Question from reader Answered

Just received this email and thought I would answer here for any of you that may have the same type of questions

Hey Rick

I'm a first time visitor and I was checking out your blogs on investing in south Florida web-site
I am new to real estate investing, i live in california and have been knocking on doors to try and pick up some properties with some equity in them what do you recommend when you say invest with your brain not your wallet..

what I'm trying to ask, as you mention in what makes a bad deal good to look out for HOA fees, rental rates ,taxes and ur monthly mortgage payment..obviously rent rates,hoa fees and mortgage to measure positive or negative cash flow...right

what could you suggest i look out for..

thank you ,

JH - (name changed for anonymity)

First of all JH, thanks for visiting the blog!

I love to hear that you're knocking on doors, but you may be wasting energy. I would like to discuss where you are getting your leads before I give further advice but we can discuss that privately via email.

Gang, the reason I say this is that you DO NOT want to be buying lists of pre foreclosure properties from any type of firm,business or website offering the service. What is bound to happen is you will be one of possibly a hundred investors knocking on the door, calling or sending letters. UNLESS you have a VERY distinct way of differentiating yourself, it will be a waste of time and money. Get with an agent who specializes in Investment Real Estate and get the right leads the right way. If you need help finding the right agent, email me and I will set you up with the best person or people in the city you are in. That being said, let's move on.

When I say to invest with your brain and not your wallet I am in essence referring to two things:

1. Do not get greedy with your projected returns

(You can refer to the post directly below this to expand on the principle I am about to explain.)

Please do not set your return goals to high just to pad your WALLET. Think more (with your BRAIN) and realize that any positive return is a success in Real Estate Investment, get in and get out! If your neighbors are renting for $1500 a month and making $200 positive cash flow, rent yours out for $1400, take your $100 positive and MOVE ON TO THE NEXT!! The point of renting the home is to have the mortgage paid for, you are going to make the BIG MONEY on the sale 3-7 years down the road, not on the extra $100 per month. PLUS you will obviously be the first to rent seeing that you now offer the best price for available product. Make sense? Good.

On the flipping side of Real Estate Investment use the same concept. If you project a sales price of $500,000 because that's the average rate in the neighborhood, advertise at a steal, give 10% off, sell in a week and MOVE ON TO THE NEXT!! GET IN AND GET OUT!! Less hold time equals more money in the long run, what seems and may feel like a loss now are gains on time and money that you WILL BE attached to shall you try to get top dollar for your flip.

2. Do not get cocky with the amount of money you have to invest

Just because you may have money to invest in Real Estate does not make you a smart investor. Don't go for the first thing you see, do your homework and invest with your BRAIN....simple yet sometimes....scratch that, many times overlooked.

What makes a bad deal good in terms of HOA, mortgage payments, rental rates, tax, etc:

No matter how much work a property needs, if after that work is complete your numbers still work out, its a good deal! If you think its a bad deal, express that to the seller and beat them down until the deal is good!

If you are visiting this site I am sure you know that you want your rent to be more then all of your fees, but please please please be sure to calculate EVERYTHING when figuring your net numbers. Vacancy allowance, Annual repairs, City and State Tax. We all love surprises just not in Real Estate!!

What should I look out for:

• hidden fees from associations
• maintenance for problems that the seller can fix now
  
• assessments that the seller forgot (yea right) to mention
• tenants that don't pay
• unforeseeable home repairs (they will happen)

Thanks for the questions, I hope this helped. If not send more!!

-Rick
rick@rickrapp.com

Do you HAVE to make a 35 - 40% return?

NO!!
GET IN AND GET OUT!!

One thing that really confuses me is the lack of "willingness" to want to make moderate returns in this market. People are so used to hearing about 25+ percent returns on Real Estate investments from a few years back that they now think thats the norm, anything less isn't worth it. Does that make sense to you? It makes zero sense to me. If I can find you a home that will offer a quick 10% return as a flip what would make you hesitate? Nothing? Good, let me show you how to do it.

