The Art of Wholesaling

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Wholesaling properties is the investment strategy I used to get started as a real estate investor. To wholesale is to buy something less than retail and re-sell it for a profit. The common practice of wholesaling in real estate investing is to contract a property for purchase and 'assign' the contract to an end buyer who will actually close on the property and own it. The wholesaler finds, analyzes, negotiates, and contracts properties for buyers. He/she is the middleman in the transaction and will sign a ‘purchase contract’ with the seller and sign an ‘assignment of contract’ with a buyer. The wholesaler receives an assignment fee as payment, not a commission. Using the term commission and not being a licensed agent to receive a commission will get you into hot water.

If you want to wholesale properties, the first step I recommend is to build your buyers list. A lot of people I have taught to wholesale seem to refuse to do this all important first step. They get excited about finding deals but have no one to give them to. Build this list first. The saying goes, “if you build it, they will come.” Thee most important rule to follow is, what is your exit strategy for every deal? Contracting properties for wholesale is great, but if you have no one to market them to, then what is the point? Build your list!

You need to find out from your buyers what type of properties they are looking for. I was wholesaling rehab properties because there was more equity spread in the deals. A bigger equity spread will allow for you to possibly receive a higher assignment fee. However, this should not be your focus. The bigger the equity spread will probably equate to more work needed on the property. You will have to factor in the rehab costs which will reduce your chance for a higher fee. Your primary focus should be giving your buyers a great deal. As time goes on, the more quality deals you give them could result in a higher fee for you.

A general equation used in the industry for contracting rehab properties for your buyers is as follows:

After Repair Value (ARV) X 65% - Repair Costs.

Example: ARV - $200,000 X 65% = 130,000 - $25,000 (Repair Costs) = $105,000. This is a good price to start negotiating to contract the property.

$105,000 Contract Price
+25,000 Repairs
$130,000 Cost for rehabber
+10,000 Re-sale after repair - Realtor commission (if rehabber uses Realtor)
+10,000 Estimate Closing costs, holding costs for repair time
+5,000 Assignment fee
$155,000 Total cost for Rehabber

$45,000 Net Profit for rehabber and $5,000 assignment fee for wholesaler. Remember these costs are estimates. Repair costs may be more or less. I made these numbers up for this example. Find out as much as you can about the seller and the property. The more you know, the more negotiating power you will have to contract the property at a lower price.

Depending on the quality of your negotiating skills will determine how solid your purchase contract will be along with protecting yourself in case one of your buyers does not want the property. You will want exit contingencies in your contract in case none of your buyers bite on the deal. The more you have written in your contracts, the better chance of getting out. All contracts have contingencies such as financing, title, inspection, etc. It is in some of these contingencies that I add on to, to protect myself in case I need to get out. I also include my own contingencies for further protection and wording in the contract so there is no money out of my pocket. Remember, everything in real estate is negotiable. The extra contingencies I add in always gets me out of the contract if needed.

I only give out these extra contingencies to those who commit themselves to further education. This is the way I learned. If you are truly committed to learning how to wholesale and get the best real estate investment education, contact me and I can get you started today. Once you commit, I will fill in the rest for you so you have a solid win-win-win transaction for all parties involved and you will have my team as a resource. One couple who committed to further educating themselves called me and asked me to show them how to do this. Last year they made over $600,000 in their business and real estate investing. Of course, they took action. Will you?

If you are ready, contact me in the Contact Us section of my blog.

Happy Investing!

Tony

Foundation for Building Your Business

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When I opened up my page, this was the Inspirational Quote:

"Good advice is always certain to be ignored, but that's no reason not to give it. "

The quote is perfect for this article. Although it will not be a long article, I'm going to introduce you to a product every entrepreneur must have in their library. When you are starting your business you need to have a solid foundation and build upon it. As an entrepreneur, you are taking on sole responsibility of your business and the liability that goes with it. Specialized knowledge is essential to lay the base of your expanding venture. Most businesses fail because they don't know or ignore these imperative pieces of vital information.

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If you have questions or are ready to purchase this product, send me your contact information in the Contact Us section.

Happy Investing!

