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Due Diligence – What it is and Why it Matters!

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By Laura Alamery

 

Buying real estate is not as simple as having enough money to purchase the property. It requires time and effort to check and make sure that the condition of the property is good and the title is valid before making the final decision. That is what you call due diligence.

In case the buyer discovers that something is wrong with the property, he may give suggestions to the seller so that the latter can act on it by addendum to the contract, or the buyer can decide not to buy the property.

Contractual Due Diligence

There are certain elements within the sales contract or purchase agreement which are critical to the ‘satisfaction’ of due diligence. Let’s take a closer look at each of them.

Contingencies – Any contingencies which the buyer wants performed prior to finalizing the purchase must be stated on the sales contract. Some examples of these conditions may include: inspections, partner’s approval, financing, research of code violations or permits – and, of course, a clear and marketable title. At the end of the contingencies timeline, the buyer must either release the them and proceed with the sale or cancel the purchase.

Time is of the Essence – Due diligence supported by contingencies comes with a definitive timeline in the sales contract. If the buyer cannot complete his/her due diligence by the deadline, he/she will have to renegotiate with the seller. The seller has the choice whether or not to agree to the extension; which in turn may compel the buyer to follow through with the purchase regardless, or cancel the contract.

Title Discovery – Whenever you purchase real estate (especially as an investor) a marketable title is the most crucial element. Without it, an investor cannot sell or transfer the property. There are several types of title discovery searches which look into a chain of title; as well as liens or judgments against the property. The following are 2 main types of searches performed; keep in mind these may go by different names according to the title company and location:

  1. Full Title Search – the most complete of the two, this search checks into everything affecting the property’s history. It is the only one that will be used prior to issuance of title insurance, and is of course the most expensive to perform.
  2. Letter Report – a summary of what’s on the title; which reveals any possible liens and judgments.

Please note: Securing title insurance is an important step. Though title insurance for cash transactions is optional, it is mandatory when the buyer must obtain a mortgage to purchase the property. In my professional opinion, an investor should always acquire title insurance. According to Wikipedia, “Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property, and from the invalidity or unenforceability of mortgage loans.”

Due Diligence Questions & Answers

 

Q: Should an investor perform due diligence on every property before purchasing?

A: Yes, and no. When an investor is looking at several possible deals at the same time – and not sure if they will go through with a specific contract, holding back could be wise. For example, it would be prohibitively expensive to perform even a Letter Report (average cost is $150) on every single property. These actions are also time consuming: even a title report will take 3 business days to be issued.

With that said, there are times when some basic due diligence is an important decision factor; for instance, when an investor is considering a property coming online at a foreclosure auction. The investor will want to know what potential issues there might be on title (liens, judgments) and whether the title would be marketable.

Q: Is it necessary for a title company to perform the due diligence for any sales contract?

A: The investor can actually perform a lot of their own basic due diligence without hiring a title company or spending any money. Checking with the appropriate government offices (most of them can also be accessed online) for some basic discovery is the simplest way to gain confidence in proceeding with your purchases.

Q: Which government agencies do you recommend searching to complete due diligence?

A: I don’t check with all the government offices for each property. If my discovery at the Recorder of Deeds Office comes out clean (with no red flags) I will stop there; unless I see a spotty history of liens and releases on title. This is also a useful means of locating properties undergoing issues that have kept them off the MLS. Here is a list of searches available in the public domain, and what you can expect to find:

  1. Recorder of Deeds Office – Will have record of liens such as: Mortgages, Federal & State Income Tax Liens, Sewer, Water, Judgments, HOA (Homeowner’s Association); and other property document history.
  2. Collector of Revenue – Lists any Back Property Taxes and Tax Liens
  3. Building Inspections Office – Data on any building violations and inspections.
  4. HOA – If the property is within a subdivision or a condo development, there are probably Homeowners’ Association Dues.
  5. Clerk’s Office – Mechanics Liens (filed by contractors for unpaid work on the property).
  6. Comptroller – City liens, for unpaid taxes and fees.

Due diligence is a must when it comes to purchasing real estate. Though a preliminary search can be performed at no cost before making your decision to proceed – it is my opinion that a full title search and insurance are necessary prior to final purchase.

 

Finding Deals Through Probate & Eliminate Your Competition!

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By Jimmy V. Reed

No matter who and where I have taught, the Million Dollars question has always been “how do you find a Deal”? Cause folks, without a deal, its just real estate. It doesn’t matter what area of investing you are in whether its buying, selling, or holding, it will always comes down to the numbers and do they work. So my goal is to show you what I believe is one of my top five ways to get a deal, and that is probate.

