Login | Join Our FREE VIP Investor Group

REALTY411Guide.com

Serving the Real Estate Industry Since 2007

Realty411 Team

6 Ways Journaling Will Make You a Better Real Estate Investor

By

By Sharon Vornholt

Today’s article is on the “6 ways journaling will make you a better real estate investor”. I am the first one to admit that the topic is a little bit different than what you’re used to. However paying attention to your mind-body wellness is really one of the keys to your success.

We get so caught up in the “day to day” of our businesses, that sometimes when we are stuck or feeling burned out we cannot figure out why.  Sure; we know we’re bone tired from chasing deals, but it’s more than that.

Journaling is a process that has many unexpected benefits for all entrepreneurs including real estate investors.  Better focus is just one of them.  If you’ve real Hal Elrod’s book “The Miracle Morning”, you know that journaling is one of the things he suggests you do every morning.

It’s Easier than You Think

I know a lot of people say, “I have no idea where to start”.  For all the women reading this, just think back to when you were a young girl. I’ll bet you had a diary. You just sat down and wrote.  We dumped all of our feelings into that little book.

I can tell you that it works pretty much the same when you’re a grownup, but here’s the difference: Instead of unloading all that teenage drama onto the page, what you will be doing is freeing up some brain space to work on your business.

Are you ready to at least give it the benefit of the doubt?

Here we go.

6 Reasons You Should Start Journaling Now

  1. Journaling clears your mind which leads to better focus.

Over time, our brains get clogged up with details.  There are things we need to do, things we should have done (and didn’t), projects, plans, emotions and more. Remember that tenant that is driving you crazy or the house you should have gotten under contract but you botched the offer?

Carrying all this stuff around weighs us down, and it takes our attention off our business.

David Allen wrote the book “Getting Things Done”. In his book he suggest that we periodically do a brain dump.  I personally think you need to do this on a regular basis.  How often you need to do it will be an individual decision. In general when you’re feeling overwhelmed, it’s probably time.

Doing a brain dump is also a way to begin your journaling experience.

In another one of my favorite books “Double Your Income doing What You Love”, Raymond Aaron talks about cleaning up your “messes”.   He is referring not only to physical messes, but to all the things AKA “messes” in your mind that take your concentration away from your business.

Action Step: It’s time to do a brain dump. Write down every unfinished or half-finished task, project or idea you haven’t gotten around to. Get them out of your head and onto paper. Once you do that, you will have the framework for a plan of action. 

  1. Journaling helps you be more creative.

Regular journaling can help you brainstorm new ideas. You probably think your ideas are pretty dull and ordinary. However once you put all those ideas on paper, you will begin to see a bigger picture emerge for growing your investing business.  Thoughts, ideas, and opportunities begin to come together once you begin writing.

Action Step:  Once you’ve done your brain dump, look at what you have written. Where is there an opportunity for creativity in your business?  What ordinary thing can you do differently; in a more creative way? You might just surprise yourself.

  1. Journaling helps you think big.

Write “no limits” at the top of one of your pages.  (Remember that no one has to see this).  If there were no limits, what would your dream business look like?  You can put all those big ideas on the page without your inner voice telling you, “That won’t work”. This is a judgement free zone.

Action Step:  Write down 3 big ideas you have for your REI business you haven’t said out loud. Nothing is off limits.

  1. Journaling helps you build better habits.

Once you begin journaling, you will automatically become more aware of your actions and your habits.  Whether it is things you need to do more of (like exercising or eating better) or things you are doing too much of (like wasting time surfing the internet), they will become apparent as you write about your days. As an entrepreneur, over time your habits will likely be largely responsible for the success of your real estate business.

Action Step: Decide to write even a paragraph in your journal each day that describes your previous day. Be sure to include the good, the bad and the ugly whatever that might be.

  1. Journaling provides a healthy way to process emotions and relieve those stresses in your life.

Remember the deal you blew and the tenant that’s driving you crazy?  The simple act of writing down these types of things (before having a physical meltdown) can literally save your business and your reputation. It’s a much healthier outlet for those emotions.

Carrying around all that stress weighs you down, and it can do actual physical damage to your body.  It definitely prevents you from being the best you can be.

Action Step:  Write down something that is causing you stress.  How do you feel? What emotions are holding you back? Once you get those down on paper, write out a solution or a way to at least deal with the situation that will take the weight of it off your shoulders.

  1. Journaling helps you feel a sense of achievement.

We all have those thoughts. You know; the ones about how we are falling short when it comes to our real estate business.

When you commit to a regular journaling process (even if it’s only 5 or 10 minutes a day), your progress and achievements will be right there on the page.  Journaling allows you to celebrate all your wins no matter how big or small they are.