Tony

http://www.youtube.com/watch?v=NgbHLxt4Xw8

Today's Real Estate Market

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This is an extremely hot topic in the news. Everywhere you hear of foreclosures, slow selling or no selling of properties, property values going down and banks going under because of non-performing mortgage notes. Fear is blasted into everyone's face minute-by-minute and a lot of people don't truly understand what is going on. To go into deep detail would take days to write this article and the flesh on my fingertips would wear away to the bone. I'm going to cover 3 topics regarding today's market and how you can profit from it as an investor. They are:

1) Why there are so many foreclosures
2) Why banks are going under
3) How you can benefit/profit as an investor

I was a mortgage broker before I started investing. The mortgage products available to consumers in the sub-prime market were vast based on credit. All the products were 2 and 3 year adjustable rate mortgages (ARM’s). 100% purchase and refinance products were available to people with lower credit scores and no cash reserve requirements. A lot of these consumers had less than perfect credit showing a history of not managing their finances to their best ability. I know some people had divorce issues and job losses, but for the majority, this was not the case. Simply, they over-extended themselves causing financial turmoil in their lives. I’m not going to lay blame on either the consumer or the banks but both are a factor in today’s market.

Why? The banks had mortgage products consumers could not afford long term. However, these products were designed for the consumer to clean up their credit over a 2 or 3 year period, refinance and obtain a better loan product. On the contrary, knowing the consumer they were marketing to with a poor credit history, the banks could capitalize on these consumers over and over again refinancing them into the same product because of their spending habits and mind-set. You could place blame on both. The banks for having products consumers could not afford and consumers for signing on the line knowing they could not handle a mortgage long term. You be the judge, jury and executioner.

Day after day we are hearing of banks closing, changing their charter status, and merging with other banks and financial institutions. Why are all of these banks going under? Answer: Non-performing loans. Lenders package mortgages and sell them in the secondary market. This allows them to borrow more money to make more loans. When the consumer stops paying on the note and goes into default, it is now a non-performing asset to the bank.

How does this affect the bank and why they go under? First, for every dollar a bank brings in from a performing note, they can lend 7 to 10 times that amount. The opposite holds true when they have a defaulted note. For every dollar they have on their books from a non-performing note they must have 7 to 10 times that in liquid reserve. This is when they actually take the home back. If a bank has 10 homes on their books at $200,000 each, they must have $14 million to $20 million in cash reserves. More homes, more reserves. Do the math.

Next, their stock goes down upsetting their shareholders. Shareholders sell and bring down the value of the lending institution. The banks credit rating with the Fed goes down resulting in higher interest rates when they borrow. This ripple effect eventually results in the banks insolvency. Banks are in the lending business and suffer when they have to take back all of these homes.

With the right specialized knowledge, an investor can profit in ANY market condition. Understanding why the banks are suffering allows them more negotiating room for a discounted purchase on a short sale or a real estate owned (REO) property that is on the banks books. What about financing and the credit crunch? Private money is key for investors in today’s market. Outlining the terms and conditions and the return-on-investment (ROI) to your private money source will result in a win-win for both parties. There are other investment strategies you can use in this market to profit such as ‘subject to’ purchases, lease options, and option contracts. The smart investor buys at a wholesale price and not retail. With the banks having so many problems, now is the time to get great discounts on properties.

The right education is needed to invest in real estate. The most important factor in your education is “who” is doing the teaching. I learned from attending Nouveau Riche’s real estate investment college. The educators are practitioners in their area of expertise. They have achieved millionaire status and cannot teach unless they have proven this. The resources provided by Nouveau Riche are priceless.

For more information regarding Nouveau Riche’s education, products and community benefits, please contact me in the Contact Us section of my blog.

Happy Investing!

Tony

Real Estate Investing vs.Traditional Investing

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In this article we are going to compare traditional forms of investing vs. real estate investing. You will see the advantages real estate investing has when you break down the numbers.

For both examples we will use $10,000 available to invest.

Traditional Investing: Savings account @ 3% annual return. $10,000 x 3% = $300.

CD @ 4% - 6% annual return. $10,000 x 4%/6% = $400 - $600.

Mutual Fund @ 7% - 12% annual return. $10,000 x 7%/12% = $700 - $1200.