As I keep saying in these posts, you want to be positive with each investment, makes sense right? There are however certain investors out there that will pass on properties that have a moderate risk in regards to making cash on the flip. So what these investors want is a property that will offer a HUGE return on investment. For example they want a home that they can buy and rehab for say $400,000 and sell for $540,000 they expect a 35% return!! Now there is NOTHING wrong with that, I wish I could bring all of my clients such high returns. These deals are possible, but why waste all of your time and money waiting for a 35% deal to come along when you can pick up 5 10% deals in the same amount of time, with the same amount of money out of pocket, AND MAKE MORE MONEY!!!!

Let's say you buy the same house in the explanation above. You have comped out the neighborhood, you have done all of your research and you know that with the right marketing, exposure, agent and buyer you can make 35%. How long do you think that will take however? 6 months? A year? In this market I wouldn't be surprised. So why don't you take "a loss" and market the home for $475,000, sell in a week, make your 20%, move on to the next property and be happy?

Investing with your brain, and not your wallet!!!

Now I am not in any way saying make less money when you can make more, I am simply saying in Real Estate the name of the game is GET IN AND GET OUT why hold property that you don't have to for an extra 10-20%? Is it really worth it in the long run? And doesn't a longer hold period equal more risk?

WOULD YOU RATHER HAVE ONE 35% DEAL A YEAR OR 5 10% DEALS? Ummmmm.....

Let's make some money the smart way people!!

Email me today and let's get started

-Rick
Rick@rickrapp.com

What a "Good Deal" looks like

THIS PLACE LOOKS LIKE CRAP!!

How can this be a good deal? The place is a mess!! What is that?

It's a kitchen, or obviously lack there of. How can this be a good deal? This specific property is currently owned by a bank, it has been foreclosed on and is now available for sale. Because the property looks like this it is listed at a drastically reduced price! And because it looks like this, no one wants it!!

Let me show you quickly why this is such a good deal:

Sales History for this community by sq/ft

2005 average price per square foot - $278
Today's average price per square foot - $222

Your price per square foot - $145 !!!
(Including rehab!!)

Now thats a bargain!!! Sure the place needs a kitchen, sure it is going to take some elbow grease, but when has making money ever been easy? This property will carry itself, you can occupy it with a tenant and actually profit monthly!! You get paid to own more property!! You make money on an investment that already has instant equity!!

This my friends is what a good deal looks like.

Want a good deal? Of course you do.

Email me today at rick@rickrapp.com let's make you some money in this market!!

Short Sale vs. Forelclosure

There has been a ton of talk lately about short sales. What are they? How do I find them? Are they good investment opportunities? What does it even mean?

A short sale is when a seller is facing foreclosure and is trying to sell the property for less then they currently owe the bank. The bank is going to "come out short" on the sale of the property. For example, a homeowner who is has a home that is worth $400,000 in today's market but owes $500,000 and can no longer afford it. The seller can no longer afford the home and needs to sell, but does not have the $100,000 difference to pay the bank to get out shall he acquire a purchaser willing to pay $400,000. What the homeowner has to do is contact the bank and ask if they are willing to take less then he owes. They may be willing to "short" themselves on the sale of his (their) home.

Why would a bank be willing to do this? In today's market there are an abundance of homes facing foreclosure as I am sure you must be aware of, I think at this point my cat is aware of it!! When a home is foreclosed on the bank becomes the solitary owner of the property. They don't want the home however!! Why would they? It becomes a negative hold for them, they now own a home that is bringing in no income and probably requires fee's of some sort to hold, ie. HOA fee's, taxes, electric bills, etc. It may be beneficial to the bank to accept less then the balance of the homeowners mortgage to simply move on and get the home off their books. So at times they will be willing to take less. However, it is COMPLETELY up to the bank as to the amount they will accept. The homeowner must also prove that they can no longer handle the payments by submitting W-2's, pay stubs, hardship letters and more.

