying your first home, you've undoubtedly experienced more than a little discouragement, especially when it comes to saving enough money for a down payment. If that describes you, I have some good news: you may be able to get into that home quicker than you realize. Because of all the many loan programs available, you might not need a large down payment. You can buy a home with nothing down if you have a decent income and credit.

A little money in the bank makes your home financing more attainable. You will get better interest rates and lower mortgage costs, plus you will qualify easier. Here are a few suggestions on how to save for your first house.

First, set a realistic savings goal. It's important to set a figure that's attainable if you want to have success, but that will generally mean that your first home will be smaller than your ultimate dream home. But there's nothing unusual about that. It's entirely possible that you won't get your dream home on your first try.

If you've been living in your parents' home, you may be surprised to learn that they probably traded up at least once, and probably more than once, before they were able to move into the home you now know. They worked hard to get where they are, and you're going to have to work just as hard, so don't expect to start at the top. After all, you couldn't afford a $600,000 property with a $30,000 income, anyway, no matter how hard you budgeted, even if you managed to save enough to get into it in the first place.

The next step is to create a plan of attack. Find your affordable target area and then get to know the market in that area. You want to know what's available and how much homes are selling for. In essence, you're becoming a shrewd shopper. You'll know approximately what homes are worth as you drive around the area, because you've done your homework and you've become an expert in that area.

Part of your plan is to set up a budget that includes an honest appraisal of your income and expenses. If they're about even, you'll have to begin economizing somewhere to create a positive cash flow that can be channeled toward your down payment. You'll probably need to pay close attention to your finances for several months to find places where you can trim expenses, but you can do it! Pay down all your credit cards, because they might cost you the chance to qualify for your new home, even after you've accumulated the down payment.

As you're saving, seek out professional help from a knowledgeable real estate agent and a helpful lender. They'll both prove invaluable. There are a number of programs available for first-time homebuyers, and when you finally find the home you want, you'll need as much information as possible about what the seller needs and about your financing options. That way, you can structure an offer that will satisfy the seller's needs while keeping your payments at a manageable level.

It will take time and sacrifice, but millions of buyers have been successful in purchasing their first homes over the years, so there's no doubt that you can do it, too!

Having Trouble Improving Your Google Ranking?

Google is by far the most important search engine on the net. To rise to the top of their search engine, you need to improve your link popularity and you need to understand how they measure your link popularity (over 50% of all search engine traffic comes from Google, and if you can rise to the top, you will likely rise to the top of all the other search engines as well).

Link popularity is defined as the number of sites that are linking to your site. Some websites have thousands or even millions of sites linking to them, while others might have only a few. The search engines use the number of inbound links your site has as a measure of how important your site is, which translates into your search engine ranking.

The actual number of links to your site is not the only variable used to calculate your link popularity. The search engines also examine the relevance of the links to the subject matter of your site. For example, if a website that sells vitamins has 4,000 inbound links, but the source of most of the links are websites that have nothing to do with vitamins, then the algorithm that search engines use to determine link popularity will take that into account, and the link popularity score will not be very good.

It is possible for a website with a relatively small number of quality inbound links to be ranked higher than a site with a bunch of irrelevant or insignificant links. If I have a website that offers quotes for auto insurance, and I have 800 quality inbound links, then I might receive a much higher search engine ranking than another mortgage site that has 3,000 links that stem from link farms or Free For All (FFA) pages.

If you try to acquire inbound by using link farms or FFA pages, not only will it hurt your search engine ranking, but you might get permanently removed from the search engine listings. Links farms are sites where you can instantly exchange links with all the sites listed in that directory. FFA pages are pointless link directories. The search engines usually discount any links that come from either of these sources.

Now that we understand what link popularity is and how it works, we need to look specifically at how Google measures it. They use a number of variables in their algorithm to calculate your overall link score. The higher your score, the higher you will be ranked in the search listings.

One factor that Google uses in their algorithm, obviously, is the total number of sites linking to you. The more links you have, the higher your score will be. However, their algorithm is a little more complicated than that, and it is possible for a website with fewer links to be ranked higher than a website that has more links.

The reason for this is because Google also measures the quality of your links. If your website is about vitamins, and the site linking to you is a video game site, then that is not considered a quality link. The link still helps your score, but the link would help your score much more if it were from a website whose subject matter is the same as yours.

Also, Google gives a higher score to a link if it comes from a page that has actual content that relates to your keywords. For example, if your site is about jewelry, and another jewelry website has posted a link to your site on their links page, that link is not as valuable as a link to your site coming from a blog or a message board where a lot of information about jewelry is being written or discussed.

Also, they give an even higher score to a link if it contains anchor text that matches one of the keywords that describes your site. For example, if I have a site that sells lawnmowers, and a blog about lawnmowers has posted a link to my site, it helps my score even more if the link text (also known as anchor text) is LAWNMOWERS. To learn more about anchor text, go to a search engine and look up ANCHOR TEXT and you will be able to learn about it.

Another factor used by Google to score your link popularity is the diversity of keywords contained on sites linking to you. For example, if you have a site that sells handbags, and all the links to your site are from other sites that contain nothing but the keyword HANDBAGS, Google considers that to be abnormal. To get a higher score, you need to have links coming from sites that contain a variety of keywords related to handbags, such as BUY HANDBAGS, LEATHER HANDBAGS, etc.

It is difficult to increase your link popularity, but now that you understand how your score is calculated, you can devise a plan to improve your score. You might want to consider posting to forums and blogs that contain information that is related to your site, and when you post, include a link to your site.

Common Investor Legal Mistakes

You can’t expect to reduce your risk of getting sued to zero, but you can take steps to reduce your risk as much as possible. In any situation where your money is at risk, ask yourself, “Is there a better way?” Know the legal and financial risks of the situations in which you place yourself, your business, your family, and your assets.

Without covering every issue involved, here are a few common mistakes that investors make, novice and experienced alike.

Poor legal forms—It’s amazing how short-sighted novice investors can be when it comes to shelling out money for good legal contracts. They often buy contracts at discount office supply stores, from Internet Web sites, or borrow them from friends. However, a real estate deal is only worth the paper it’s written on. Like the old expression, “every tax strategy works until you get audited,” it can be said that “every contract works until you have a dispute.” So invest in a good set of legal forms that apply to your practice and ask a local real estate attorney to review them. Also, make certain you fill in the forms correctly—a good real estate attorney will review contracts for just a few hundred dollars.

Too many people rely on real estate brokers to fill out contracts, which is fine for a “standard” deal. However, most brokers aren’t trained in legal matters and often create long contract addendums that are insufficient to protect your interests.

Illegal discrimination—The Fair Housing Act of 1968, as amended, prohibits discrimination on the basis of race, color, religion, nationality, familial status, age, and gender. Many state and local laws also forbid discrimination on the basis of sexuality or source of income and the Americans with Disabilities Act makes it illegal to discriminate against disabled people. If you harbor any such prejudices and would allow them to come into play when renting a housing unit, then you’re probably not cut out to be a landlord. However, many sincere real estate investors make honest mistakes that result in discrimination lawsuits. The best way to avoid these lawsuits is to be informed.