Stocks @ 12% - 20% annual return. $10,000 x 12%/20% = $1200 - $2000.

You want to buy $200,000 worth of stock. A bank will never finance $190,000 for you to invest in stocks because there is no guarantee in them.

Real Estate Investing: Take the same $10,000 and go to your bank. A bank will finance all day long as opposed to stocks because the house is collateral for the bank. If you recall in the last article, if the home is destroyed, there is insurance and value in the land.

Purchase price: $200,000

Down Payment: $10,000

Finance: $190,000

Annual Appreciation 6.3% (national average)

1st year profit = $12,680. This equates to a 127% return on your investment. You will not see a return like that in the stock market. Even if the house appreciated 2% on $200,000, your return is still higher than a well performing stock at a 20% return.

What if you purchased 10? What if you were educated to buy homes no money down with equity already built in? There are ways to invest in real estate without using your cash or credit to purchase these types of properties.

In my next article we will discuss building a foundation to start your business.

Happy Investing!

Tony

Why Invest in Real Estate

The three basic needs of people are food, water and shelter. Everyone deserves to have a place to live they can call home. Whether they own or rent, people want safety in shelter. Real estate is an incredible vehicle to build your wealth and provide a basic need for an individual or a family. Real estate investing is not a get-rich-quick phenomenon and it takes a general understanding of how people have obtained their wealth through various investment strategies.

Here are some keys to understanding how people built their wealth in real estate. First, they treat it as a business and not get emotionally involved in a piece of property. Yes, everyone gets emotionally involved in their personal residence, but never feel this way while investing in it. Investors focus on the numbers and the deal first, then choose whether or not it will fit their criteria for their personal portfolio.

Second, real estate produces income if purchased correctly. There are two types of income, passive and massive. Passive income is money that is generated on a monthly basis from rentals. Once any debt is paid, whatever is left is positive cash flow, or passive income. Massive income is generated from working short sales, wholesales, and option contracts, where you receive larger lump sums of money at closing. Investing in real estate also provides excellent deductions, depreciation, and equity build-up through appreciation. Let's see how the wealthy got this way over a period of time.

The formula is quite simple when you get out of the mindset of wanting everything right now. Yes, you can close on deals and make nice lump sums of cash, however the wealthy became wealthy by investing in buy-and-hold properties. That's right, rentals! This is where equity build-up, appreciation, and renters come into play. Over extended periods of time, not only does the house appreciate, but the renter is paying down your mortgage. The market increases the value and the renter opens up more equity as they pay down your debt.

Imagine if you will owning ten rentals for 30 years. You purchased each one for $150,000. The national appreciation average over the past 40 years is around 6.3 percent. Factor that percentage every year for appreciation and your mortgage being paid off by someone else, and your portfolio's net worth is well over $1.5 million. Imagine having twenty. Imagine having 100 units in an apartment building. I'll repeat, you must treat this as a business in order for you to achieve this potential.

I'm sure you are asking yourself, how did they keep these properties for 30+ years when there were extended vacancies, rehabbing and going through a down market? Simple, they had a cash producing business to cover the debt when needed. A well-educated investor is not going to go in head first and overextend themselves. Education is a must, along with setting up business plans and building a support team to minimize their risk.

A cash producing business can be anything. You could start off by doing short sales, wholesales, and option contracts to build cash reserves to purchase buy-and-holds. Make sure you budget cash reserves for each buy-and-hold for both debt service and maintenance. You should factor a reserve amount depending on the monthly service of each property's debt.

Finally, investors maximize leverage. This is the biggest component of being successful as a real estate investor. They leverage everything! They use other people's knowledge, cash, credit, tools, resources, contacts, partners, anything and everything. No one knows it all and has all the answers. Leveraging these areas will increase your chance of success, minimize your losses and maximize your profits.

Real estate will never go away. It will never hit zero. You have insurance for disasters and there is always value in the land. Build up your wealth over time and start a cash producing business if you want to survive and play this game successfully. It takes hard work, long hours at times and some sacrifices to get started. If you prepare yourself and build your team you will grow and the feeling is very rewarding.

Happy Investing!

Tony

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