Action Step: Write down at least 5 “wins” you can claim for your business. They can be simple things or big achievements. Then pat yourself on the back.

Journaling Tools

You may be the type of person that uses the computer for everything you write. If you are that person, there are plenty of online journals you can use.  A lot of people prefer online tools simply because they are more private.

I’m more of a pen and paper person when it comes to a journal. In fact, I love writing in a beautiful quality journal.  The actual book is as important to me as what goes in the book.  You just need to find what works best for you.  The important thing is to just get started.

Here are some resources that you might want to take a look at when it comes to online journals.

JRNL

This is a free app that can be accessed from anywhere.  JRNL is rated one of the top online journals and it’s private. You can customize the pages in your journal, you can share entries in your journal (although I’m not sure why you would do that since they are meant to be private), and you can “write on the fly”.

You can check it out here at JRNL.com

Penzu

Penzu has both free and paid versions of its online journal.  They say they have over 2 million users around the world.  This journal is password protected, fully customizable and they will send you an email reminding you to write in your journal each day.

ONEWORD

It you cannot wrap your brain around how to get started journaling, ONEWORD might just be the tool to help you to get started. The premise is simple.  Create your free account and you will be directed to the next page.  Once you’re on that page, you’ll see one word at the top of the following screen. You have sixty seconds to write about it.  This is actually a great way to start if you’re not used to writing.

Ready to Dive In?

If you’re still on the fence about keeping a journal, I would say just give it a try.  I’m pretty sure you’re going to like it.

Sharon Vornholt

Sharon Vornholt is the owner of Innovative Property Solutions, LLC in Louisville, KY.

Sharon owned and operated a successful home inspection company for 17 years. She began investing in real estate in 1998 and became a full time real estate investor in January of 2008.

Sharon specializes in wholesaling, and is also an experienced landlord and rehabber.

In addition, Sharon is an internet marketer and also writes articles for several national real estate sites. Sharon is the author of a popular real estate blog called the “Louisville Gals Real Estate Blog”. For your FREE REPORT “Probates and Absentee Owners: Your Fast Track to Real Estate Riches”, stop by her blog at: http://LouisvilleGalsRealEstateBlog.com.

Uncovering the Secrets of Marketing To Motivated Sellers

By

By Kathy Kennebrook, The Marketing Magic Lady

Several years ago, I attended my first real estate seminar and decided this was the business for me. I could do it in my own time and at my own pace and make great money. Considering I was still working a full time job at the time, this seemed to be just the scenario I was looking for. One of the things they taught us in those seminars was that finding truly motivated sellers was going to be the cornerstone to this business because without motivated sellers there simply are no deals to be made.

After spending a number of years in sales prior to becoming a real estate entrepreneur, I knew that when the prospect contacts you first, you have a much better chance of making a good deal. At the time I didn’t have a lot of money to work with and needed to make every marketing dollar count.

I discovered the same theory applied to working with motivated sellers. A motivated seller is the key to all good deals, and if they contact you first, this significantly increases your opportunity to make a profitable deal. There are lots of opportunities for those who want to find sellers, and some are more labor intensive and time consuming than others. Learning to influence motivated sellers to contact you first will increase your profits immensely, help you make better deals and most importantly save you valuable time.

One of the primary reasons for failure in this business is trying to create a deal with unmotivated sellers. It’s like trying to push a rock uphill. You spend all your time chasing dead end leads and getting nowhere. This is discouraging and can cause you to quit the business altogether before you ever get to see the long term benefits it can bring you.

Locating the truly motivated sellers is the key to your success as a real estate investor. Your money is made at the point at which you purchase the property, so an effective marketing plan is essential to your business in order to create profitable deals. The key point to remember is that most sellers are not motivated. The biggest mistake you can make is to try to make a deal with someone who doesn’t want to sell to you.

Effective marketing is the process of delivering your specific message to a targeted audience through the use of various types of media. Using this method enables you to find the sellers who really need to sell, as opposed to those who just want to sell. When you find the sellers who really need to sell, you’ll end up buying a lot more houses at much better prices and terms. The secret to the really great deals is to find them before anyone else even knows about them.

A lot of the deals you should be finding won’t even be actively marketed. These sellers have a variety of problems they simply don’t know how to solve. Their motivation comes in a lot of forms. Some of the reasons motivated sellers need to sell have to do with the sellers themselves, such as  age, health problems, financial difficulties, change in marital status, liens and judgments, job transfers, landlords who are tired of having their properties abused, or change in family size just to name a few. Other reasons are more directly related to the property itself, such as estates, properties needing extensive repairs, code enforcement violations or properties that have been vacant for a significant period of time.

So how are you going to find these sellers and how should you market to them? As a real estate investor, you have lots of choices. You can use classified ads, flyers, the internet, signage, websites, business cards, billboards, radio and TV ads and direct mail.

