Locked and Loaded, My Real Estate Investment Strategy

There are multiple strategies for making money in real estate. You can do the no money down thing, flipping, buy and hold, and for a few lucky ones sell CD’s and tapes on how to make money in Real Estate. I haven’t made enough money in real estate to make an infomercial or interview people on the back of my yacht about how they used my strategy. I have accidentally found a strategy that has increased my net worth exponentially on every single property I have bought.

I have had the opportunity to meet several real estate investors. Real estate investors are a funny breed. I know several who have a net worth in the millions, but valet parking folks would laugh at their older vehicles if they went some place fancy. They all have one thing in common, though. They are willing to take calculated risks and their checks always clear. I came of age during a recession and the dot.com bust. I saw a lot of people lose their shirts in the stock market. I decided I liked real estate better than stocks. If a stock goes South there is nothing you can do about it. You can always do something to improve a property. I decided I wanted to be a real estate investor. Besides, valets already laughed at my car. I figure I must have been halfway there already.

After picking the brains of several real estate investors that I did home inspections for, I took all that knowledge brought it together and proceeded to make every investing mistake one could make. I plan to write another article on real estate investment mistakes. In fact I probably could make tapes and CD’s on what not to do. Despite my unique expertise I did accidentally come up with a working strategy. Even a broken clock is right twice a day. I call it “Locked and loaded”

I wanted to purchase this property on 2810 Barringer Rd. in Charlotte, NC. It was distressed and undervalued. I did my home inspection on it and calculated what it would take to get the house up to par. I would still have a lot of equity. I planned to rent it although one could sell or “flip” and make a decent profit. The house was a foreclosure and was for sale at 41K. I offered 39.5 and got the contract accepted. I then proceeded to obtain a loan the traditional way. I got a mortgage broker working on my “traditional” loan. He sent the appraiser out there and then the bad news. The furnace was busted. I knew this already and planned to put a brand new gas pack on it. Here was the problem. I had to have the appraisal for the loan. They cannot appraise a house without a working furnace. One other thing that I need to mention is that in my contract if I didn’t close by this certain date it would cost me a $100 a day. Now I find out I can’t get the loan! Rock meet hard place and I’m in the middle. I contemplated putting the gas pack on the house (that I don’t yet own) just so it would appraise. Suppose I do this and something falls through on the deal. The bank (the house was owned by a bank) gets a brand new gas pack and I am out four grand. I told you I could sell CD’s on what not to do.

Well the contract deadline loomed and I was stuck. I had quite a bit of equity in my personal home and I decided to get an equity line on that. I took that equity line and wrote a check for the house. I was ticked. I planned to eventually get a “traditional loan” on the house. I would have to actually close on the same house twice incurring several of the same fees twice. You know it looked so easy when Carlton Sheets was interviewing those people under the palm trees.

Well I purchased the house with my equity line on time to avoid the $100 dollars a day penalty. I fixed it up. I put a new gas pack on it. I fixed the bathroom floor and the living room ceiling. I also repainted and put in new carpet. I reseeded the lawn and added some bushes. I put about 7k in it. I go to get the “traditional loan” on it now. They send the appraiser out there and he comes back with a value of 78k. Wow! I paid 39.5k, put in 7k, and I have essentially two closing costs but I now have an asset worth 78k. I can now get that “traditional loan” and then pay back my equity line. I am locked and loaded and ready to do it again. Here’s the thing.

Most commercial or investment loans will only loan you 75-80% of the value of the property. You can’t keep buying more and more the traditional way because you have to use 20-25% of your own money every time you buy a house. Unless you have unlimited resources you will have to slow down at some point. I accidentally found a way around this. This is my formula. Buy a slightly distressed property with home equity. Fix it up and get it reappraised and get a loan on the new value. If you bought it right, even a 75-80% loan-to-value should be more than enough to pay back your home equity. You are locked and loaded and ready to go again.

I don’t profess to know it all. I do own 11 rentals and plan to buy many more. There are several other real estate investment strategies out there that work. This one works for me and maybe it will work for you too. I have yet to make enough to sit on the back of my yacht but I probably could buy a used pontoon boat though. Maybe I should make some tapes and CD’s on what not to do.

To find out more or contact Preston Sandlin, go to http://www.homeinspectioncarolina.com

Rehab Projects Are Often Great Investment Opportunities – Why Can They Become Huge Disasters?

