Derek's Blog

Falling Values and Obsolete Appraisals

2008-05-23T15:50:56Z

If you're looking at properties on a fairly regular basis, I'll guarantee you've heard the following line in the past 6 months:

"We have an appraisal from [insert date here] for $[insert amount here]."

Stop. Write it down. What was the date they told you? If it's anything other than the last 3 months, it's obsolete.

According to Shobhana Chandra of Bloomberg.com,

"Sales of previously owned homes in the U.S. fell in April and the supply of unsold properties reached a record, signaling no let-up in the 27-month housing slump.

Purchases declined 1 percent to an annual rate of 4.89 million, higher than forecast, the National Association of Realtors said today in Washington. The median price fell 8 percent from April last year, the second-biggest drop."

The average American home lost somewhere around 4% in the last 6 months. At the median home price of $202,300, your seller just lost more than $8,000 in equity. In the last year, they lost more than $16,000. Their appraisal is invalid and a new appraisal will be needed.

For all of you investors out there looking for great deals, don't listen to the hype. Do your homework.

Tuesday's Tip #59: Uninterested Party

2008-05-20T21:27:12Z

As an real estate investor, you probably spending a lot of time looking at a lot of property. But, what about you out of state investors? And you international investors? How many times do you have the freedom to rush in and check out something you're buying?

The major problem here is that no one has the time to fly all over the place like this. If you have the money to show up every time you get a pending deal all the way across the nation or overseas, you're probably wasting your time.

We've talked a lot about building a good team in our Tuesday's Tips so far, but I want to talk about a member of the team who often goes unidentified. I like to call him the "uninterested party".

Seeing that you're ballsy enough to be investing a long way away, in a different area of the country or world, you need to have someone on your side. I can't tell you how many real estate agents and birddogs I see who are pushing the line a little too far. I watch this go down all of the time.

They want, and need, to close deals so badly, that they're muddying the waters and distorting the facts to just get a sale or two. They're in desperation mode and as long as they're doing that, they're not looking out for your best interests.

You need an uninterested party on your team who can give you an honest critique of the property you're about to purchase. They can't have anything that will sway his/her opinion. You might call this an inspector. You might call this your "Uncle Bob" who lives in Indianapolis who steps in to look things over for you. You might even call this your property manager, who has to deal with the headaches after you purchase the property. Whatever you call 'em, you need 'em.

So, find an uninterested party to evaluate your deals. If you pay them $200 to walk you through the property over the phone and find out it's going to take a lot more money than the amount your real estate agent told you, you will have saved more than $200 and learned a lot about the agent who's "representing" you.

Tuesday's Tip: Find yourself an uninterested party. You need better representation than a salesman who only benefits when you buy. Think about it.

Our Squidoo Lens for Cash Flow Real Estate Investing

2008-05-19T17:06:54Z

We've created a lens on Squidoo for Cash Flow Real Estate. I'm really impressed with what Seth Godin has put together to bring people and information together and thought this would be a great place to reach more people.

We've linked some of our favorite blogs and sites there for you to get more information and education for maximizing your cash flow.

Check out our Lens and leave us a message. We want to be as helpful as possible, so give us some feedback.

Tuesday's Tip #58: The Cash Tree

2008-05-13T21:15:42Z

Values tumbled in the first quarter of 2008. The median price for a single family home dropped 7.7%. That's the largest drop in 29 years, according to Kathleen M. Howley of Bloomberg.com. If you have a $150k house, there's a good chance you just lost about $11k of equity in your home.

While this freaks a lot of home-owners out, it should excite investors. Real estate investors know that prices are dropping. This means that opportunities for cash flow are abounding. While people are losing their jobs, being raped at the pump, and struggling to keep up with their bills, wise investors are building income through solid cash flowing rental properties.

What about you? With the dollar on the decline, what are you doing to secure your retirement? I've spoken with so many investors over the last several weeks and months who have lost money in their 401k. Do you have your money in something that will even yield a return? If you lose value in your property and in your retirement, what will you do?

Start thinking about how you're going to take the next step. Don't wait for money to start growing on trees, because with the economic outlook these days, you may not have the money to water that tree anyways. (just kidding)

Seriously, think about ways to invest in good property now, while prices are down. Don't let your retirement savings slip away while you aren't paying attention.

(If you're interested in looking at how the numbers should look when you're buying a property, check out this post. It breaks down the numbers on a property here in Indianapolis and compares it with one in California.)