You should pick at least three to five ways to market your business. Put them to work for you simultaneously in order to promote your business and draw as many different sellers to you within your market. You must begin to understand a seller’s motivation for selling a property in the first place. This is going to be important for you because if you try and reach sellers in only one way, and you don’t find a property in a relatively short period of time, you may become discouraged and quit. You really don’t want to do this, trust me. There is more business out there than you can imagine! Accept the fact that you’ll need to do more than lay some flyers and hope some motivated sellers call you.

One of the first things you need to do is to identify your market, deciding where you want to buy and what types of properties interest you. Then develop a marketing plan that fits your personal needs and budget. This way, you eliminate the need to call sellers; you want them to call you first.

Marketing is a numbers game, the more leads come in, the more opportunities you have to make deals. You won’t buy every deal that comes your way, but when you develop a machine that you can control that brings in quality leads, you’ll be able to pick and choose the kinds of deals you want to do. As a real estate investor, you need to find a seller who is either flexible on the price of the property or on the terms of the sale. If a seller wants full price and all cash for a property, it’s almost impossible for you as the investor to make a good deal. The investor who wants to help people and make money should be looking for a seller who is flexible on the terms of the sale. Many of the people I send direct mail to practically beg me to take their properties off their hands for a variety of reasons. These are the kinds of motivated sellers you want to be dealing with.

The best way that I’ve found to “niche” market to motivated sellers and control the number of leads coming in is through the use of direct mail. The BIG secret to doing direct mail successfully is mailing the right letter to the right list and then mailing to them over and over. As you will discover, given time, almost every potential seller’s circumstances change and make them more motivated to sell. You must let the world know you buy real estate. The best thing about direct mail is that you can specifically target the types of sellers you want to reach and cultivate quality leads to work from.

I also find these mailings are very residual. These potential sellers will hold onto your direct mail pieces until their circumstances dictate that they contact you. When they are ready to sell, they will contact you first, since they probably haven’t had any contact from anyone else. Usually their properties aren’t even being actively marketed, therefore there is no competition for these deals. In the meantime, you’ve gained credibility with these sellers by doing repetitive mailings.

The biggest part of the secret is to find the sellers who really want to sell. I use different direct mail campaigns to locate different types of motivated sellers, such as out of state owners, properties which have been quit claimed from one person to another, expired listings, burned out landlords, and pre-foreclosures, just to name a few. The best part is that you can customize your marketing to reach exactly the kind of motivated sellers you want to deal with. This can best be done by locating mailing lists and refining them to meet your individual criteria and then mailing to them again and again.  Investors often neglect to market to sellers in this way because they think the list is just too difficult to get or they only do the mailings once and quit.

Let me tell you, these are some of the easiest lists for you to get and it will be very profitable to you to do so. You can go to a list broker or your local property appraisers’ office and ask them for a list, or you can create the lists yourself. It’s fairly easy to do. You can go to the courthouse and research the divorce cases, death notices, liens and judgments, tax liens, marriage licenses, bankruptcies and notices of default, which is the first step toward foreclosure.

Another way to find motivated sellers is to cultivate relationships with individuals who can help you find deals. One of the ways to do this is to write letters to attorneys who handle family law, estate planning and probate law, divorce and marital law, and corporation and business law and let them know you are in the business of buying houses. Once you develop relationships with these attorneys, they will call you when they have a client who needs to sell a property quickly. This is just another way to build another lead source using direct mail.

Another way to find motivated sellers is to write letters to the owners of vacant houses or houses that look like they need a lot of repairs. If you can find the owners of vacant houses, these are usually deals waiting to be made. The harder the owner is to find, the better deal you will make. There are lots of ways to find the owners of vacant houses, the easiest of which is to simply use a skip tracer to locate them for you.

You can also work with realtors who can give you expired listings. The longer a house sits without selling, the more motivated the seller will be. If you get expired listings for out of state owners, these sellers are usually even more motivated. You can often make a deal with a realtor who will supply you with the list. Tell them you will use them to make the offers for you, or simply tell them you’ll pay them a fee for their services.     

Mail these potential sellers a personal looking and sounding letter. Let them know that you are interested in helping them find a solution to their problem. Even if you don’t get a response right away, repeat your mailings at least every thirty days until you do get a response.

The main reason that direct mail works so well is that you are reaching targeted sellers, and you become the seller’s first option when they need to sell. Even if you are on a limited budget, direct mail is an excellent source of leads for you since you can buy more houses from fewer leads, thus maximizing your marketing dollars. As your business grows, you can increase the amount of mailings you do. You can also target specific neighborhoods or dominate certain parts of town. In doing so, you become a “property value expert” in those areas, which makes the offer making process that much easier for you.

