Real Estate Investing Made Easy, You As Your Best Client
BATTLECALL GUEST EXPERT: Walter Sanford, National Real Estate Trainer
As real estate agents, we work as purveyors of the most profitable, long-term investment opportunities in North America. Every day, we talk with our clients and prospects about the wonders of owning real estate, but we don't buy enough investment real estate ourselves!
For most of us, no matter how rewarding and fun it is to work with homebuyers and sellers, we really are not planning on working in the real estate business until the day we die. At some point in time, we all want to retire comfortably; living off our real estate investments is a wonderful way to be able to retire comfortably. If you're looking to effectively retire in ten or fifteen years from now, it's time to make a decision for financial freedom today by making a commitment to build your own real estate investment portfolio.
The no-hassle, no-time-involvement way to build your portfolio
There are several innovative ways to build a real estate portfolio. Remember, we're the professional selling this commodity every day. In fact, one of the easiest, most secure ways to acquire properties for your own portfolio is something you do everyday, despite the fact that its methods are rarely used! This system is based upon finding listed, free-and-clear properties.
Here's how to do it:
1. Research all currently listed properties that are or close to being free and clear or properties that have assumable loans. This can be done on a daily basis by looking at each day's new listings or by surfing the current MLS database for the above parameters. Some MLS systems are easier than others to find the current free and clear listings. If it is hard for you, then ask your title rep to help you match current listings with old mortgages nearing payoff!
Once you've found one such property:
A. Determine what gross income can be produced from the property.
B. Subtract 40% from that gross income; this will allow enough to pay taxes, insurance, vacancy and maintenance factors, utilities, management and all other operating expenses.
C. Take the remaining 60%, by using your calculator of choice or a common amortization chart, determine how much of a loan this 60% income will service, based on a fully amortized loan of 30 years at let's say 7 percent.
D. Once you determine the amount of debt, this 60% income covers, divide that by .90 (or 90%); this will give you the sale price or your offering price (it's divided by .90 because you will be putting up to 10% down).
2. Make an offer on these listings. This is where your computer comes in handy, by keeping a template of your state's offer form on your computer, you need only fill in a few numbers, addresses, and boxes on each offer. In the offer, ask the seller to carry back 90% financing at 7%, fully amortized over a 30 year-period. Do not put in a "due on sale" clause.
3. Fax your offer to the cooperative agent so that agent can present the offer directly to the seller.
4. If the offer is accepted, do the walk-through and make a final determination as to whether or not you want this property in your portfolio.
5. Keep the property and let the tenant pay it off!
Yes, sometimes it takes thirty offers to obtain the perfect match for your portfolio and meet the seller's needs. With a fill-in-the-blanks form, email, or a fax machine nearby, you're not investing a lot of time or effort into these acquisitions. It's very easy to acquire five or six new properties a year by using these simple methods.
Long-range benefits of these portfolio investments:
When you start acquiring property with sell carry-back financing, some wonderful things happen. First, the sellers or mortgage beneficiaries may try to re-negotiate the loan to obtain more cash. This is to your benefit, since you will be asking for discounts for early payoffs and interest rate re-negotiations for agreeing to make larger payments. Since these are private loans, there are no restrictions on their re-negotiations. Moving loans to other properties, re-negotiating payment terms, and paying off early for discounts are all accomplished if it is a win-win situation for you and the previous seller! You don't have to apply to a bank, go through horrendous credit applications, pay points, or explain your intentions to sometimes-stringent bankers. Best of all, you obtained terms that were unavailable in the current marketplace through institutional lenders. The seller has received a much higher than currently available rate of return, which is magnified because it may be an installment sale, so the seller is earning interest on money that may have been paid to the IRS. The safe rate of return, tax benefits, and annuity nature of the loan are part of the seller's motivation to be the lender rather than be crushed out.
So what's next?
Now that you've acquired the property, what do you do with it? Manage it! In fact, since you are managing for the long term, you should be making improvements to the property, constantly increasing its cash flow, and moving it to higher, positive cash flows.
Why not just sell the property and take the profits? It's possible, and done regularly by investors. Remember, whenever you sell, you subject yourself to the market and its current price level, taxes, anxious tenants, costs of sale, and take your investment "off line."
If you choose instead to hold, to manage, to consistently increase the value of the property, and to obtain positive cash flow, you can build the surety of an annuity. Use this positive cash flow to reduce the underlying loans. This quickly moves amortization from thirty years to as low as seven to twelve years. Your cash flow may increase every year, allowing you to make further principal reductions and allowing the loan to be paid off much faster. While you're still in the middle of your real estate career, you'll have your first building paid off free and clear.
Because you're still earning commissions, why not tackle this philosophy even more aggressively? Take all of the positive cash flow from your now paid off building number one that you own and apply to building number two that you own. You may already be making principal reductions on building number two from your positive cash flow, therefore moving an already reduced amortization down to an amortization of five to seven years.
Very soon, you'll have that building paid off, allowing the positive cash flow of two free and clear buildings to pay off building number three even more quickly. With all three paid off, you can now start paying off number four and so on! It works like a great, big snowball! In the last years of this formula, you'll be able to pay off many buildings quickly and effectively.
Start today by making smart cash flow offers. Once you know how many units you want, you'll know how many units you have to acquire within certain time frames, then you will know how much to serve from your commissions for your 10% down payments. Buy them correctly...no balloon payment, no financing problems, and at positive or break-even cash flow. Use the positive cash flow to pay off your underlying loans, and you, too, can easily join the membership of just 3% of American citizens who retire with financial independence.
Walter Sanford was one of the top real estate agents in North America for nearly thirty years, and now, he is one of the most requested speakers, trainers, and coaches. He has authored twelve systems and books on checklists, pro-active lead generation, affiliate lead generation, plus others mentioned in this article. You can hire Walter or buy his products by visiting his website for more details at waltersanford.com.
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