The Fair Housing Act may appear to be common sense and most people would never think of discriminating against people of different races or religions or on the basis of gender. However, it’s important to note that the Act extends beyond the screening process and into advertising as well, so watch the wording on your ads. This is where many landlords and property managers make critical mistakes. Some people scour the classifieds looking for inappropriately worded ads so they can pounce on them and threaten a lawsuit. While someone must have standing to bring suit, these scoundrels often work in coalitions to ensure that all of their bases are covered.

For example, if you own a rental property in a predominantly Jewish community, its proximity to the local synagogue could be a major feature. But if your ad says “within walking distance of the synagogue,” you could be sending the message “gentiles need not apply”—even though this wasn’t your intent. And keep in mind that you may not discriminate on the basis of whether a couple is married and whether children are to live in the unit. You may also not discriminate on the basis of age. Often, novice landlords aren’t aware of these areas of concern. And while it’s good that citizens are more aware of their rights today, it can create a bad situation for well-meaning landlords who are out of step with the law.

Be aware of your local laws and use good business sense. State law and local ordinances can extend similar protections granted under the Fair Housing Act to other groups. For example, California, Minnesota, and North Dakota prohibit discrimination based on source of income. In other words, landlords can’t discriminate against would-be tenants who rely on public assistance. Putting the political perspective of the landlord aside, such discrimination makes little business sense because people on welfare or social security are virtually assured of a fixed income.

The Americans with Disabilities Act (ADA) prohibits discrimination against the disabled and also requires landlords to make “reasonable accommodations” to disabled tenants. Who decides what’s reasonable? Typically, judges, if it comes to that. But while most landlords are aware of the ADA and would never stoop to discriminate against a person in a wheelchair, many are unaware that the ADA also protects mentally disabled tenants. A mental disability could also include recovering alcoholics and drug addicts. On the downside, these people can relapse; if they do, this can cause serious problems for you and other tenants. Everyone deserves a second chance and many recovering addicts become productive members of society. Those unable to recover typically have other problems and, thus, if you decide to reject their rental applications, it’s vitally important that you document additional reasons for rejecting their applications.

Improper disclosures—Improper disclosures are a common mistake for investors. It’s critical to be aware of the federal and state requirements for disclosures. For example, federal law requires a lead-based paint disclosure on the sale or rental of properties that were built before 1978. State laws may have additional regulations.

It’s become common practice for real estate brokers to use a property disclosure form as a general-purpose sell disclosure for all aspects of the house. Even if you’re selling your house on your own, be sure to use one of these forms (refer to the sample in Appendix 6). Whenever in doubt, disclose what you know, especially something the buyer or tenant may not know about, such as dangerous conditions, water damage, electrical issues, or plumbing problems.

Illegal solicitation of money—Many novice investors try to solicit money for investing via public advertising or mailings. This is commonly referred to as syndication. You may inadvertently cross over a variety of federal and state securities regulations when trying to raise capital. Chatting with friends over the dinner table about a real estate deal is one thing, but advertising to the public in mass may be considered a public offering. Before soliciting money from strangers, review your marketing, paperwork, and solicitation strategies with a local attorney well versed in this area of law. You may be able to get away with a good set of written disclosures if you solicit money on a limited basis, but it’s better to be safe than sorry.

Independent contractor liability—The IRS and your state department of labor are on the lookout for employers who don’t collect and pay withholding taxes, unemployment, and workers’ compensation insurance. If you have employees that are “off the books,” you’re looking for trouble. If you get caught, you’ll have to pay withholding taxes and as much as a 25 percent penalty. Intentionally failing to file W-2 forms will subject you to a $100 fine per form. The fine for failing to complete the Immigration and Naturalization Service (INS) Form I-9 varies from $100 to $1,000 per form. Your corporation or LLC won’t shield you from liability in these cases, either. All officers, directors, and responsible parties are personally liable for the taxes.

If you hire people to do contract work for you on a per-diem basis, they may be considered employees by the IRS. If any workers fail to pay their estimated taxes, you may still be liable for withholding. If these workers are under your control and supervision and work only for you, the IRS may consider them employees, even if you don’t. If this happens, you may be liable for back taxes and penalties.

To protect yourself, you should:

• Hire only contract workers who own their own corporation or get the business card and letterhead of any unincorporated contractors you may use so you can prove these workers aren’t your employees.

• Require proof of insurance (liability, unemployment, and workers’ compensation) in writing.

• Get written contracts or estimates on workers’ letterhead that states they’ll work their own hours and you don’t have direct supervision over the details of the work. (Refer to the sample independent contractor agreement in Appendix 7.)

• Have letters of reference from other people for whom the contractors worked to show that the contractors didn’t work solely for you. Keep these in your files.

File IRS Form 1099 for every worker to whom you pay more than $600 per year.

In addition to possible tax implications, an independent contractor can create liability for you if a court determines the contractor is your employee. For example, if your independent contractor is negligent and injures another person, the injured party can sue you directly. If facts show that you exercised enough control over your contractor, a court may rule that this contractor is your employee for liability purposes. As you may know, an employer is “vicariously liable” for the acts of his or her employees—the employer is liable as a matter of law without proof of fault on the part of the employer. Make certain you follow these guidelines when hiring contractors and pay particular attention to the issue of control.

Finally, under your state’s law be aware which duties are considered inherently dangerous, such as providing adequate security for tenants in a multiunit building. These duties can’t be delegated to an independent contractor without liability on your part, regardless of whether the person you hire is considered an independent contractor or an employee.

Quality Deals

I’ve been meaning to write this article for quite some time and those who have heard me speak in the last couple of years have already gotten an earful of this. This topic isn’t about a neat investing technique or new idea, but about a mindset. It’s my mindset and one that I believe will make many other people successful.

Back in 1998 when I took my first step into real estate investing, I was strongly influenced by others around me who believed you had to be a dominant force in your market to make real money. They stressed doing as many deals as possible and beating out the competition. The world around me was saying that the person who does the most wins. More deals lead to more profits which ultimately leads to greater success – all going hand-in-hand.

As a newbie, I took the teaching to heart and did over 100 deals in my first two years. I was proud of my accomplishments and knew many around me were impressed with my successes. However, when stopped to look at the big picture, I was doing a lot of deals and making more money than ever before, but I had little control elsewhere. My time wasn’t my own and the deals truly controlled me. In short, I wasn’t living a life that felt fulfilling.

I’ve talked with many investors across the country and always ask what draws them to real estate investing. The answers vary, but typically can be summed up in one sentence, “I want a better quality of life.” Over my years of investing, I have come to realize that QUANTITY does not lead to QUALITY. If you want real estate investing to provide you with a good quality of life, you need to pursue good quality deals, not a good quantity of deals.

What are quality deals? They’re deals that contribute to the advancement your goals. They get you moving in the direction that you want to go. Many investors start buying homes with no idea of what they really want to accomplish with investing. As a result, they buy anything that looks like a deal and, all too often, get pulled in directions they never intended to go.