In addition, you create an ongoing relationship with your target market which makes it easy for you to follow up with past inflexible or unmotivated sellers. Because these mailings are so targeted and so residual, there is virtually no competition for these properties, and it puts your lead generating system on auto-pilot, leaving you more time to make offers.

The most important thing to remember is to be consistent in all your efforts. The successful real estate investor has a network of people and strategies at their fingertips at all times. If you don’t develop continuity to your marketing campaigns, you’ll see your results begin to drop off immediately.

When you learn to get motivated sellers contacting you and then learn a variety of ways to purchase properties, the possibilities become almost endless. If you use several different ways to get motivated sellers contacting you, you will have more opportunities than you’ll be able to handle.

Using direct mail to develop a “cookie cutter” system to accomplish this is one of the most affordable, reliable, and effective ways I know to build your business quickly and have all the deals you will ever need.

For more information on finding all the deals you need for your real estate investing business be sure and check out my website at www.marketingmagiclady.com. While you are there be sure and sign up for my FREE monthly newsletter!

 

Kathy Kennebrook

Kathy Kennebrook is the ultimate success story. She spent over 20 years in the banking industry before discovering the world of real estate. After attending some real estate seminars this 4 foot 11 mother of two got really excited and before you know it she’d bought and sold hundreds of properties using none of her own money or credit.

Kathy holds a degree in finance and has co-authored the books- The Venus Approach to Real Estate Investing, Walking With the Wise Real Estate Investor, and Walking With the Wise Entrepreneur which also includes real estate experts Suze Orman, Robert Kiyosaki, and Dr. Wayne Dyer.

She is the nation’s leading expert at finding highly qualified, motivated sellers, buyers and lenders using many types of direct mail marketing. She is known throughout the United States and Canada as the Marketing Magic Lady. She has put together a simple step-by-step system that anyone can follow to duplicate her success.

Kathy has been speaking throughout the country and across Canada for over 14 years and has shared the stage with Ron LeGrand, Dr. Phil, Dan Kennedy, Mark Victor Hansen, Ted Thomas and Suze Orman to name a few.

Kathy is going to share with you how she generates a seven figure income by mailing a handful of letters throughout the year to highly selected targets by knowing exactly what to send them, who to send them to and exactly how to deliver her message. She will teach you the secrets of pre-screening and automating your marketing and follow up systems to put your entire Real Estate business on auto-pilot.

 

Tools of the Trade For Tax Lien Certificate and Tax Deed Investments

By

By: Ted Thomas

Tax Lien Certificates are the perfect investment vehicle for everyone that wants a low risk and the safety of investing with the government. Tax Lien Certificate and Tax deeds don’t require years of study, and a person can start with less than $500. There are numerous tools; some are basic some are advanced, that a person needs to learn. It’s all very easy and can be accomplished in 3-4 weeks.

Basic Research Tools

The more you know, the better off you will be when it comes time to attend your first auction and start bidding on Tax Defaulted properties. As I’ve mentioned before, the essential information is knowing the who, what, when, and where.

When it comes to finding this information, you have several options. One is to refer to my course materials such as the Comprehensive Tax Lien Directory, Complete Tax Deed Directory, and my Platinum Tax Lien Certificate and Tax Deed Directory software on flash drive.

These days, using a computer is another great way of gathering information. Many counties now post the list of delinquent properties on a website along with the bidding requirements, the date and time of the auction, etc. online.

For the data you cannot find elsewhere, it’s helpful to give the appropriate agency or person a call, so obviously a phone is an important tool.

Transportation is another big one. Whenever possible, you will want to drive by any parcels you are considering purchasing. While you’re there, take pictures of the property and add them, along with your written notes, to a notebook (or other type of device/recordkeeping system, such as a iPhone, laptop or iPad) entry. Don’t rely on your memory to supply the details at a later date.

A final basic tool that everyone needs is time. Don’t rush into a deal without having completed the proper research. Take the time to delve deep into the specifics of a parcel before buying. Do your homework and determine if there might possibly be an environmental contaminant on the property, other liens that will compete against the property tax lien, zoning restrictions, etc.

To recap, the basic tools you need are:
– A directory of tax lien and tax deed offices
– Computer
– Phone
– Vehicle
– Camera
– Notebook or Software
– Time

Advanced Tools

In all cases, you will need to do research on the parcel going to the defaulted auction. Many times the list of properties you obtain includes little more than a tax ID number, perhaps a legal description, and the amount of taxes in arrears. For most of us, that’s not enough to determine if a parcel has any value. You need to get an address so either you or someone you are partnering with can do a drive by; the owner’s name is a big help, too.

In order to get that missing data, the best place to start is at the county office (usually either the Treasurer or Assessor). They may have a cross-reference tool you can use free or pay a small fee for.