Probate is a guaranteed source of real and personal assets. We don’t always like to talk about it but there are two certainties in life, death & taxes and both are involved in probate. Our objective is the real assets i.e. real estate property that usually through a death ends up in a situation where taxes are due. It has always amazed me that 70% of Americans do not even have a will. While the other 30% do they may still own it in their name which means it is still going to go to probate.

I always encourage other investors to hold real estate in some sort of entity to avoid the probate process. This is why my partner and I decided to create a how-to training book on finding deals through probate. Our program is “The Hidden Treasures and Profits of Probate” In this book we teach 7 ways to buy probates.

The basic process to them all is getting to the Executor before anyone else can. The Executor is the person in charge of probating the will. They actually are now the seller who must satisfy not only the will but also the taxes owed on the estate or on the property. Most people with a will usually make a big mistake by making a relative or a friend their Executor. This is where we come in as Problem Solvers.

We help them by buying the property at a cash discount. In doing so we solve the tax situation and take the property as is solving the problem of having to repair it so it can sell. I can only give you the basics here, but in our manual we go in step by step details for all 7 methods of buying probates.

Remember the basic process is getting in and tracking down the Executor, and then the inventory lists, then we get the contact info. Then it’s off to the tax office for the assets to be tracked down. From there we use our tracking form and pre written letters to start the initial process of making contact. Once contact is made we use our conversation form to ask the right questions. Once we have all our info its time to make an offer. Understand the main goal of the offer is to offer just enough cash out of pocket to satisfy the courts and any debts. We can get very creative on the purchase price, what matters to the Executor is getting the money owed for taxes and removing the problem from them to you.

I hope this can open your eyes to the possibilities of doing what others won’t, yet it is a very simple and easy process to do in the Probate arena. And most of all, out of the 4 million probates in the courts right now, you would be approximately one of only 5% of investors out there who are working them.

Jimmy V. Reed         

Jimmy V. Reed of Fort Worth, Texas has been investing in real estate since 1987.  In 1991, he started conducting full-day training sessions on Wholesaling.  He then began teaching and mentoring others throughout the country. He is currently the founder of the Fort Worth R.E. club www.1REclub.com and has his own real estate training company that includes Wholesale, Probate, Mentoring & a Biblically based Debt Free training course and more!

More info available at www.JimmyReed.net

This is the Best Day of the Year for Real Estate Investors

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By Fuquan Bilal

What is the best day of the year for real estate investors?

I think Mother’s Day is a strong contender. It’s hard to beat from both a business point of view, and in being personally meaningful.

If you’re not a mother yourself, then you’ve got mothers in your life. Either they work with or for you, rent from you, support you in your investing, or are your grandmothers, daughters, cousins or just your neighbors. Everyone can relate.

The Start of a New Season in Real Estate

Mother’s Day really marks the start of a new phase of the market each year. New property listings are popping up to get ahead of the peak buying season. Serious buyers are coming out to sign contracts and set up their summer moves so they are all settled before school starts again in the fall. It can be a fantastic time for Mother’s Day themed open houses.

What Real Estate Investors Can Do For Mothers

The first and most obvious thing we can all do is celebrate and honor the mothers in our lives. That can be in your office, at home and out in the community.

Housing them is a huge deal. One of the best benefits of being in real estate for me is what I can do for my mom. I can house her, and recently bought her a car. I’ve also really enjoyed just taking time to intentionally spend quality time with her to learn from her years of wisdom.

Housing and keeping a roof over their family’s heads is a top concern for moms out there. It keeps them up at night, and working hard. I love giving them a chance to put their families in a safe, healthy and attractive looking place in our rentals and when we sell properties.

As a real estate investor, I believe one of the greatest gifts you can give is sharing your knowledge and experience, and giving the mothers out there the chance to own those benefits for themselves and their children. Host an educational lunch, or turn them onto the PFREI podcast, or take them to an industry event with you.

The workforce and housing market is changing a lot in many cities. That can mean some transition time while getting reskilled for modern jobs, and trying to hang onto homes, and keep up with all the mail and mistakes that some lenders, insurers and tax authorities make in their paperwork. This can all lead to loan defaults and distress, that could have been avoided. If you are investing in mortgage notes this is a great time to do a cash for keys deal, or to modify loans and help moms have a fair chance to get back on track and have a fighting chance to keep their homes.