Your goals should drive your decision making. For example, a person who needs money today and buys a property to keep it as a rental is contradicting or not fulfilling the original goal. Rental properties will not reap quick, fast cash today. Let’s say your goal is to free up your time so that you can do other things important to you. If you only want to work 20 hours a week and are taking on deals that require 40 hours a week, you’re not doing quality deals. You’re focused on quantity.

We need to make sacrifices to achieve the success that we desire, but need to be careful not to sacrifice the important things in life. If you are pursuing investing to achieve a better quality of life, focus on quality deals and not quantity.

Common Investor Legal Mistakes

You can’t expect to reduce your risk of getting sued to zero, but you can take steps to reduce your risk as much as possible. In any situation where your money is at risk, ask yourself, “Is there a better way?” Know the legal and financial risks of the situations in which you place yourself, your business, your family, and your assets.
Without covering every issue involved, here are a few common mistakes that investors make, novice and experienced alike.

Poor legal forms—It’s amazing how short-sighted novice investors can be when it comes to shelling out money for good legal contracts. They often buy contracts at discount office supply stores, from Internet Web sites, or borrow them from friends. However, a real estate deal is only worth the paper it’s written on. Like the old expression, “every tax strategy works until you get audited,” it can be said that “every contract works until you have a dispute.” So invest in a good set of legal forms that apply to your practice and ask a local real estate attorney to review them. Also, make certain you fill in the forms correctly—a good real estate attorney will review contracts for just a few hundred dollars.

Too many people rely on real estate brokers to fill out contracts, which is fine for a “standard” deal. However, most brokers aren’t trained in legal matters and often create long contract addendums that are insufficient to protect your interests.

Illegal discrimination—The Fair Housing Act of 1968, as amended, prohibits discrimination on the basis of race, color, religion, nationality, familial status, age, and gender. Many state and local laws also forbid discrimination on the basis of sexuality or source of income and the Americans with Disabilities Act makes it illegal to discriminate against disabled people. If you harbor any such prejudices and would allow them to come into play when renting a housing unit, then you’re probably not cut out to be a landlord. However, many sincere real estate investors make honest mistakes that result in discrimination lawsuits. The best way to avoid these lawsuits is to be informed.

The Fair Housing Act may appear to be common sense and most people would never think of discriminating against people of different races or religions or on the basis of gender. However, it’s important to note that the Act extends beyond the screening process and into advertising as well, so watch the wording on your ads. This is where many landlords and property managers make critical mistakes. Some people scour the classifieds looking for inappropriately worded ads so they can pounce on them and threaten a lawsuit. While someone must have standing to bring suit, these scoundrels often work in coalitions to ensure that all of their bases are covered.

For example, if you own a rental property in a predominantly Jewish community, its proximity to the local synagogue could be a major feature. But if your ad says “within walking distance of the synagogue,” you could be sending the message “gentiles need not apply”—even though this wasn’t your intent. And keep in mind that you may not discriminate on the basis of whether a couple is married and whether children are to live in the unit. You may also not discriminate on the basis of age. Often, novice landlords aren’t aware of these areas of concern. And while it’s good that citizens are more aware of their rights today, it can create a bad situation for well-meaning landlords who are out of step with the law.
Be aware of your local laws and use good business sense. State law and local ordinances can extend similar protections granted under the Fair Housing Act to other groups. For example, California, Minnesota, and North Dakota prohibit discrimination based on source of income. In other words, landlords can’t discriminate against would-be tenants who rely on public assistance. Putting the political perspective of the landlord aside, such discrimination makes little business sense because people on welfare or social security are virtually assured of a fixed income.

The Americans with Disabilities Act (ADA) prohibits discrimination against the disabled and also requires landlords to make “reasonable accommodations” to disabled tenants. Who decides what’s reasonable? Typically, judges, if it comes to that. But while most landlords are aware of the ADA and would never stoop to discriminate against a person in a wheelchair, many are unaware that the ADA also protects mentally disabled tenants. A mental disability could also include recovering alcoholics and drug addicts. On the downside, these people can relapse; if they do, this can cause serious problems for you and other tenants. Everyone deserves a second chance and many recovering addicts become productive members of society. Those unable to recover typically have other problems and, thus, if you decide to reject their rental applications, it’s vitally important that you document additional reasons for rejecting their applications.

Improper disclosures—Improper disclosures are a common mistake for investors. It’s critical to be aware of the federal and state requirements for disclosures. For example, federal law requires a lead-based paint disclosure on the sale or rental of properties that were built before 1978. State laws may have additional regulations.

It’s become common practice for real estate brokers to use a property disclosure form as a general-purpose sell disclosure for all aspects of the house. Even if you’re selling your house on your own, be sure to use one of these forms (refer to the sample in Appendix 6). Whenever in doubt, disclose what you know, especially something the buyer or tenant may not know about, such as dangerous conditions, water damage, electrical issues, or plumbing problems.

Illegal solicitation of money—Many novice investors try to solicit money for investing via public advertising or mailings. This is commonly referred to as syndication. You may inadvertently cross over a variety of federal and state securities regulations when trying to raise capital. Chatting with friends over the dinner table about a real estate deal is one thing, but advertising to the public in mass may be considered a public offering. Before soliciting money from strangers, review your marketing, paperwork, and solicitation strategies with a local attorney well versed in this area of law. You may be able to get away with a good set of written disclosures if you solicit money on a limited basis, but it’s better to be safe than sorry.

Independent contractor liability—The IRS and your state department of labor are on the lookout for employers who don’t collect and pay withholding taxes, unemployment, and workers’ compensation insurance. If you have employees that are “off the books,” you’re looking for trouble. If you get caught, you’ll have to pay withholding taxes and as much as a 25 percent penalty. Intentionally failing to file W-2 forms will subject you to a $100 fine per form. The fine for failing to complete the Immigration and Naturalization Service (INS) Form I-9 varies from $100 to $1,000 per form. Your corporation or LLC won’t shield you from liability in these cases, either. All officers, directors, and responsible parties are personally liable for the taxes.

If you hire people to do contract work for you on a per-diem basis, they may be considered employees by the IRS. If any workers fail to pay their estimated taxes, you may still be liable for withholding. If these workers are under your control and supervision and work only for you, the IRS may consider them employees, even if you don’t. If this happens, you may be liable for back taxes and penalties.

To protect yourself, you should:

• Hire only contract workers who own their own corporation or get the business card and letterhead of any unincorporated contractors you may use so you can prove these workers aren’t your employees.

• Require proof of insurance (liability, unemployment, and workers’ compensation) in writing.

• Get written contracts or estimates on workers’ letterhead that states they’ll work their own hours and you don’t have direct supervision over the details of the work. (Refer to the sample independent contractor agreement in Appendix 7.)

• Have letters of reference from other people for whom the contractors worked to show that the contractors didn’t work solely for you. Keep these in your files.
File IRS Form 1099 for every worker to whom you pay more than $600 per year.