There are sites online that aggregate this data. One is Bid4Assets.com.

Human Resource Tools

Not only do you need tools to help you with your tax lien certificates and tax deed investments, you need people, too. These people are your partners who function in a variety of ways to help you with the things you can’t do or can’t provide.

Knowing an attorney you trust can be a lifesaver. He or she will come in handy to advise you on various laws and possible action you can take to defend your assets against worst case scenarios.

A realtor is vitally important. A good real estate agent can give you comparable values, give you an assessment of future values in a particular area, and also easily dig up information on a property that you might have difficulty getting access to.

A home inspector and appraiser are two more human resources that are handy to have available when you need them. After you’ve brought your property, they can help you assess current condition and provide their estimate of value.

And finally a group of people who are willing to provide funds for your investments is always helpful, particularly if your capital stash is limited. Often the difference between getting a great deal or not depends on whether or not you’ve got the cash when you need it. At the Ted Thomas 3 Day Auction Preparation workshop we will show you how to get access to funds to do your Tax Lien Certificate And Tax Defaulted Property deals.

When it comes to being successful with tax lien certificate and tax deed investing, remember that old adage, “to be forewarned is to be forearmed.” There are many tools available and you would be wise to use each and every one.

Remember, too, that you are not going it alone. Join our coaching call every Wednesday night and learn from those who have been there, done that, and made great profits! Our Coaching calls are usually offered as a bonus with my many of my home study programs.

Ted Thomas

Ted Thomas is famous for showing newcomers and investors how to earn 6 figure incomes within 1 year of completing his training program. Conservative investors love tax lien certificates because they are predictable, certain and secure and sold by local government. Tax defaulted properties are sold at oral big auctions and online. Starting bid, only the back taxes…. More information at www.TedThomas.com

Are Cryptocurrencies a Scam and a Bubble, or Are They The Future?

By

By Jan B. Brzeski

We have reached a very interesting moment for those of us with a strong interest in finance and economics. In recent weeks, some of the leading minds in the investment and finance business have opined about Bitcoin and other cryptocurriences. Jamie Dimon of JP Morgan Chase called Bitcoin “a fraud” and Howard Marks has referred to it as a “speculative bubble” or “pyramid scheme”. He then revised his view, noting that it could be used legitimately as a medium of exchange, so long as enough people agree to accept it.

At the same time, if you ask a young person what he or she would do with $1 billion, don’t be surprised if the answer is to put a significant portion of it in Bitcoin and/or other cryptocurrencies. Silicon Valley is betting billions on the emergence of a sophisticated ecosystem centered around cryptocurrency. What is going on here?

I think the answer is a combination of three trends:

  • Decreasing trust in nation-states and in the U.S. in particular
  • Disillusionment with the established economy and today’s intergenerational bargain, and
  • Cynicism about banks and other financial companies

Many young people have good reason for their disillusionment and skepticism about traditional currencies and other trappings of our existing financial system. Given this backdrop, we may be witnessing a very historic moment where the smartest people in our current establishment just can’t see what is really happening–which explains why they are so out of synch with proponents of cryptocurrencies.

Lack of Trust in the U.S.

After World War II, the U.S. was widely viewed as both an economic superpower and a force for good in the world. When he left office, Franklin D. Roosevelt’s approval rating was 70%. By comparison, after his perceived positive handling of a string of hurricanes, Donald Trump’s approval rating has risen up from the high 30s to 40% as of September 2017. In the most recent Gallup poll, Congress enjoyed only a 16% approval rating, with 79% disapproving and 6% having no opinion.

Young people might reasonably ask, if the U.S. is one of the most democratic countries in the world, and the best we can do is to elect this President and Congress, why should I put any faith at all in government–or in the U.S. as a nation, or democracy as a system? And what about residents of other countries such as China, India, Russia, France, England, Brazil or Japan? In each case there is ample reason for younger people to feel very disillusioned about their parents’ generation and the outcomes wrought by their current political system.

Disillusionment with the Economy and Intergenerational Bargains

Today’s young people lost a lot of faith in our economic system during the last financial crisis. Millions saw their parents lose their homes to foreclosure. Today homeownership is totally out of reach for many urban coastal residents. Because a variety of factors, a small group of elites seems to be receiving a disproportionate share of the rewards that our economy produces, while the vast majority of people see stagnant income and rising health care and housing costs. With each passing year, one can feel the frustration building.

Furthermore, Moody’s has estimated that state’s unfunded pension liabilities stand at $1.75 trillion. This is the difference between the promises made to state public employees such as police and fire professionals, and the amount of money set aside to meet those promises. A further liability exists in the area of public infrastructure, where many highways, roads and bridges were built generations ago and have not been kept up. The American Society of Civil Engineers graded our infrastructure a “D+” with a cost of $4.6 trillion to bring it up to a “B”.

