New Rules for Investing after the Bust
Investing in short sales / REO's after the big real estate bust is different.
There was a time not so long ago when the only factor required to make a profit in real estate was ownership; wait long enough and the price would go up magically.
There was little need to repair, renovate or even rent out the property. Just sit on it a few months and allow the market to drive up the cost until it was time to sell. Today, things are not so simple; it requires an entirely different mindset to invest in real estate after the bust but that doesn’t mean there are no profits to be made.
In fact, there might be more profits than EVER for those willing to keep pace with change and modify their investment strategy.
Here to help are new rules for investing in short sales / REO's after the big bust:
1. Know the Area and Audience. Take the time to understand the area, target audience and banks you will be working with. The more informed you are the better prepared you will be to take advantage of the best opportunities.
2. Follow the dumb-money. Unlike investing in the stock market where people constantly try to figure out where the smart money is going…short sale / REO investors should be on the trail of ‘dumb money’…those people that bought more than they could afford, failed to have a safety net or otherwise need out –now. You are their solution so search for the problem.
3. Don’t take it personally. While some media pundits make short sale / REO investors out to be greedy land barons (you should be so lucky!), the reality is those that dislike short sales / REO's are no more honest nor less self-interested than those that deal directly with foreclosures, by-owner listings or other types of investments.
4. Understand opportunity. There are times when “averages” don’t truly reflect the full value of short sales / REO's; remember, there are always bad deals made by ill-informed people including those new to short sale / REO investing. Unfortunately, it tends to drive down the full potential by hiding the outstanding profit potential realized by those that work deals right from start to finish.
5. Admit when you are wrong. Falling in love with a property happens – it shouldn’t but it does. Learn how to cut your losses and work this system like a business. If you don’t know enough – learn it. If you are making emotional decisions – get a mentor. Everyone has something to learn so face the facts…admit when you are wrong or in need of help then take action.
6. Don’t take advice from inferior agents or others without a proven track record! Book knowledge is one thing but results are entirely something else. Before taking advice from anyone – ask to see their real results….the ones with the dollar sign in front. Then ask to see how many times they were able to repeat the results. Remember, anyone can get lucky once in awhile but that doesn’t mean they have a system that really works. (NOT LIKE MINE!!!)
7. Portfolio’s matter especially when credit gets tight. Have a track record of success to show prospective lenders – it makes each consecutive deal even easier.
8. For the right price even inferior properties can be a good buy. Perhaps a house isn’t to your personal preference but it could be the perfect bachelor pad for someone that desires low cost and easy maintenance; whatever the specifics of the property may be – chances are it works for someone. Learn to ascertain the value of the property by price, cash flow and appreciation rather than personal preference.
9. Keep your eye on the big picture. Know why you are investing in short sales / REO's and then work the program.
10. Beware of hysterical analogies. Yes, the nation has problems but we’ve had problems before. Rather than take a hysterical outlook on life, learn how to become proactive instead. It refines the ability to invest, protect your financial future and form a strategy for tomorrow. Even if this nation were to confront a “lost decade” like that experienced by Japan…take a look at how real estate performed. While it didn’t go up (little did), it managed to hold its own…an impressive feat considering they have 100 year mortgages (intergenerational) in some part of Japan.
Showing posts with label buying. Show all posts
Showing posts with label buying. Show all posts
Wednesday, October 21, 2009
Sunday, July 19, 2009
THE BEST QUESTION I HAVE BEEN ASKED IN A VERY LONG TIME!!!!
I had a great conversation today with an old business partner of mine, and he asked me the best question I have been presented with in a long time. That question inspired me to write this blog and hopefully will inspire some of you to partner up / invest and help grow the company. The question you ask: Why I left the Import / Export business to wholesale REO properties to investors and home buyers?
The answer was simple, yet led into a two hour conversation with him and by the end of the phone call he was talking about moving to MN and looking into who he knew or how he could help me get the financing needed to partner with me on my deals.