In addition to possible tax implications, an independent contractor can create liability for you if a court determines the contractor is your employee. For example, if your independent contractor is negligent and injures another person, the injured party can sue you directly. If facts show that you exercised enough control over your contractor, a court may rule that this contractor is your employee for liability purposes. As you may know, an employer is “vicariously liable” for the acts of his or her employees—the employer is liable as a matter of law without proof of fault on the part of the employer. Make certain you follow these guidelines when hiring contractors and pay particular attention to the issue of control.

Finally, under your state’s law be aware which duties are considered inherently dangerous, such as providing adequate security for tenants in a multiunit building. These duties can’t be delegated to an independent contractor without liability on your part, regardless of whether the person you hire is considered an independent contractor or an employee.

Alternate Sources of Income and Why You Need Them

Being a professional landlord has to be one of the best career choices one can make. The benefit “package” is difficult to beat. As landlords we have it all: personal freedom, perpetual monthly income, asset values (and rents) riding on inflation, no “formal” office, outstanding tax treatment (no self-employment tax on rents, long-term capital gains), forced savings plan via property debt reduction, little need for actual employees (contractors instead), and on and on the list goes. Any single benefit mentioned above is reason enough for stating that professional landlording is one of the finest home-based business opportunities available today. Personally, I love the freedom and flexibility owning rental properties gives me (on average, only 2 hours of management per unit per month).

Since you already have the wisdom to own income-producing property, allow me to share a secret of many highly successful professional landlords. By the way, my definition of a professional landlord is someone who earns a large portion of their income or NET WORTH from income producing properties. For most, this threshold means only owning 4-5 properties, since it only takes a few hundred thousand dollars in controlled assets to account for the majority of a person’s net worth (estate), which eventually will translate into cash flow. (Sidebar: I told one millionaire landlord — “You can’t eat equity.” He retorted—“I am.”)

One big secret to successfully buying and holding long-term rental producing properties is this: Have alternate sources of cash flow working for you. It is no secret that rental properties can have their own ups and downs in income that come your way: unexpected vacancies, evictions, slow-pays, repairs and major mechanical failures (heaters, roofs, worn out rugs, long-term tenant moveouts needing substantial remodeling, etc). Because of the high cash demands of our business, I recommend investors have another cash-flow business that they operate in conjunction with their rental business. Not only will the cash flow business augment your existing rental income, but most importantly: The cash-flow business will fund future building acquisitions. Let me repeat that again because it is the critical part of the secret: Having a cash-flow service business will fund your future real estate down payments and purchases!

Real estate is an industry operated by independent contractors. For instance, virtually all builders are not really “builders” at all. They are managers and organizers that outsource virtually every aspect of the building construction to independent contractors who perform their specialty in putting the building together. The largest builder in my area doesn’t build anything. As a company they simply bring all of the parties and contractors together. They are construction “managers”. There’s a lesson somewhere here!

Where the opportunities lies for you is finding your own specialty niche somewhere in the real estate industry. (Sidebar: Your cash-flow service business does not have to be real estate related. The principal remains the same: Have some additional cash flow business operating synergistically with your rental properties.)

There are 2 major opportunities everyone thinks about when you talk about real estate businesses. Since these are reasonably obvious and well known, I will, for the sake of space and time, not cover them, although many folks make a fine living operating these as businesses. They are: buying and selling houses or being a licensed Realtor. I know successful several landlords who do one or even both of these businesses.

Being involved in several real estate businesses myself and knowing scores of active real estate entrepreneurs, allow me to throw some ideas and brainstorming at you to get you thinking about your own real estate service businesses you can start.

The first idea is to create a business where you acquire distressed income properties and create what I call Turnkey Investor Packages. I know several investors who purchase distressed multi-unit properties (usually vacant or nearly vacant) who then rehab the building and then rent out all of the units. They then “package” the building for sale completely “turnkey” to investors who don’t have either the time or experience to do it themselves. Some of these turnkey packagers then provide after the sale on-going management for the new owners for a fee. The profit goal is usually $25,000-50,000 per deal. In most cases, no license is required, except possibly for the management services and there are ways around that if needed.

My second idea: If you are the mechanical, physical work type, consider starting and operating a service whereby you detail rental properties for landlords. Also known as Apartment Preparation Services. The typical fee to clean and “prep” a unit is around $500 per unit. Do 2 units per week and that’s $1000 per week. Granted, this isn’t for everyone, but it could bring in an extra $30,000-50,000 per year to supplement your rental income. This may sound mundane, but there are many creative variations of this service that can help you earn even more. How about detailing houses For-Sale? How about doing this for $1000 per house? REO cleanup/securing services are another idea? Or, perhaps an advanced service for property sellers, charging $2500, whereby you “guarantee” to increase appraisal by $10,000.

Let’s suppose you are the super organized type—is it possible you could create a salable service where you help other landlords organize, systemize, computerize their home office and records? Perhaps for a fee—say $500, you would spend a long day in their office getting them professionally organized and systemized. You bet you could. You’d need to deliver some true value, but with some thought and creativity it could be very saleable. You wouldn’t need a license for this either!

Here’s a what-if idea. What if you became a rental cash-flow consultant. Suppose you were a master at operating a rental business and squeezing every dime out of properties. Do you think you could do a 2-day consultation for $1500-2500 if you guaranteed the client that your service would essentially be “free” from all of the newly found revenue in their business. You would have to be hot stuff for this to work, but if delivered and marketed correctly, I bet it would.

There are dozens of viable opportunities in real estate. As I mentioned earlier, real estate is a business dominated by independent contractors and specialists. You could be one of them: title searcher, real estate website publisher, storage garages, dealfinder/birddog/wholesaler, home inspector, broker, manager, marketing consultant, rehab/maintenance services, cash-flow consultant, tax appeal services, 1031 exchange services, eviction services, rent-to-own expert, mortgage broker, or any number of other creative variations or combinations. Don’t limit your income. Some diversification is wise.

How to Hire a Real Estate Attorney

No real estate course or seminar is a substitute for a good attorney. Finding a good real estate attorney may be difficult, since most attorneys are not themselves investors or familiar with creative transactions. Most attorneys will give you just enough advice to keep them from getting sued, but not enough advice to show you how to make more money out of a deal.

A good real estate attorney is one who advises you of the risks, suggest alternative ways of doing a transaction and charges a reasonable fee for doing so. A bad real estate attorney either says nothing, points out problems without offering solutions or systematically kill deals. This is why attorneys are frequently referred to as "deal killers".

Ask other investors in your area who they use as an attorney. Join a local real estate investors association and ask for referrals. Ask local real estate agents and title companies for referrals. Do not open up the Yellow Pages and pick someone who simply CLAIMS to be a real estate expert.

When interviewing a potential attorney, ask the following questions:

» Do you own rental property?

» How many closings do you do per year?

» What kind of unusual transactions have you done recently?

» Have you done any evictions? Foreclosures? Zoning board appeals? Condo conversions?

» Can you explain to me the following concepts: lease/option, wraparound mortgage, installment land contract?
Get a feel for the experience and personality of the attorney. A good attorney on your side is worth his weight in gold, especially if he can do creative closings.