Together, these liabilities represent selfish behaviour by baby boomers and other older Americans at the expense of today’s younger Americans. Without knowing all the details, today’s teenagers and young adults understand what has happened. Their future has been mortgaged to support more consumption by their parents’ generation.

Cynicism About Banks and Other Financial Institutions

During the financial crisis, banks are widely perceived as having benefitted from originating and selling mortgages they knew were destined to fail. Bankers made huge amounts of money, and the world financial system came very close to collapsing. The public purse (taxpayers) had to bail out the entire banking system, and yet no bank executive was ever really punished. All of this is well-known and is resented a great deal by the average American, who makes a fraction of what bank executives get paid. One could argue that Donald Trump’s election was as much as anything a protest against elites who protected and coddled Wall Street and big banks, which banks in turn paid political elites large sums of money in the form of campaign contributions and speech fees.

While cynicism about banks and Wall Street has existed for a long time, we may have reached a tipping point. A recent Gallup poll noted American’s confidence in banks had dropped 22 percentage points in 10 years, from 49% in 2006 to only 27% in 2016.

Conclusion

So what are we to make of Bitcoin and other cryptocurrencies? Are Jamie Dimon and Howard Marks right to question their legitimacy? Or is Silicon Valley right to say, as one company CEO said recently, that the blockchain technology behind cryptocurrencies is the single most important innovation since the Internet?

It may be that both groups are right. The value of Bitcoin and Etherium may drop dramatically or even go to near zero. True, there is nothing behind these currencies–nothing “real”–other than an agreement and trust among a group of investors that they should have value.

The larger question is, what happened to the trust Americans had in the foundations of our current society and our world? What is the future of trust in national currencies, elected governments, democracy and our other institutions? And how much do young Chinese and Russian people trust their governments to act in their best interest?

Maybe cryptocurrencies are best seen as a revolt and a rejection of traditional institutions. Many young people are embracing the idea of system that is independent of any country or any elites. This seems like a trend that is likely to gather steam rather than peter out. Whether it is Bitcoin or Etherium or something else, there may be a real need for a new vessel for our trust and confidence, that is “outside the box” and outside the control of world leaders, elected officials and the traditional financial and economic system. Bitcoin and Etherium were designed specifically to bypass all of our current institutions, and at the moment, they seem to have arrived at the right place and the right time, to attract support from a generation that is largely unhappy with the way things work today.

Jan Brzeski
Managing Director and Chief Investment Officer, Crosswind Financial/Arixa Capital Advisors

Mr. Brzeski is the Managing Director and Chief Investment Officer of Crosswind Financial and Arixa Capital Advisors, LLC, which together are one of California’s leading private real estate lenders. Previously, Mr. Brzeski worked in commercial real estate acquisitions, lending and asset management for a leading Southern California real estate family office. He began his career working at Goldman Sachs & Co. as an investment banking analyst.  Mr. Brzeski holds a M.A. in philosophy, politics & economics from Oxford University, a B.A. in physics from Dartmouth College, and is a licensed California Real Estate Broker.

Why Banks Do Not Lend on Certain Loans that Appear Conservative

By

By Edward Brown

Ever wonder why banks shy away from loans that appear to be relatively conservative?

There are numerous reasons banks avoid making loans that, in general, one would think have a high likelihood of paying back. According to a banker who works for a well known bank, during the mortgage crisis of almost a decade ago, one thread seem to run through all of the bad loans on the bank’s books; late payments on even the smallest of items, such as a department store credit card. This type of information led banks to steer away from otherwise good borrowers [after the mortgage meltdown], since the banks did not want to have borrowers who tended to be late or default on mortgages. Thus, a borrower who never missed a mortgage payment but may have been late on a small credit card was seen as a bigger risk for a future default on a mortgage should there be instability in the economy.

Banks are not in the business of taking over property and do not want to be seen as predatory lenders. Even if a borrower has a “good story”, banks would rather not even entertain a loan, which, on its surface, appeared to be more likely to fall into default. Banks are very cash flow oriented. They do not want to lend to borrowers where there may be a question of how a mortgage will be serviced. In commercial real estate loans, banks use a ratio called DSCR [Debt Service Coverage Ratio]. The DSCR is a measure of the cash flow available to pay current debt obligations [principal and interest in cases of a mortgage]. It shows the ability to produce enough cash to cover the mortgage payment. In previous years [before 2007], most banks required a DSCR of at least 1.1. For example, if the mortgage payment [including principal and interest] was $10,000 per month, the net cash flow [after paying normal expenses and before the mortgage] needed to be at least $11,000 per month. This was not usually an undue burden, as most real estate investors would have expected to have at least a break even cash flow after paying the mortgage. However, after 2007, almost every bank in the nation tightened up their standards to where they insisted on a DSCR of at least 1.25 and as high as 1.35. Although this may not seem excessive, the extra 15 to 25 basis point requirement severely restricted one’s ability to borrow. The investor found would have to put down a much larger down payment [thereby a lower loan needed] on the property in order to satisfy a much higher DSCR. Many real estate investors did not possess the mandated down payment and found they could not qualify for the new higher DSCR.