Let us know what you are doing in real estate around this Mother’s Day on your favorite social media networks and tag us so we can like your posts!

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Approaches To Real Estate Negotiation

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By Bruce Kellogg

Introduction

Negotiation, unfortunately, is not taught much to real estate professionals, or to investors. International, corporate, and purchasing courses exist, even to the extent of Master’s degrees, but real estate has not received the same coverage. This article aims to help that.

Start Out Early

Negotiations begin at the first encounter (e.g., phone inquiry). Many people think the initial pleasantries are just that, and the formal negotiations will begin later. Not so. The superior negotiator will have already begun gathering information and setting expectations. Start early so you don’t have to catch up.

The Three Elements

There are three elements to any negotiation: 1) Information, 2) Time, and 3) Power. These will be described below.

Gather Information

The negotiator who gathers the most information usually has an advantage. Interview people, obtain reports, do inspections, use the MLS (Multiple-Listing Service) and other online resources. Hire a private investigator on the seller if the deal is large enough, looking for vulnerabilities (e.g., bitter divorce). You can’t know too much.

The Factor Of Time

It helps to know if the other party has any time constraints, along with your own, of course. Pending foreclosure, divorce, condemnation proceedings are some examples. If the property is “a steal”, scoop it up fast. If it’s priced at or above “market”, then “grind real slow”. Use time to your advantage.

The Factor of Power

In some negotiations the power levels are uneven. One party has more leverage over the other. Seasoned negotiators assess power levels and devise strategies to take these into account. Then, even the weaker party can optimize its outcome.

Be Generous When Selling

Some sellers believe in “Win-Lose” negotiating. They want “top dollah”. This apparent greed and intransigence grates on everyone involved, sometimes to the extent of legal action or retaliation. Be generous when selling. Paint that bedroom. Purchase a Home Protection Plan for those first-time buyers. You’re on your way to wealth. Don’t be cheap!

Keep Your Word/Perform And Smile

Keep your word. Perform everything you’ve agreed to do. And smile as you do it, even if the deal is going against you and you are taking a loss. Don’t whine. Smile. Builds character….and your reputation.

The “Concession Pattern”

In the back-and-forth of negotiations, your “concession pattern” is very important because it sets up expectations in the other party. Always negotiate fairly tightly. Don’t concede too much because the other party will see that as an opening to seek more. Go back-and-forth more times if need be. Try to set things up so you take the other party’s counteroffer rather than force them to take yours. This way they will feel they won, and you will have less trouble with them the rest of the way. And, please, don’t arbitrarily “split the difference”. Amateur negotiators do that.

“Sharp Practices”

The day will come, if it hasn’t already, when the other party will bring “sharp practices” to the table. If these are illegal (e.g., undisclosed money back after the close), call them on it, and refuse to participate. If these are not exactly illegal, then counter them as best you can, or walk away. Life is too short, and your reputation is too important. Always “take the high road” in negotiations.

Re-Negotiating After Inspections

Y’all know to re-negotiate after property inspections, right? ‘Thought so.

Reading List

Included here is a list of Recommended Reading. Buy all of them, used. Read and highlight them. Then, once a year, re-read the highlights. You owe it to your clients, and yourself, to be in tip-top shape a as a negotiator.

Recommended Reading

Negotiate This, Herb Cohen, 2003

Everything’s Negotiable, Eric Wm. Skopec and Laree S. Kiely, 1994

Guerrilla Negotiating, Jay Conrad Levinson, Mark S. A. Smith, and Orvel Ray Wilson, 1999

The Negotiating Game, Chester Karrass, 1992

The Only Negotiating Guide You’ll Ever Need, Peter J. Stark and Jane Flaherty, 2003

Seal the Deal, Leonard Koren and Peter Goodman, 1991

You Can Negotiate Anything, Herb Cohen, 1980

How to Win Friends and Influence People, Dale Carnegie, 1936

Garage Sale Real Estate – Make Money in Real Estate and be Dead Broke Doing It!

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By Jimmy V. Reed

Folks are always telling me I would love to make money in real estate but “I’m just too broke” And I would respond every time, so was I. Back in the late 80’s I started reading books on how to make money in real estate. Every time they kept telling me you find a good deal, then you go get a loan and buy it, fix it, sell it or hold it. That’s when I would say to myself well it sounded too good to be true.