Online real estate listing software

Bring your real estate business online with our web based real estate software.

Our Online Real Estate Software is an easy to install application containing all the features for showcasing your real estate listings. Whether you are building or operate a website as an independent realtor, agency, or you want to be an application service provider for realtors.








Main Features

Developed using asp/vb scripting

W3C Markup Validated. HTML/CSS according to W3C standards

Full source code supplied without encryption

No dll's to install

Secure and Non Secure urls option

Unlimited number of categories/subcategories

Innovative Studio online web editor.

Template based newsletter section

Create, save and email HTML based newsletters

Supports MS Access 2000 and MS Sql Server 2000 (or above).

Supports SSL certificates for secure data transfer

Filters data for sql injection

Front end interface supported by all major browsers

Unlimited number of super administrators, buyers, sellers and agents

No extra cost for first time setups and installation

Four months free of cost support

The Key to Real Estate Success: Marketing!

How did you get into real estate investing? Did you read a book on it? Was it a seminar? A meeting of some sort with speakers selling courses? Did you get really, really jazzed and pumped up by these simple (”not easy”) concepts that were delivered to you in parable form from the stage by a charismatic speaker? Did you find yourself levitating to the back of the room, powerless but to slap down your plastic to buy the kits that were being sold there? Like…

“Yes Mr. Ker, we do take traveler’s checks. Yes, cash is okay, too. HEY BARNEY, DO YOU HAVE CHANGE FOR A HUNDRED? There’s your kit Mr. Ker. Good Luck!”

I have to admit that’s where I began. I attended a “conference” and dropped over a grand in two days. What I ended up with was a very funny course about Paper (i.e. discounted mortgages) and a more sober account of making a million five in eighteen months buying and rehabbing multi-units. I listened to tapes for about four days straight, then went out and bought an HP12C financial calculator.

I loved paper (the units can wait a while). I really got my head around it. I loved discounting on the calculator, I loved calculating yields. And the guy on these tapes was so funny! I spent a fun couple of weeks learning the courses and I knew more than most bankers because the guy on the tapes told me so. I wanted to get started and get a note-closing-sweatshop going just like he described. I knew this stuff inside and out. Two deals a week would be OK with me you know, I’m not greedy. Now where was it in the book that it showed how to find the deals. OK…here we go … Look up names at the courthouse, call Accountants, call Contractors, call Attorneys……hmmm.

To cut a long story short, I looked up five hundred names at the courthouse and sent letters to them, I made about five hundred phone calls to Accountants and Lawyers (setting up my “network”), and finally I found one note holder who was interested in selling. I made an offer, he said “no”, and I went home and went to bed for two weeks, too depressed to function. All that work, and this guy just said “no”. That was my introduction to the wonderful world of real estate investing. From there, I got into low income apartments and completely flushed myself down the toilet!

Five years later, after buying and giving back about 50 units, nearly penniless, I discovered this thing called creative real estate. Control without ownership, solving people problems, use your brain to buy property - not your cash. I had an acute appreciation for it, given my (expensive, and painful) landlording odyssey, but it seemed even with all this wonderful knowledge, I was still in very much the same position I had been in when I first got started. The same position I stayed in, until I wised up, and the same position most real estate investors struggle with year after year because they don’t know any better.

That is: “I know all this stuff inside and out. I know 100 different creative ways to buy a property. But I’ve got to suffer through things like lackluster advertising results, cold-calling, talking to hundreds of testy uninterested people, and dead ends, before I even get the chance to talk to someone who is half way motivated to sell. This is a crossroads. The proverbial “brick wall” for most of us.

And this brings up an important point. Possibly the most important point to really “get” here. Knowing how to find motivated sellers is far more important than knowing 100 different ways to buy a house. You see, your business (and therefore your life) is going to be frustrating, stressful and unfulfilling unless you find a way to create a non-stop flow of motivated sellers calling you, every day. Now, that’s obvious isn’t it? Well it can’t be that obvious because not many people actually do it. You see, what I’m trying to point out here that there is a mental shift that needs to occur in your mind, a paradigm shift if you will, before you are going to make any serious money as a Real Estate Entrepreneur.

And What is This Paradigm Shift?

Instead of being a real estate entrepreneur, you must become a marketer of your real estate entrepreneurial business. That’s what it comes down to. If you are in business, you need to make this shift in your thinking. Because no business is going to prosper, or be successful without a lot of customers.

Making this shift in thinking, in orientation, about who you are, focuses you on the singularly most important and financially rewarding aspect of business: marketing. The money is in marketing the business, not in doing the business. It may take a while before you really absorb this. You may have to think about it for a while before it really sinks in. Read it again. Take a minute. Once you change your thinking to accept that you are a marketer first, and a Real Estate Entrepreneur second, you’ll finally be able to start making the kind of money you really want to make.

Accepting your role as a marketer is the thing that will move you out of the rut of occasional mediocre deals and up into a level of sustained success that would not otherwise be possible for you. And this is true of anyone in any other business or industry. The person or company who is most on top of their marketing, makes all the money, and dominates their market.

Look at Domino’s

A marketing machine! Very average pizza. But aggressive marketers, and they virtually own their market. Look at Bill Gates (yes, I know, everyone cites BG). If you saw Accidental Empires though, a PBS documentary by Robert Cringley, you’d know that Gates was just one of hundreds of fanatical “techies” who were trying to make this computer thing work somehow. With his astute positioning and relentless marketing he rode Microsoft up over IBM to the $80B company it is today.

Of course, this doesn’t mean you just market better and let your buying, negotiating and selling skills go to pot. You’ve got to be the very best property buyer you can be and run your office well too. After all, your sellers and buyers deserve the very best treatment from you. But more importantly, doing what you do so well that people can’t resist telling others about you, is the purest type of marketing in and of itself. Remember, it doesn’t matter how good you are if you have no Motivated Sellers to talk to. Buying houses from Motivated Sellers with little or no money out of your pocket is the name of the game, and marketing is the thing that brings in the Motivated Sellers.

OK, so, marketing. Really fabulous! But, what does it mean? So far it’s just a word I’ve said 10 or twenty times, right? Well, there are two types of marketing people typically use.

The traditional approach which, for want of any better way to go, usually involves just going out after randomly selected sellers. They haven’t been screened or qualified in any way. We just know they have a house to sell. We run up big phone and classified ad bills to get to talk to them. In communicating with them we usually talk to them about our financing, and how great it is, and if they will just sell to us their “problems” will go away. We do it manually; call by call, door by door. We talk about us, rather than inquire about them. We chase, they run. When we stop, the marketing stops. The cost per deal is very high, both financially and emotionally.

The second approach is the targeted, low-cost, systemized, response-oriented approach that, through a variety of media (such as direct mail, lead generating classified ads, flyers, signs, radio, cable TV) states or implies a benefit for the seller, calls for a response from them, and positions you as “the solution” for the sellers who want that. The sellers step forward and select you. The marketing is automated, and it is an operating system that works whether you are there or not.