Another aspect that impacted banks’ ability to make loans to less than stellar borrowers is that they are similar to corporations in that they rely on their good ratings [from S&P and Moody’s for example] in attracting either deposits or floating paper themselves [through Wall Street’s ability to attract bond financing]. From a deposit standpoint, although deposits are FDIC insured up to $250,000, many banks that have lower than AAA ratings find they have to pay higher yields to depositors in order to attract money. From a bond offering standpoint, the higher the rating, the lower rate the banks have to pay their bond holders. If a bank makes loans that appear “questionable”, they risk having their rating lowered and it ends up costing them in the long run. They find it better to avoid loans that may potentially give the bank a blemish, even though they would have earned a higher yield on the mortgage being provided to the borrower who appears to be below triple A in terms of ability to repay.

Most banks work off of a fairly slim arbitrage [due to competition], so it is not worth having loans in their portfolio that appear riskier. When a loan goes onto a “watch list” or goes into default, more of the bank’s resources are tied up and not available to be deployed into new loans. Loans that are put onto the “watch list” would be those loans in which the loan to value is not as strong as the bank had originally determined. Although the borrower may not be late on any mortgage payments, the value of the property may have declined to where bank auditors have determined that there is a more than likely potential default. For example, if the bank made a loan on a property two years ago for $100,000 on a property that had a value of $150,000 at the time the loan was made [67%], the bank would set aside a certain amount of reserves as prescribed by the FDIC. However, if the property declined in value to $117,000, the $100,000 loan [presuming the loan was interest only] now stood at over 85% LTV [Loan to Value]. Under this scenario, the bank would be required to set aside more reserves. This creates a problem for the bank in that this means less money for the bank to lend out, as the extra reserves ties up more of the bank’s capital and less is available to make loans. If the loan actually goes into default, substantially more reserves are needed to be set aside. After the mortgage crisis, stringent guidelines were handed down to banks, as the Federal Government did not want to bail more banks out. Thus, most banks found it was just not worth using their resources for potentially non-income earning activity.

There is a lot of activity in the lending arena as the economy has strengthened, and interest rates are still attractively low. With the numerous requests for loans, many banks are finding that they do not need to attract borrowers. They do not want to spend time having to explain to auditors [or even bank board members] why certain loans are being made when they have many “slam dunk” loans that are “cookie cutter”. Banks are finding that they cannot charge enough to the borrower to justify the extra time, expense, and risk to make a typical “non-bank” loan.

An alternative to conventional financing can be found with private lending companies. Private lending companies do not have the same reserve requirements and will generally provide loans with much less hassle and more expediently. These private lending companies are more interested in “equity based” lending, meaning that they are more interested in how much equity is in the property at the time they make the loan as compared to the DSCR or credit issues of the borrower. This provides the private lending companies an opportunity to fill a gap where the banks have left off – loans that are not generally considered risky but still need funding. However, the price of capital is higher because the private companies do not have the same access to capital that banks do. They cannot provide FDIC insurance to their capital resources; thus, they have to pay a higher rate than depositors of banks. In conjunction with higher access to capital costs, these private lending companies must charge the borrowers a higher [than bank] rate for the money. The benefit to the borrower is the access to otherwise unavailable capital; in addition, the borrower usually does not have to jump through as many hoops as applying with a conventional bank and will almost certainly be able to borrow in a shorter time window. Many borrowers find borrowing from private lenders worth the extra cost.

Of course, if time is not of the essence, a borrower should first attempt to obtain funding from a conventional lender; however, borrowers should not be dismayed if they are turned down by banks. Alternative sources of capital are available for funding requested loans. One only need to do a little research. Many mortgage brokers, who deal with banks, also know of private lenders. If the borrower is able to go direct with a private lender, there may possibly be a cost saving to the borrower as there is one less mouth to feed; however, many times, the mortgage broker can assist the borrower with expertise as to the pricing of private loans and which companies are reputable and which are not.