A short sale is not an easy process for either party. The buyer has to wait for a response from the bank, which means he/she/they can not take advantage of other opportunities that may arise. Once your offer is submitted it can take up to two weeks to get a response from some banks, then up to 6 months to close. The bank, as any other institution would, waits for better offers and does not want to simply give the property away as some would assume. Being a "savy" investor and low balling a bank thinking you are helping them out will get you no where. They know what its worth, trust me they have done their homework.

From a sellers standpoint a short sale is in no way a saving grace. You are required to pay taxes on the difference paid to the bank. Example, you owe $500K, bank accepts $400K, you owe taxes on $100,000!! That's right, the government is not going to just let you walk away......did you really think they wouldn't want their due?

And on to Foreclosures -

A foreclosed property is one that was not sold through a short sale, or auction (we will talk about that in a bit) and is now listed for sale, usually through a Realtor, by the bank. Now as I said before, a bank is a business and they want the most possibly attainable, wouldn't you? Don't you think they want to make a profit, even if the last owner only owed $100,000 on a $500,000 home? OF COURSE!! And this is why not all foreclosures are good deals, just because a home has the word "Foreclosure" on it does not mean it will make you rich!! Please remember that:

Just because a home has the word "Foreclosure" on it does not mean it will make you rich!!

The word Foreclosure has become such a magnet to new investors, many think if they can find them they will strike it rich, not the fact Jack. Just like anything else, some are good, some are bad. Learn to decipher good from bad and THEN you will become rich!!

People you need to do your homework when investing in Real Estate, and if you don't know where to start, contact a professional, I know of a great one!!

For more information on Short Sale and Foreclosure properties email me today!

- Rick Rapp
Real Estate Investment Consultant
rick@rickrapp.com

How do I find good real estate deals?

There is no secret to finding good real estate deals, no magic formula, no secret sauce. Just like everything else in life it only requires hard work, time and dedication. If you are serious about investing in Real Estate and are ready to move financially when the right deal comes along all you need is time......or the right agent.

As a Real Estate Investment Consultant I am constantly on the look out for investment property. Now you may hear many agents, brokers, and even friends say they are activly doing this but you have to ask them and yourself, "do they know what they are looking for?"

What differentiates a good real estate deal and a bad one? Many many things, some of which you will find in posts below. The importance of knowing exactly what to look for is second to none. You can have $2,000,000 to invest, but if you don't know what makes a deal good that money will not grow, it will depreciate and at a very rapid pace. I will tell you now that a smart investor with $50,000 will make more over time then a "lack-luster" investor with $2,000,000 to invest. The name of this game is "positive hold". I don't care if you are making $100 a month on a property or $5000, you NEED to be positive from the start, don't speculate. Don't convince yourself that appreciation is on the way or that it MUST be good because you are paying 30% less then the homeowner paid......you MUST be positive.

If you can find postive hold real estate deals, you've found a "good deal"

If you want help finding these deals,email me now.

Rick Rapp
Real Estate Investment Consultant
rick@rickrapp.com

Who get's the worm? I want you to get the worm!!

When a property becomes a good deal you are not the only one that is going to know about it, I am not the only one that is going to know about it. The point that I am trying to make is that this isn't hidden information, its public knowledge and the early bird IS going to get the worm!! So when you find it you need to buy it. If the numbers work its not the time to hem and haw its the time to buy!

Now I don't want you to think that you have to close on the property just because I am telling you to buy it once the numbers work. OF COURSE I want you to do your homework, OF COURSE you need to have the home inspected, OF COURSE you need to do your complete due diligence, but would you rather do that while the home is still on the market for a competitor (and that's what all other investors are) to purchase, or would you rather do it all when you are under contract? I vote to do your homework while the home is "yours" and if you don't want it after your homework is complete..... JUST GIVE IT BACK!!