I don’t want to shock you, but we are not going with the first choice here. Pick up just about any book or course about real estate investing or creative real estate and you’ll find the choice #1 approach to finding motivated sellers, if any. What you won’t find anywhere in those books or courses is the choice #2 approach, which is direct response marketing. Direct response marketing targets a specific group of most-desired prospects that you have defined as those most likely to respond to your offer (e.g. out-of-state homeowners, or expired listings), then it advertises for or delivers a message to only those people via a media (e.g. personal-looking hand-addressed #10 envelope mailed first class) that will reach them and get their attention. Once in front of the target, direct response delivers the following:

1) benefit-telegraphic headline
2) true marketing message
3) offer, or offers
4) reason to respond immediately
5) precise response instructions and mechanisms

With these five elements in place, you set yourself up to be called only by motivated, partially pre-sold sellers, continually, day after day! So now you can be freed to do the most productive thing possible for you as an investor: make offers to motivated sellers!

Hopefully you can see the picture here. Direct response marketing cuts your advertising expense in half. It sifts, sorts and screens your prospects so that only the most qualified and most motivated respond and get to talk to you. In short, it allows you to make more while working less, with more predictability, consistency and control than anything else you could do to find deals. Is that something you want? Think about it. Is there anyone you know of who is buying and selling a boatload of houses every month?

They are still doing a ton of business. Now, why is that? They don’t offer sellers anything more outstanding than you, do they? They certainly don’t offer sellers anything more creative than you are capable of offering. They don’t have any better phone manner than you. Not at all. The only thing that very successful Real Estate Entrepreneurs do better than anyone else is: Create a reliable, consistent flow of motivated sellers calling in each day! That’s it! That’s the difference. So did you get the message here? I hope so. If you want to change your experience in real estate investing from one of anxiety, frustration and disappointment to working less and making more, you’ll make the change.

Seven Ways to Flip a Property

“Flipping” is the buzzword of the year in real estate - flipping books, flipping articles in the newspaper, and even flipping shows on TV! What is flipping, how does it work and how you can profit?

Flipping simply means buying a property and reselling it quickly, as opposed to holding on to a property long term as a rental. Flipping comes in several varieties, most of which are legal and profitable, some of which are not.

Flip Strategy #1: Buy, Fix and Flip

Let’s start with the most common form - the good, old “fix ‘n flip”. This process involves buying a property that needs work, fixing it up, then selling on the “retail” market, that is, to a person who will live in the property. This method is tried and true, and works very well. You can easily make $15 - $50k on one deal, depending on your market and how good you are at finding bargains.

The danger in fix and flips is either paying too much or underestimating repairs. Be very conservative in your fix-up costs and length of time it may take to resell. Also, make sure you include in your analysis the cost of paying a real estate agent to sell the property.

Flip Strategy #2: Buy, Refi & Lease/Option

Rather than sell the fixed up property for all cash, sell for terms. Once you have completed the rehab, refinance the property at its new appraised value. If you did the math correctly, you should have little or no money in the deal. Sell the property on a style=”FONT-SIZE: 10pt; COLOR: #005500″>lease with option to buy style=”FONT-SIZE: 10pt”>. The rent payment from your tenant/buyer should cover your mortgage payment (if not, consider an interest-only or adjustable rate loan that is fixed for 3 years). When your tenant exercises his option to purchase, you reap a larger profit, since you don’t have to pay a broker’s fee. If the tenant exercises his option after 12 months, you benefit from a lower capital gains tax rate.

Flip Strategy #3: Buy & Flip “As Is”

Don’t like to do fix-up work? Consider selling the property “as is” as a light fixer upper. If the local real estate market is hot, you should be able to sell the property in poor condition just a little below market. This is especially the case with houses in “transitioning” neighborhoods. Make sure, of course, that you acquire the property sufficiently cheap enough that you can sell it below market quickly and still profit.

Flip Strategy #4: Wholesale

Strategy #1, the fix and flip, is very popular, which means there are a lot of investors looking for rehabs. You can buy the property cheap and sell it for just a few thousand dollars more to another investor without doing any work. You won’t make nearly as much as the rehabber, but you will realize your profit quickly.

Flip Strategy #5: Pre-Construction

In very hot real estate markets, prices are appreciating as much as 2% per month. If you time things right, you can put a contract on a pre-construction house or condominium, then flip it to someone else when the development is complete. If it takes 12 months for the development to be complete, and the condo price is $500,000, you could make $100,000 or more in one year! Of course, the opposite is also true - you could end up losing money if the local economy tanks and you end up with a worthless condo that you can’t sell for more than you paid. Use this approach very carefully…

Flip Strategy #6: Scouting

The Scout is an information gatherer, so not technically a property flipper. He is the “bird dog” who finds potential deals and sells the information to other investors. Many people get started as a Scout for other investors because it does not take any cash or prior knowledge to look for distressed properties. The Scout finds a property for sale, gathers the necessary information, and then provides this information to investors for a fee. The fee will vary depending on the price of the property and the profit potential. The Scout can expect to make five hundred to one thousand dollars each time he provides information that leads to a purchase by another investor.

Flip Strategy #7: Illegal Flipping

OK, I am not advocating this approach, because it is illegal. Illegal property-flipping schemes work as follows: unscrupulous investors buy cheap, run-down properties in mostly low-income neighborhoods. They do shoddy renovations to the properties and sell them to unsophisticated buyers at inflated prices. In most cases, the investor, appraiser and mortgage broker conspire by submitting fraudulent loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot afford the loan. Since many of these loans are federally insured, the government authorities have investigated this practice and arrested many of the parties involved. As a result, the public perceives is flipping to be illegal.

The fact is, “flipping” - as I described in the beginning of this article - is NOT illegal. Loan fraud in the process of flipping is what is illegal, so don’t confuse the two. The other six ways to flip are very legal, very ethical and very profitable!

Buying Real Estate Undervalued vs. Buying UNDER VALUE!

“Undervalued” vs.. “under value”… is there a difference?
People often speak of buying a property “undervalued”, as if they are discovering something nobody else figured out. Stocks, land, and real estate can all be purchased undervalued, but this is different from buying property UNDER value.


Here’s the difference…


Let’s say you think a company is ripe to expand within the next few years. You are speculating that the value of the company’s stock will increase, so you buy AT MARKET PRICE and hope you are right. You can also buy a property at MARKET PRICE and hope demand will increase and thus its value will go up. You can buy gold at today’s price and hope it will go up in price. However, in all cases you are speculating that the asset will increase in value and that it is CURRENTLY undervalued.


Compare this thinking to buying a property UNDER VALUE, that is below its CURRENT market value. If a house is worth $200,000 based on similar houses that have sold recently, the market value is $200,000. It may be an “up and coming” neighborhood with a good school district that most people have not yet discovered, so you can buy it for $200,000 based on the idea that the future value will be more, so it’s currently ”undervalued.”


Or, you can buy a property with a current market value of $200,000 and pay $150,000, in which case you are buying BELOW value, or with BUILT-IN value. Why is there built in value? Simple - you can sell it tomorrow for up to $200,000! If you buy real estate undervalued, you have to wait until everyone else realizes what you suspect to be true, that the property SHOULD be worth more.