For those of you reading I will go into short but further detail explaining the science, math and exit strategy behind why I left the import world for the world of REO investing. The answer was simple ‘I explained’ Why buy 1,000 Ipods just to make $20,000, when I can buy one (1) home for less cost and make $50-60,000.
BUYING WHOLESALE ELECTRONICS:
When buying wholesale electronics I would purchase hundreds to thousands of units directly from the factories, just to wait for them to clear customs and be delivered by cargo freight to the United States. Once they arrived I would have to warehouse them and then hustle to get them to distributors for sale online or in smaller retail shops. This process takes all cash up front to purchase and ship, and the average time for purchase, shipping and sale is 120-150 days. Imagine all that work, stress and time to make what an average of $10.00 per unit after all cost. So do the math:
Simple Math:
1,000 IPOD’s = 1,000 x $100 (Wholesale cost from factory)= $100,000.00
Wholesale price to distributor from me (includes all fees and shipping) = $123.00
Profit per unit after costs= $20.00
This is a Standard deal for a medium sized online retail group. So as you can see the total profit is only $20,000 for something that might take four to five months.
The huge downside to this business is you are buying directly in cash from overseas, there are no guarantees that you even get the product let alone that it is even officially licensed product. Lastly once you have the product state side you need to sell it cheaply enough to compete with the big box stores.
INVESTING IN WHOLESALE REO PROPERTIES:
When investing in Reo properties I have taken everything I have learned from over 14 years of my Import and Global Executive career in wholesaling and applied that in a approach formula that is a win for the banks in removing there toxic assets, a win for my partners and investors and a win for the buyers and communities we invest in.
This will explain the formula in brief detail for your review of the REO Investment program. I am buying houses at .20 (twenty) - .30 (thirty) cents on the dollar. These homes are 3 bed+ 2 bath 2 car garage in prime locations throughout MN (program can be applied in any state or country). When it comes to the Rehab of the property we handle all construction management. This ensures the margins are kept for all renovations at under .50 (fifty) cents on the dollar. The Rehab quality we perform on our properties is to “NEW” construction condition.
Meaning our homes look, smell and appear to be new construction to the investor and buyer.
OK, we have a home fully renovated to new condition in a prime location that is purchased and rehabbed at less than .50 (fifty) cents or 50% of its current true market value.
During the process of purchase and renovations my team of real estate agents and marketers has been advertising the home for direct sale to investors and end home buyers. Selectively making sure that by the end of construction we have a buyer lined up to close in under 20 days after inspection. Total time is 30-45 days from purchase to sale of property to end user.
Simple Math:
1 of “MY” REO Homes = 1 x $20,000 (average cost to purchase) = $20,000.00
Renovations of the home = $40,000 (average cost everything upgraded to new) = $40,000
Total cost to purchase, renovate, and close = A + B = C($60,000.00)
True Market Value in Today’s Market after repairs = $175,000.00 (average)
Exit Strategy:
We are here to move the houses as fast as we can and sometimes we will sell the home even before we purchase or start construction. The difference is not just finding superb properties but adding and giving value to the buyer whether they are end buyers or investors. The way we do that is the quick sale model of selling the property at an average of 75% LTV* for the sample property that means we would sell this home to the investor for $131,000.00 leaving over $44,000.00 in equity with a completely like “new home” as incentive to buy from us.
Profit for the company and partner after selling the house and paying interest and fees = $61,000.00
Fees include closing cost, agent fees, misc. =10,000 on average.
If you are my new partner or client I just split $61,000.00 with you 50/50. I currently have more properties than I can handle and need the influx of new partners or investors to make our company the hottest investment firm to hit the Midwest.
After reading this I hope you are as excited about the opportunity as I am, please contact me directly with any questions you might have. And I look forward to seeing how many properties we can buy and sell together.