There are things called clauses in contracts, certain legal "outs" to protect the buyer and seller.....YOU MUST USE THESE TO YOUR ADVANTAGE!! Take the time legally given to you to do your homework. If you find termites, walk....if you find a hole in the roof, walk....if you find mold....walk!! But please...oh please give yourself a chance to acquire your new investment!! Don't lose money because you decided to procrastinate!! If you wait to put an offer in until your homework or due diligence is complete then guess what....the home WILL be gone, I promise you someone else WILL buy it. And what's more frustrating then spending time and money on research and inspections only to find out that the home is no longer available. I've been there, and excuse the lack of political grammar but ..... IT SUCKS!!

Use your inspection period to your advantage buyers!!

Call for more information or to have any questions answered:

Rick Rapp
Real Estate Investment Specialist
rick@rickrapp.com

What makes a bad deal good?

Having a property pay for itself is not in anyway an easy task, if it was everyone would be doing it right? It takes time to locate, negotiate and occupy "self-carrying" properties, but it is possible. HOWEVER, and this is a very important "however" you need to move NOW when it is found. These properties are very rarely just waiting to be found. They are often homes that have been on the market for a long time and have just had a recent price drop..... then BAM!! a BAD DEAL IS NOW GOOD

Now keep in mind that this isn't hidden information, its going to be public knowledge..... so when you find it...... you need to buy it! If the numbers work its not time to hem and haw its time to buy!

The reason I say this is that you can not afford to lose the property to another investor, you need to act and act now. I'll get into that more later in a different post.

Now back to what makes a bad deal good. First of all we want the property to pay for itself, or at the very minimum cost you a few tanks of gas a month. To make this a reality many factors have to work together. You need to equate four key points:

1. Average Rental Rate
2. HOA Dues
3. Yearly taxes on property
4. Your monthly mortgage payments on an 80% loan - EVEN IF YOU ARE PAYING CASH!!

Most of this information is easily obtainable but if you need help locating it contact your local Realtor....I know of a great one ;)

When you equate all pertinent information 1 should be greater then 2+3+4, is it?

YES? - BUY IT NOW
NO? - Renegotiate or move on

This simple equation helps tremendously when deciphering what makes a bad deal good.

For more information contact Rick

Rick Rapp
Real Estate Investment Specialist
rick@rickrapp.com

Invest with your brain, not your wallet

Many of us have been waiting to invest in South Florida once again and now may be the time though you may not yet be ready. Our hearts are broken and our portfolios cry with the direction the market took in late '05 and continued through '06. Too many cooks in the kitchen? Too many Trumps in the market is more like it. We had such an influx of "savy investors" flood the market when there was no way to lose. 100% financing, incredible appreciation, instant millionaires!! Well, we all know what happened I don't need to rehash it, but now it's '08 investors!! Time's have changed and are changing fast!!

There is an influx of inventory as I am sure you are aware, the question you need to ask yourself is, "how many of them are deals?" In my mind a deal is any property that you can acquire that will carry itself over time. There are an unlimited number of sellers out there today that will take far less then their asking price, even less then they may have paid for the home. There are also a number of pre-foreclosures and bank owned properties that you can pick up for "pennies on the dollar" BUT that does not mean they are good deals!!

Many factors come into the equation when deciphering whether a deal is good or bad, do you know what these factors are? Are you aware of the necessary monetary needs required to make a good deal good and what can quickly make an O.K deal bad? Let me give you a few hints and tips:

1. PAYING LESS THEN THE HOMEOWNER PAID DOES NOT EQUAL A GOOD DEAL
2. BUYING A HOME PRE-FORECLOSURE DOES NOT MEAN YOU GOT A GOOD DEAL
3. BUYING FOR 20% LESS THEN THE LAST SALE DOES NOT EQUATE TO A GOOD DEAL

Are you ready to make money in this market? I'm not talking about quick money, I don't mean cash in hand. I am referring to building your portfolio, BUILDING wealth, not acquiring a few hundred thousand cash when you owe double that, but actually building your nest egg, providing for your future.......

AND HAVING SOMEONE ELSE PAY FOR IT!!!

Contact me today if you want to start investing in real estate the smart way.

Rick Rapp
Real Estate Investment Specialist
rick@rickrapp.com