Certainly, buying property that is undervalued can make you money in that you are speculating future demand will be higher and prices will increase for that asset. But, a safer, smarter approach is to buy under value because a particular seller has some motivation, such as a foreclosure, estate, or divorce. Instead of looking for “value plays”, look for value built-in, which can always be found when a particular seller has extreme motivation and needs to sell quickly.

What to Look for in an Apartment

Finding an apartment to rent is a very time consuming and important venture. It may seem like a daunting task at first, but if one takes the time to become educated on the apartment options, the experience will be a lot more enjoyable. Too many people fail to inspect apartments thoroughly, and have a clear idea of what they want. As a result, the apartment shopping experience can often be disheartening. Looking for certain key elements in an apartment can make yield higher satisfaction.


When looking for an apartment, it is always best to have an idea of what you want. Figuring out certain price ranges before you start looking at apartments will save you a lot of time. Also, take into account what type of apartment you would be interested in. How many bedrooms and indoor square footage an apartment has is very important to most people. Also, try to get at least some kind of idea of what kind of neighborhood you are looking for. When searching for an apartment, you want something that will fit your needs.


Also think about the location. Location is very important because of schools, jobs, and neighbors. Some apartments may seem very alluring, but are located in inconvenient places, or in bad neighborhoods. Some neighborhoods have excessive noise and high crime rates. Better apartments will be far removed from these unpleasant elements. Sadly, the more expensive apartments are usually the apartments in better locations. This is an unavoidable fact, and should therefore be taken into consideration when searching for an apartment. Don’t let prices scare you into renting an apartment in a bad neighborhood.


Consider the owner and manager of the apartments. Find out if they have good reputations. The best managers are there for their tenants, and are always willing to help. The best owners charge a fair rent and avoid raising rent. Some of the best owners will offer the best deals on appliances and services. When visiting an apartment, don’t be afraid to ask tenants what they think about the landlord and owner. If all of the reviews are positive, then you may have found the apartment for you.


Look for apartments that have similar neighbors. If you are a bachelor, then you might enjoy having neighbors who are single. If you have kids, then it is always a great idea to look for a family-oriented apartment complex. If you live near people with similar backgrounds, you are more likely to form friendships, endure fewer conflicts, and have a more fulfilling living experience.


Finally, consider the appearance of the apartment. Some apartments look lackluster and seem dirty and unappealing. A good owner will take pride in his or her apartment complex. The best apartment complexes have nice landscaping, paint jobs, trees, and many other appealing elements. Most people want to be proud of where they live. Looking for a well run, appealing apartment is always a great idea.


There are many qualities to look for in an apartment. Consider location, cost, and the reputation of the manager and owner. Don’t be fooled by cheap apartments, or special deals. Having a clear idea of what you are looking for, and how you will get it will make your apartment search not only more effective, but also more enjoyable.

Buy a House, Get Thrown in Jail?

Over the past two years, a dozen states have passed foreclosure “protection” laws, and many states are following suit. Even in states where there are no specific foreclosure protection laws in place, there’s plenty of power within the state Attorney General or County District Attorney’s office to prosecute a real estate investor.

Here’s some of the things you need to do to stay out of trouble:

GET ALL AGREEMENTS IN WRITING

Oral agreements are not good anymore, and they often lead to a dangerous “he said, she said”. If you get a deed from an owner across a kitchen table, it is a legal transfer, but you should document everything first with a contract and/or set of good, clear disclosures. These disclosures include the fact that the owner is losing his property, his equity, and his right to any proceeds from the home. Although giving a deed should make this obvious, some people truly think that they are entitled to something more because they are still living in the house. Also, some investors do offer vague promises to sellers for a right to re-purchase the house at a later time, which can be misconstrued. Always document every agreement you have with the seller in writing.

EXPLAIN THINGS IN PLAIN ENGLISH

Even though you have a good written disclosure, it’s no excuse for pushing papers under the seller’s nose to sign without reading. Explain everything clearly to the seller so he understands the implications of the deal. If you are afraid of telling the truth, don’t do the deal. The seller must go into the transaction with his eyes wide open. Imagine that the local news station was filming your deal and act accordingly.

DON’T OFFER THE SELLER A RIGHT TO REPURCHASE

Although you can offer the seller a lease-back with an option to re-purchase at a later time, this kind of arrangment rarely works out. Some state laws restrict this kind of agreement with a cap on the profit you can make on such a deal, which all but makes it impractical. Vis-a-vis these laws, a homeowner can claim such an arrangment was a “disguised” loan and get the property back by filign a lawsuit. Either way, it’s generally a bad idea to leave the seller in the property. Make a fair deal, give him some cash, and get him to move on with his life.

COMPLY WITH FORECLOSURE PROTECTION LAWS

Know your state foreclosure protection laws, known as “foreclosure consultant” laws. Generally speaking, these laws requires a written contract with state-required disclosures and a rescission period, anywhere from three to ten days. The rescission gives the seller the right to cancel the agreement. It is recommended you give a seller a 3 day rescission even if the law does not require it. If the deal ever blows up and you are in court, it will go a long way for your credibility.

Where to find the best commercial real estate

The profitability of any real estate investment depends a lot on your ability to locate the best commercial real estate deals available in the market. By investing in real estate deals that have the most potential, you can maximize your profits and lower your burden by investing in only a few deals per year. The best commercial real estate deals will give returns that are equivalent to three to four times the amount of your investments. If you invest in average deals, the returns will be relatively less and you will have to do more deals for getting the same returns. The amount of work and process involved are more or less the same for any real estate deal, so it is better to do less work and get a greater return.

You need to make sure that the resources used for locating the best real estate deals are accurate and reliable. For finding the best deals, you can approach reputed commercial brokers, as they are the ones who actually have the properties listed. After noting down your requirements, you can go to these brokers for getting information about the availability of properties that you intend to buy. You need to cast your net wide by calling local brokers, as well as brokers in other states that will be more than happy to call other brokers and find listings that best fit your criteria. When you approach a broker, make sure that you ask for pocket listings, or listings that are about to go on the market, but are not yet listed officially. This will help in finding the best deals and getting ahead of the competition.

The Internet can also be used for finding the best deals, as there are numerous sites dealing in the sale of a variety of properties ranging from raw land to large retail and apartment complexes. On these sites, you can get the required information about the property, as well as the broker. You can keep filtering out the information until you get to deals that suit your predetermined criteria.

Another place where you can find the best deals is probably an auction house that auctions different types of properties. Very often, you may get excellent deals that would otherwise have cost you a lot more if purchased from a commercial broker. It is necessary that you register with some of the most reputed auction houses in order to obtain e-mail notifications about properties that are put up for sale from time to time. This will give you enough time to contemplate on your investment decision before the actual bidding day. Some of these establishments also provide the option of purchasing a property at a specific price before it goes for auction. This makes it even more necessary to stay in contact with several auction houses, as you never know what opportunities might come along.

