Ok, I would like to take a moment to ask a few viewers of my blog to comment about experiences on rental properties. With rental properties there’s the good, the bad, and the ugly when dealing with tenants. Let us hear about some experiences with problem tenants.
If you’re a student in Real Estate and I know a few of you are. The novice investor is very prone to making a few mistakes, but hey…we can learn from our mistakes right? I sure hope so, but it’s even better to learn from another person’s mistakes. When going into Real Estate investing you have to do your homework and learn as much as you can so you minimize the risk of screwing up a good deal. Here are some things that you should not do when creating a deal.
Five ways to mess up a deal in Real Estate
How to look for foreclosures
Now that you know how to find a foreclosures, the next step is to contact the owner of the property to see if you can negotiate a deal with them. Make sure you keep up with my site, because I’ll post more about foreclosures and how to contact the owners.
Do you want to flip a house? Sure, I would too. Here’s a simple profit chart to help you calculate your potential flip. Basically this chart will give you an idea if the house you had your eye on, is even worth a flip. Keep in mind that you have to do your due diligence and do allot of homework on the subject property that you want to flip.
Example: Buy at $250,000 and sell at $400,000.
| Profit Calculation | |
| | Total |
| | |
| Purchase Price of subject house. | $250,000 |
| Estimated Repair costs | $20,000 |
| Closing Costs | $3,000 |
| Commissions and Sales Closing Costs | $21,000 |
| 10% Miscellaneous costs | $10,000 |
| Month to Month Cost | $12,000 |
| Final Flipped Price | $400,000 |
| | |
| Estimated Profit | $84,000 |
Note: Make sure you calculate your capital gains tax too. Also see a tax professional about tax brakes. You might be able to save money.
There are Four Stages of Foreclosure
Late payments: Someone that is behind on their mortgage payments and the bank hasn’t taken any action or foreclosure proceedings against them.
Pre-Foreclosure: Someone that has a notice of default filed against them. At this point the owner can sell or work something out with the lender.
Trustee’s sale/ auction: The property will be auctioned off to the highest bidder during this stage.
Bank-owned foreclosure (REO): The bank now owns the property through foreclosure. At this stage investors can purchase a house from the bank.
At the time of the Pre-Foreclosure stage, the owner is usually motivated to sell. This would be the best time to get the property.
Rule of 72- Compound Interest
Compound Interest-Interest paid on original principal and also on the accrued and unpaid interest which has accumulated.
The rule of 72 is a mathematical formula that helps determine how many years it would take to double your savings or investments. To find out the years to double your money you first need to take 72 then divide it by the interest.
Example:
| Money doubles every 18 years | Money doubles every 6 years | ||
| 72/4=18 | 72/12=6 | ||
| Age | 4 % | Age | 12 % |
| | $5,000 | 18 | $5,000 |
| 36 | $10,000 | 24 | $10,000 |
| 54 | $20,000 | 30 | $20,000 |
| | | | |
Starting from 18 years old, 12% is a better deal.
10 Terms you must know in the Real Estate Game
1. Realtor
2. Contract
3. Flexible Seller
4. Notice of
5. Notice of Default
6. Obsolescence
7. A buyer's Broker Agreement
8. Farming
9. MLS
10. Balloon Payment
Look up these words and find out what they mean. They will help boost your vocabulary and make you stronger in the Real Estate game.
In a 1031 exchange (also called a property flop) investors have 45 days to identify three potential replacement properties. There is also a 180-day period that runs simultaneously to the closing. Exchangers must reinvest all proceeds, and a third-party intermediary (also known as an accommodator) must hold the cash in trust.
The Equity held by the investor in the new property must equal or exceed the equity held in the previously owned property. Exchanges can range from a simple two-property swap to a multi-legged, multi-property deal that involves a “construction” exchange or a “reverse” exchange, where an investor buys the replacement first before selling the exchange property.
Here's an example of a 1031 exchange: Imagine that you bought a property that's worth 2 million dollars. Then you fixed up the property to be apprised for 4 million. You then trade the property for 2 other properties at 2 million each. Now assuming that the properties need rehabbing, fix them up for resale.
Now keep in mind, that some states have different law about the 1031 exchange. So it is a good idea to do your research before you try this real estate strategy. To successfully complete a 1031 exchange it is vital that the investor have a clear plan as to both the types of investments they are going into and how to pass through the various stages of a 1031 exchange.
Real Estate Clubs
You want to find a power team for flipping houses? Look for a real estate club. These meetings are a great place to find out more about the market where you are investing. The people in the real
estate clubs generally have a lot of information about the area where you are investing. Networking with real estate clubs will put you on the fast track quick. The objective is simple, find a mentor there.
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