Later I learned it is too good to be true. I learned how to Wholesale Properties. I learned what I would say was the greatest technique in real estate. How to buy a house without actually buying the house. Now let me tell you how that works. I compare it to when I would go garage selling with my wife on the weekends. We would drive around looking for SIGNS! You know Garage Sale Signs. We would find a sale and then look for a deal, and we always seem to find at least 1 deal. However once we started making offers and negotiating, By the way I have taught thousands of students whose number one fear is to make an offer. But the second you put them in a garage sell they start making offers so low it was like kicking the seller in the knee cap. Any way we would finally agree upon a price. And many times realize we didn’t have enough money on us to purchase the item. So we would ask the Seller to hold it until we came back with the money. And wahlah Garage Sale Real Estate!

I know you’re thinking what? Well let me tell you the secret to this. At the garage sale we would run to the ATM get the money come back and pay. Now take this principal a little deeper as we teach in our Wholesale Classes. Tell the seller to hold it, how? A simple Purchase Contract. That’s when you tie up the property until you have the money. I know I know you’re broke! That’s ok because while it is under contract we contact other investors who are looking for deals! That’s right we are deal finders finding deals for our customers. These investors have CASH! Now we just assign the contract to them for a fee. And now you just got Paid!

Sometimes we even use a double close to close on the property because the profit margin is so large. That one is a lot of fun. Well hopefully by now you at least can see a glimpse as to how so many investors can make money in real estate without having money. Did you know when you go to a car lot, or even Wal-Mart, the items you purchase from them has most likely not even been paid for by them yet. That’s right Wholesaling has been going on in most business forever. Now the question is are you up for some Garage Selling? Well it’s all up to you, but if you need a little help look us up, we’ve been teaching Wholesale to investors since 1991.

 

Jimmy V. Reed         

Jimmy V. Reed of Fort Worth, Texas has been investing in real estate since 1987.  In 1991, he started conducting full-day training sessions on Wholesaling.  He then began teaching and mentoring others throughout the country. He is currently the founder of the Fort Worth R.E. club www.1REclub.com and has his own real estate training company that includes Wholesale, Probate, Mentoring & a Biblically based Debt Free training course and more!

More info available at www.JimmyReed.net

 

IS A REAL ESTATE FUND INVESTMENT RIGHT FOR YOU?

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By Fuquan Bilal

Is investing in a real estate fund the right financial move for you? Who is it for? Who isn’t it for?

Real estate funds have been proving to be both attractive and profitable vehicles for many investors. For many sophisticated investors, family offices and even larger and broader funds and endowments, they are now one of the main staples in their portfolios. More recently they have become one of the most important and vital parts of a well diversified, sound and high performing financial plan.

Some people though, haven’t hit the gas pedal on these investments yet. Real estate funds may be a new concept. Or perhaps they just haven’t taken the time to dig in and really figure out the advantages and why others love them so much.

ALL ABOUT THE YIELD

I’ve met a lot of people over the years. Of those that do make alternative investments, the choice becomes really about the type of yield that gets them excited. The sophisticated, passive and strategic investors intelligently spread their risks. They may have some investments that ‘promise’ the chance of higher returns which are riskier. Others are more conservative and are happy with lower yields – and may choose a solid fund with a 7% to 9% return to help keep them in that target performance circle.

DIVERSIFICATION & STABILIZATION

Funds are frequently a stabilization and diversification play for strategic investors. They may have turnkey rentals, do some private lending and hold some notes. They know they can be very exposed with these investments. Funds give them much deeper and broader diversification, which in turn lower risk and keep cash flow consistent.

Let me explain. By investing in a fund, individuals may have 100, 500 or more assets collateralizing and protecting their investment. That’s versus the one or few assets that flippers, landlords or hard money lenders have. Would you rather put $150k or $500k into a single asset and cross your fingers as insurance that nothing goes wrong, or have a $5M or $25M or even larger pool of assets protecting that investment?

ARBITRAGE

The smartest investors know they aren’t going to be as successful as they could be by themselves. This not only applies to building a strong inhouse team, but looking at all options. Some are great at playing the arbitrage game. They may be great at raising capital at 6% returns. Then they just delegate that capital and invest in a fund for higher yields. The fund does all the hard work of sourcing and managing the assets. The arbitrage investor gets cash flow on a platter to pay out returns to their investors.

Is a fund investment a good fit for your portfolio? If the yields are right, the diversification is a good match, and passive investing is a priority, then this could be the piece of the puzzle you’ve been missing…

INVESTMENT OPPORTUNITIES

Find out more about investing in secured debt and real estate, go to NNG Capital Fund.

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