Apart from these, you can also use local resources such as newspapers, listings, and magazines for finding the best commercial real estate deals. One thing that you should always keep in mind is that the more contacts you have, the more are the chances of finding the better real estate deals. This means that rather than depending on a single source, you need to refer to as many resources as you possibly can.

Cutting Your Losses Early

When your primary plan of action doesn’t work, you need to have a backup strategy. This may involve switching gears from a retail sale to a rental or rent-to-own deal. It may also involve dropping your price, dropping your rent, or, if you are lucky enough to realize your mistake early, walking away from an earnest money deposit instead of closing on a bad deal.



If you already closed and your exit plan didn’t work out, sometimes the only option is to bail out and cut your losses. It takes a big person to look in the mirror and say, “I made a mistake.” Too many investors let their ego get in the way and hold on longer than they should and the bleeding never stops. If it’s a retail deal, then drop your price, even if it means losing money. If it’s a rental, drop your rent low enough to attract a solid tenant. If your monthly carrying cost is $1,000 on a unit, it makes sense to drop your rent by $80 a month rather than have a vacancy. In fact, if you’re offering the property on a lease with option to purchase, you may consider dropping the rent below market and taking a monthly loss to make it up on the backend, assuming there’s enough equity to justify the monthly loss.



For example, suppose you buy a house for $150,000 and it’s worth $200,000, but because of a poor financing choice, your monthly payment is $1,300 a month. Even if market rents are $1,100 a month, that doesn’t mean you must hold out for $1,300 a month. Too many investors think they need to hold out for the $1,300 monthly rent because their payment is $1,300. Wrong - the market will dictate what you collect for rent, not your monthly mortgage payment. If you have a high payment but sufficient equity, it makes more sense to rent it for $1,100 or even $1,000 to get a qualified tenant who can eventually buy it for $200,000 in two years. A loss of $300 for 24 months is only $6,800, which is justified when you make $50,000 profit on the backend. A word of caution, though: Never compromise your rental standards because it will cost you more in the long run for evictions and repairs.


Over the past few years, many novice investors got into preconstruction deals, anticipating a huge increase in prices by the time the development finished. Instead, the values had flattened or dropped. Rather than walk away from their deposits, many insisted on completing their purchases, hoping the market would come back. They are often wrong, and end up selling the property for less than they bought it for. If they stay in the game long term or have a viable alternative exit strategy (such as renting in the meantime), they may come out on top. But more often than not, the best course of action may be to cut your losses early.

Can Government Solve the Foreclosure Problem?

Foreclosures are up nationwide, and will continue to rise as prices continue to go flat in many markets. For some, the problem is painful. Ask New Century Financial Corporation, the nation’s second largest subprime lender, who recently filed for bankruptcy. Ask the guy down the block from you whose house is in foreclosure.

Some pundits think the rising foreclosures will bankrupt our economy, causing pain for people who lose their business or job as a ripple effect of all these foreclosures. Others think that the rise in foreclosures is a healthy adjustment to the end of a long real estate boom, and is nature’s way of taking care of a free-market economic cycle.

Who’s right? Time will tell, but it’s alarming to see politicians trying to fix this problem. Here are some of their solutions.

Give People Money

Tax the rich, give to the poor. The federal government now wants to fund programs to help people stay in their homes.

A new bill in the Senate proposes giving money to people who can’t pay their loans. We taxpayers are confused. If these people are in trouble because they never should have been given such a loan, why should taxpayer money be used to keep them in their homes that they could not otherwise afford?

Maybe someone in Washington has the answer to that question?

Regulate Foreclosure Investors

I have written extensively about the assault on foreclosure investors that have been initiated by consumer advocate groups, resulting in a tsunami of new “Foreclosure Protection” laws across the country.

While protecting innocent homeowners from unethical investors is a good idea, new legislation is not always the answer. Enforcement of existing consumer protection laws and prosecution under existing criminal laws is certainly a better option than creating new laws that limit the options of a seller in foreclosure. The best solution to a foreclosure epidemic is a free market that allows investors to gobble up inventory. By hamstringing investors with complicated, punitive regulations, it will only discourage transactions and result in more properties in lender inventory. More lender inventory forces them to sell at lower prices, which hurts the entire real estate market.

Stop the Foreclosure Process

The Government of the State of Massachusetts recently handed the State Banking Division the authority to put up to a two month delay on any lender foreclosure. All a homeowner has to do is file a complaint with that office.

It is not year clear on how many lenders this will affect, but certainly this move is troubling. If the government’s action is based on a consumer complaint, what kind of complaint deserves the kind of government involvement that stops a lender from collecting on its debt?

Certainly, any homeowner whose legal rights have been violated under state or federal law can stop or delay a foreclosure with a court order. Opponents, of course, will argue that since these people in foreclosure can’t afford lawyers, they won’t have the means to seek this remedy. Such is life, that people who are in debt can’t afford lawyers to protect their legal rights. Do people in $1,000,000 homes deserve the same protection as people in $100,000 homes? Do lenders and their shareholders have the right to foreclose and get their collateral back?

And, think about the next logical step… will the government stop allowing landlords to evict if the problem gets bad enough?

Stop the Lenders from Lending

Nobody can seriously deny that lenders got sloppy in how they lent mortgage money over the last 10 years. As a result, many people got into loans they couldn’t pay back, and we now see the consequences.

Conversely, with the exception of gross overreaching by mortgage brokers, it’s hard to deny that most people didn’t understand the risk involved in borrowing money they couldn’t pay back. If you buy a house with no money down and a negative amortizing loan, you are gambling that you will make more money in the future and/or the price of your home will increase. If you are wrong, you lose your home. That’s the gamble. It’s like Vegas, except for one thing – the house doesn’t win when the customer loses. Everybody loses, except the attorneys who get paid to foreclose.

Should the government stop lenders from offering “risky” loans? The answer, I believe, is emphatically “NO”. If lenders go too far, they suffer financially. Thus, the market will take care of itself, in that lenders who lose profits will tighten up loan regulations, and Wall Street will downgrade or reject portfolios of risky loans.

Before you get too excited by this last paragraph, I do believe that some regulation is appropriate to protect the consumers and shareholders from getting duped in the process. Additional disclosures to both homeowners and Wall Street investors are appropriate considering the large number of defaulting subprime loans. However, if people want to borrow money under risky terms and lenders want to lend under a high risk of loss, why should the government stop them? Pawn shops, check-cashing stores and used car lots all operate on a high-level of risk.

Step Up Enforcement of Existing Laws

Instead of stopping the business, I believe the government should throw money at enforcement. Prosecute the bad people and leave the options open for people who want to do business under their own terms. There are enough existing laws that give the state and federal prosecutors plenty of room to go after bad operators, and many of them already have.

The government can put bandaids on it, but only the market can solve it the foreclosure problem. When demand exceeds supply in a given market, prices will go back up, and people will have enough equity to sell their homes. Somehow, I don’t imagine people will learn their lesson and, thus will continue the same cycle in the future. But, most Americans believe it is not the government’s job to stop people from willingly doing stupid things.

When it comes to your financial decisions, be responsible, read the fine print, and remember… “buyer beware”.