A rehab project is easily seen as a great investment opportunity. You are able to purchase the project at a fraction of the replacement cost. After all the cash is invested, the total cost per square foot is far below the competition. You can see an easy path to much greater cash flow after the vacancy is filled and after the rents are increased. Unfortunately, there are a ton of issues that can throw the plan off of the expected course.

A rehab project did not get in the current condition because the owners wanted a run down dilapidated apartment complex. While the situation can be and often is the result of extended neglect, the buyer must consider that neighborhoods change, crime problems develop, basic infrastructure issues become insurmountable.

Where to begin?

First, is the property in a rentable location? Spend time understanding the schools that service the property. Look at access to employment and shopping. Find out what the crime issues are on the apartment complex. Determine what crime in the surrounding area is. Check out the demographics of the area and check with local merchants, consumer, and other sources about the reputation of the area. If too many red flags begin to develop, then you may have identified a project that could resist your best efforts to rehabilitate.

Next, if the property demonstrates solid performance, look at the physical issues with the project. Are the kitchens unable to meet expectations for today’s consumers? Is the foot print to small? What changes are required to meet utility cost expectations? Does the project require central AC? Is parking inadequate? Do the units require washers and dryers in the market and for the demographic the project will serve. What about dishwashers? Are the amenities inadequate? Are the floor plans positioned wrong for demand in the market?

In the case of infrastructure issues like those suggested for review above, the right rehab plan may well be able to resolve the issues. The key considerations are putting together a detailed rehabilitation plan that resolves the issues thoroughly for rentability. If the costs begin to rise to high for the project to be viable, you will know to abandon this prospective project. However, if you can meet the project well below your affordability considerations you have identified a potentially strong performing asset.

While the considerations above can protect against a bad decision because a rehabilitation requires repositioning the project the risk is much greater because rentup may not occur as expected. Renting costs can be too great. Rehab costs may over run. Rent rates may be weaker than expected. Management issues may be greater than anticipated. In all cases, the project can become continually more challenging and lead into failure.

Technology Increases Small Business Profitability

During times of economic struggle, most small businesses end up making cuts and changes to keep their businesses in the green. From laying off staff to decreasing business travel, reducing marketing efforts and ending bonuses and raises temporarily – there are a variety of ways small businesses look to cut their expenses. At the same time, they look for ways to increase profitability – especially when operating with reduced staff. Technology becomes even more useful as small businesses strive to increase productivity and efficiency.

There are so many gadgets and technology solutions out there that it can be easy to buy more than you need, or to buy the wrong types of products that just don’t deliver the solutions your business needs. When deciding what types of technologies can help your business reach its goals, here are a few things to look for:

Communications – technology is well known for its capability to improve the ability for people to communicate with one another. Whether you’ve got employees on the road or down the hall, virtual phone systems can route calls to cell phones and keep everyone in touch regardless of location. Instant messaging and email provide quick ways to communicate with the written word and keep documentation of these conversations for future reference. Social media and networking sites provide a way to keep in touch with co-workers, customers, and the competition at a glance.

Data Storage, Warehousing and Search – If you find employees are spending a lot of time looking for certain reports, forms or other data that they need to perform their job responsibilities, investing in network hardware and software to keep track of the whereabouts of your data can be useful.

Telecommuting – many small businesses also find that there isn’t a need for all employees to work in the same office building in order to get their work done. Having employees who telecommute requires the technology to make that happen (a secure network for employees to access data they require to do their job; improved communication systems to receive incoming phone calls at their homes or on their cell phones and the ability to keep in touch with co-workers in different locations). Having employees telecommute can save you from needing a larger office space, which keeps your overhead costs lower, too.

Customer Relationship Management – having some sort of CRM software to help you manage your database of clients and prospects is well worth the investment. Many businesses will tell you the “money is in the list”; meaning the amount of money a company earns is directly proportional to the number of people on their mailing list. Some companies use software like ACT, Goldmine or SalesForce to track their clients and leads. Others have custom-built software developed to handle unique needs that can’t be addressed with existing software.

Technology makes it possible for small business to increase productivity and compete with larger businesses on a smaller budget, thereby increasing profitability. Efficiency and organization is improved through the use of appropriate data storage, search and mining, customers are better managed through customer relationship management systems, and it is possible for money to be saved when employees telecommute from home. Before investing in any new technology, identify the unique needs of your business and determine which technology will best meet your needs.