Many people read about how to get started in real estate investing but they are still not informed enough to actually get out there and start investing. I am going to spend the next few minutes telling you about how I got started investing in real estate when I was just eighteen years old. I am now twenty-four and I have completed fifty deals over the past five years.
There are three types of investing techniques that you can start out with using no money. They are wholesaling, subject-to, and short-sale. I used all three techniques when I started investing. However, all three were extremely challenging in their own ways and I made a boat load of mistakes that could have been easily avoided if I just had the right guide. I will go over one of the techniques I used below to help you better understand the process.
The short sale is a great way to help people who are in need of dire financial help and also a way for you to make a substantial amount of money, This process is certainly a win-win situation and can make you quickly understand why this business is so great.
A short sale is a process by which a mortgage company takes a discount on a loan that is in default (foreclosure) in order to avoid having to go through the foreclosure process and obtain ownership of the property. A foreclosure costs the bank a lot of money and in the end they always lose. There is an entire department called the Loss Mitigation Department in the bank that mitigates losses for the bank and works with customers to complete short sales. This is where you, the investor can negotiate huge debts and essentially create money out of thin air.
You can use this process to help somebody who is in pre-foreclosure. If somebody is in pre-foreclosure and is behind on payments they are a perfect candidate for you to work with. At this point most people in this situation have recently had something major happen whether it be a job loss or an adjustable rate increase. Your job as the investor is to help these people out of this situation and to earn a profit while doing so.
You start by assessing the property to determine the current value and the balance they owe to the mortgage company. Once you determine some basic values you are ready to start negotiations with the mortgage company. You offer the bank an amount that you feel is a good enough offer that the bank will accept it, and it is still low enough so that you can sell the property and earn a profit. For example, if the homeowner owes 150k on the property and as-is you think the property is worth 125k (the amount you believe you can sell it for) you would offer the bank approximately 100k. This is a completely realistic scenario and I get deals like this accepted on a regular basis.
Once you are in the negotiation process and the bank receives your offer they will send out a BPO or “Brokers Price Opinion” to find out what a local agent feels the value is. At this point you will meet the agent out there and explain to them what you are paying for the property and that you are hoping you can help out the seller. The trick is that even is the BPO comes back to the bank at higher than your offer they will still accept approximately 82% of that value. This is the magic number for most banks, however some may have guidelines that require a slightly higher percentage.
Now while all of this process is taking place you must find a buyer. This can be a little tricky in how you go about this. I personally use the local MLS to list my properties. I take ownership of the property at the beginning of short sale process through various different methods. I hold title in escrow and put the property for sale contingent upon short sale approval. By doing this, I locate an “end buyer” who is going to purchase the property from me.
All of these things can get a little sticky and confusing if you have never done it before but once you have this process down there is tons of money to be made. This is the only way I have ever seen where you can actually create your profit from negative equity. The above may seem a little confusing to you now but I you will understand the process once you read my partner Brian Ducharme’s forms and strategies manual.
I hope this has helped you begin to understand the process of a short sale.
Investing In Real Estate - Is It All That Its Hyped Up To Be?
First of all, I am going to start out by saying yes, investing in real estate may be the fastest way to get rich. There is no cap on the amount of money that can be earned in real estate. Most jobs have a salary or an hourly wage that you earn for performing your duties of that position. It takes a long time to increase your pay. In real estate, you are in control. Your motivation is a direct correlation to the size of your paychecks. If you are willing to work non-stop, constantly educating yourself and performing deals you are going to make a lot of money. Here are a few reasons to invest in real estate:
1. Where else can u make a full year’s income in less than three months? When I was nineteen years old, I was working 30 hours per week for ten dollars per hour while going to college. This same year I started putting my knowledge into action and began investing in real estate with many of the “no money down” techniques I had been studying. I’m sure you can guess what happened. That year I went on to make more than four times my yearly income. I am now only twenty three years old and this is still true. In one month’s time I am able to purchase and renovate a house. By the time I close and receive my paycheck it is typically a two to three month process. On average I earn a profit of thirty thousand dollars on each flip. I also do more than one at a time. Now, even doing only one at a time I would be able to make an average of thirty thousand dollars every three months. Not bad right? How many people are currently putting in forty hour work weeks to earn a salary of thirty to forty thousand dollars for the entire year?
2. Secure your future retirement through buy and hold strategies. Investing for the long term is a popular saying and the best way to do so is to buy and hold real estate. On average, statistics show that the market value of properties double every ten years. I am currently in my early twenties and I own a few multi-family rental properties. I intend to own at least ten more within the next five years. This is aside from flipping houses every day for a living. This is going to create a nice payday twenty or thirty years down the road. These properties will be owned free and clear and the value will have gone up drastically. This is a pretty simple way to make yourself a millionaire when you retire. If the properties are rented out for enough money to cover the mortgage, then your tenants have paid off your loans! Of course being a landlord can be tedious, but isn’t it worth it?
3. You are working for yourself, not reporting to a boss. For many people this may be the single most important benefit to being a full time investor. You are free to live your life as you want to. Take a lunch break for as long as you want. If you don’t want to get up for work on Monday you don’t have to. You will have the opportunity to spend time doing what is most important, enjoying your life. Personally, I enjoy being able to create my own work schedule, however, at the same time I work twice as hard knowing that it’s for my own benefit.
Wholesaling - A Key to Success In Real Estate
I have touched base on wholesales before however I want you to understand how powerful this niche in real estate investing really is. Does the term “fast cash” catch your attention? Wholesaling may be one of the most profitable niches in real estate in terms of hours worked versus the size of your paycheck. The standard wholesale check that I earn ranges from three thousand dollars up to twenty thousand dollars. However, on average they are between five and ten thousand dollars. Here is what makes this business so lucrative. A typical wholesale deal takes less than a full day of work to complete. I take a walk through the house, meet with the homeowner, do some research at the city hall and on the internet, and call people on my buyer’s list to see if they want the house. I can do all this within a few hours. If I earn a wholesale assignment fee in the amount of ten thousand dollars and it took me four hours of actual work to complete the deal, I am being paid quite well. You don’t have to be a math whiz to realize I just got paid twenty five hundred dollars per hour. Now how many of these deals do you need to do each year to be a full time real estate investor?
Here is another reason why wholesaling is such a great business. You do not have to be a genius with a high degree of education. An amateur can do this with a little training. This business creates an opportunity for literally anybody to make a fortune in real estate.
If you are looking to get started in this business there are a couple key elements you have to understand:
1. Networking: In order to be successful, everyone has to know that you buy and sell houses. Don’t try to run your business under the radar. People must know you as the person who always has great deals for sale. You want them to come to you. You can start by attending your local real estate investment clubs. Every state has one. They typically meet once a month and the place is full of investors. Not a bad place to build a buyers list.
2. Research: You must have a firm grasp on real estate values and the average cost of repairs. This will come with experience, however you can get pretty good at it just by doing research on your local town’s property values. I am able to pinpoint exactly what an investor will pay me for a house. I do this by knowing how much money the repairs will cost them and how much they will be able to sell the house for once they complete the repairs. This is how I determine the size of my finder’s fee. If there is a large spread of equity I will be charging a larger fee.
Here is the best part. You can never be overwhelmed with deals because you are not buying houses and you are not rehabbing houses. You are flipping contracts. You have almost zero overhead costs to run your business.
These articles are not even beginning to scratch the surface of the material we cover in our e-books. Why wait any longer? Get started now, you won't regret it!