In bring a deal to a private lender, the borrower should be careful not to do a shotgun approach, which is to say that it may hurt the borrower in the long run to try many brokers at the same time for the same request. One may think this is the best way to obtain financing at the best price due to attempting to force competition, but, many times, it backfires on the borrower, as some brokers broker to other brokers. What often happens in this scenario is that there may be a chain of brokers involved, all adding their fee into the loan. A two point deal may turn into a four point deal because, by the time the loan reaches the final funding so many brokers claim they had a hand in the deal and all want to get paid. The borrower may find that a better plan of action is to find one good broker who is well connected with an array of lenders. Many times, this broker will know ahead of time what terms the borrower can expect and communicate this with the borrower, so there are no surprises. Some brokers specialize in construction loans [as due some lenders]; some will not touch personal residence loans due to the Dodd Frank regulations. It is best for a borrower to seek out a broker who is well versed in the type of loan that the borrower seeks.

 

 

Edward Brown

Edward Brown currently hosts two radio shows, The Best of Investing and Sports Econ 101. He is also in the Investor Relations department for Pacific Private Money, a private real estate lending company. Edward has published many articles in various financial magazines as well as been an expert on CNN, in addition to appearing as an expert witness and consultant in cases involving investments and analysis of financial statements and tax returns.

 

3 Unique Ways to Turn Your Property Into a Money-making Machine

By

By Ashley Lipman

Almost any property is capable of turning a viable ROI if managed with savvy and foresight. Even bare vacant land can turn a profit if you know where to look for the right kind of customer.

Making money through real estate is as old as real estate itself (which is to say, “as old as dirt”), but we want to present here three often un-thought-of ways you can turn a profit from your land and/or building.

  1. Contract With a Cell Phone Company

There are some 300,000 cell towers in the US at present, and that number is growing by around 10,000 new towers per year. If you have vacant land in a strategic enough location, given the right zoning requirements are not an obstacle, you can make a lot of money by letting a cell phone company build a tower on your land and then collecting ongoing rent for the use of your land.

If a cell phone company approaches you with an offer, that makes it a lot easier (and gives you more “negotiating clout”), but you can also advertise or contact companies to make offers.

But don’t cut yourself out of a solid profit margin needlessly. Rent is this niche area varies greatly, from $100 to $50,000 per year (not month). In fact, you’re better off talking to an expert consultation firm to find out how to get the most cell tower rent before making any final decisions and signing on the dotted line.

  1. Run Your Rental “Empire” Smarter

Owning rental property is about as common a business venture as you’ll find, but the fact is, many landlords aren’t getting the full benefit out of their investments. There’s quite a learning curve involved in taking on land-lording, and so, it isn’t surprising if new landlords (and even experienced ones) have significant room to improve their profit margins.

The number one reason that property owners lose money on leases is, harsh as it may sound, that they lease to the wrong people. Having a unit sit empty can be frustrating, but you’re much better off being patient and upholding high standards. You need to combine two elements: an attractive “deal” to draw in good tenants and a thorough screening process to keep out bad tenants.

That means you make it clear that you will promptly respond to legitimate tenant complaints, make all reasonable and necessary repairs, don’t invade tenants’ privacy, provide (if possible) a tenant-only laundry facility and a game room/social lounge, and of course offer only well renovated and attractively decorated units. You charge slightly more than your target ROI, then you grant a year’s-end discount for paying rent on time or otherwise reward reliable, timely payers.

But also have strict rules for not disturbing other tenants, not destroying your property, and as to late fees and eventual evictions. Also monitor tenants for illegal subletting and other ploys. If all that sounds like work, don’t be afraid to hire a property manager: with the right policies in place, you can still do well. And you can still afford to be reasonable, patient, and generous with tenants with legitimate reasons for occasional late rent. It’s all a matter of having reliable, good renters in general, not perfect renters who never have a problem.

  1. Use Your Home to Generate Extra Cash

Another angle for homeowners is to simply use their home itself to generate extra cash. There are many ways to do this, so we can’t quite be exhaustive here. But here are a few prime ideas:

  • Set up a home office. Renovate, say, your attic or basement, or simply use a spare bedroom. If you can work from home even part of the time, you will save lots of money on transportation expenses. You’ll need a computer and Internet connection, but most people already have that anyway, so it’s not an extra cost. And you can typically deduct the cost of your home office from your taxes each year as well.
  • Offer storage and/or parking. Storage facilities are very popular these days, and they charge a hefty price monthly in many cases. If you have an extra shed, garage, or room, (or if you’re willing to put a new outbuilding up for the purpose), you may be able to attract people willing to pay a much-lower-than-normal monthly storage-space rental fee. Or, if you live in a neighborhood nearby a sports stadium, concert hall, or other popular venue, you may be able to advertise cheap, convenient parking and frequently get takers.
  • Take on a roommate. Anyone with a spare bedroom and bathroom, and who is willing to share their kitchen and living room with a “reasonable person,” should consider taking on a roommate. It’s easy to advertise online, in the newspaper, or on local bulletin boards, and you can save your new roommate money with lower rent at the same time you make extra money yourself and maybe gain a new friend.