The answer was simple, yet led into a two hour conversation with him and by the end of the phone call he was talking about moving to MN and looking into who he knew or how he could help me get the financing needed to partner with me on my deals.
For those of you reading I will go into short but further detail explaining the science, math and exit strategy behind why I left the import world for the world of REO investing. The answer was simple ‘I explained’ Why buy 1,000 Ipods just to make $20,000, when I can buy one (1) home for less cost and make $50-60,000.
BUYING WHOLESALE ELECTRONICS:
When buying wholesale electronics I would purchase hundreds to thousands of units directly from the factories, just to wait for them to clear customs and be delivered by cargo freight to the United States. Once they arrived I would have to warehouse them and then hustle to get them to distributors for sale online or in smaller retail shops. This process takes all cash up front to purchase and ship, and the average time for purchase, shipping and sale is 120-150 days. Imagine all that work, stress and time to make what an average of $10.00 per unit after all cost. So do the math:
Simple Math:
1,000 IPOD’s = 1,000 x $100 (Wholesale cost from factory)= $100,000.00
Wholesale price to distributor from me (includes all fees and shipping) = $123.00
Profit per unit after costs= $20.00
This is a Standard deal for a medium sized online retail group. So as you can see the total profit is only $20,000 for something that might take four to five months.
The huge downside to this business is you are buying directly in cash from overseas, there are no guarantees that you even get the product let alone that it is even officially licensed product. Lastly once you have the product state side you need to sell it cheaply enough to compete with the big box stores.
INVESTING IN WHOLESALE REO PROPERTIES:
When investing in Reo properties I have taken everything I have learned from over 14 years of my Import and Global Executive career in wholesaling and applied that in a approach formula that is a win for the banks in removing there toxic assets, a win for my partners and investors and a win for the buyers and communities we invest in.
This will explain the formula in brief detail for your review of the REO Investment program. I am buying houses at .20 (twenty) - .30 (thirty) cents on the dollar. These homes are 3 bed+ 2 bath 2 car garage in prime locations throughout MN (program can be applied in any state or country). When it comes to the Rehab of the property we handle all construction management. This ensures the margins are kept for all renovations at under .50 (fifty) cents on the dollar. The Rehab quality we perform on our properties is to “NEW” construction condition.
Meaning our homes look, smell and appear to be new construction to the investor and buyer.
OK, we have a home fully renovated to new condition in a prime location that is purchased and rehabbed at less than .50 (fifty) cents or 50% of its current true market value.
During the process of purchase and renovations my team of real estate agents and marketers has been advertising the home for direct sale to investors and end home buyers. Selectively making sure that by the end of construction we have a buyer lined up to close in under 20 days after inspection. Total time is 30-45 days from purchase to sale of property to end user.
Simple Math:
1 of “MY” REO Homes = 1 x $20,000 (average cost to purchase) = $20,000.00
Renovations of the home = $40,000 (average cost everything upgraded to new) = $40,000
Total cost to purchase, renovate, and close = A + B = C($60,000.00)
True Market Value in Today’s Market after repairs = $175,000.00 (average)
Exit Strategy:
We are here to move the houses as fast as we can and sometimes we will sell the home even before we purchase or start construction. The difference is not just finding superb properties but adding and giving value to the buyer whether they are end buyers or investors. The way we do that is the quick sale model of selling the property at an average of 75% LTV* for the sample property that means we would sell this home to the investor for $131,000.00 leaving over $44,000.00 in equity with a completely like “new home” as incentive to buy from us.
Profit for the company and partner after selling the house and paying interest and fees = $61,000.00
Fees include closing cost, agent fees, misc. =10,000 on average.
If you are my new partner or client I just split $61,000.00 with you 50/50. I currently have more properties than I can handle and need the influx of new partners or investors to make our company the hottest investment firm to hit the Midwest.
After reading this I hope you are as excited about the opportunity as I am, please contact me directly with any questions you might have. And I look forward to seeing how many properties we can buy and sell together.
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