Tuesday's Tip: Money doesn't grow on trees. Invest wisely while the market is down.

Tuesday’s Tip #57: The Little Things

2008-05-06T21:16:33Z

It's easy to get into a rush as you're running numbers, because every deal is the "deal of a lifetime". This rush is part of what makes it so enticing for investors to get into the investment real estate world. Sadly, it's also the very thing that takes many of them back out so quickly.

See, what happens in a rush is that you stop thinking and start allowing your emotions to dictate your responses. Bad idea. If you aren't educated and level-headed, multiple unexpected costs will kill you every time. Most properties will have numerous simple repairs when you purchase them. Some simple time calculating extra costs will go a long way to save your cash reserves and help you maintain strong cash flow.

Take the time to factor in costs for things like appliances, turning utilities on and off, dewinterizing, changing locks, blinds, lawncare, and so on. Budgeting ahead of time for these simple things will ease the pressure later.

(Unsure of what else to calculate into your numbers? Ask your property manager. If they're worth anything, you'll have some good information.)

Tuesday's Tip: Stop emoting. Start figuring in the little things.

Tuesday’s Tip #55: How to Survive and Thrive

2008-04-29T19:08:59Z

We're in a very difficult economy right now. Investors have to take seriously how quickly things could change. You could lose a tenant and have a vacancy for six months before any tenant is ever interested in your place. How will you survive that many months of mortgage payments? What about the unexpected leak in the roof? How will you repair it?

It's simple. Cash reserves.

The important thing to understand is healthy reserves not only protect you from serious problems, but they also allow you incredible peace. They are absolutely necessary. As BawldGuy states, "A generous reserve account is not merely an option. In no way is it a luxury. How long can you go without sleep?"

Get serious. You need to face the reality of our economy and protect yourself and your investments.

Tuesday's Tip: Protect your cash flow. Get reserves. They're in.

Indiana Property Manager

2008-04-25T12:56:06Z

We've talked about this quite a bit before, but your property manager will make or break your real estate investing. Find the wrong one and their likely to be terrorizing tenants, like the Macy's.

Get serious about having a property manager who will take care of your tenants. It's never too late to get someone to do the job right.

If you're in the Indianapolis area and working with rental and cash flow properties, I have a phenomenal property management company I've been using. They're honest, hard working, and keep your cash flow going. Shoot me an email at derek @ landchasers . com and I'll send you their contact info. It's the best property manager I've found in Indy.

Tuesday’s Tip #55: Think a Little

2008-04-22T20:45:45Z

I've watched numerous deals close and numerous deals fall apart. They come, and they go. It's reality.

The hard part of the reality is when people make stupid decisions. It's difficult to watch it happen. It's even more tough to see a deal crumble as decision makers listen to people with absolutely no credibility. Whether you're the buyer, the seller, the real estate agent, or the appraiser, watching foolishness in action is infuriating.

I watched a deal fall apart months ago because of an insurance agent. He was determined the property being purchased needed to have screens and storm windows for them to insure it. The buyer wouldn't purchase it despite the fact there was already a similar insurance policy on the house with another major insurer. The buyer needed to use his own insurance company, who was destroying the deal over screens. It was a completely occupied property that would cash flow nicely, and we were arguing about screens. The seller, in an effort to help fix a ridiculous problem, offered to pay for the first year of insurance if the buyer would use his insurer. That wasn't good enough.

Let me explain why this didn't make sense: The property sits in an older area of Indianapolis. It's a low income section 8 area, if that helps you at all. (Not trying to stereotype here, just speaking in general terms.) Because of this, tenants don't respect the properties like they would in better areas. So, you limit some of the things you put into the properties for sake of the lack of return. They don't respect the property, so you don't allow them to destroy things that are insignificant.

Screens and storm windows are a great example. You don't put them into this particular type of property, because the tenants won't take care of them. The likelihood of you wasting your money is very high.

Take this same thing and apply it to types of flooring, paint, fixtures, lawncare, etc. If the cost outweighs the benefits, of what value is it to spend the money?

You have to decide whether screens will kill a deal that brings the cash flow you desire or not. If they really make a difference, perhaps you should be looking at a different type of property.

Tuesday's Tip: Don't let screens make or break a deal. Think about a way to "screen" deals, and ensure your criteria makes sense.

(That has to be the corniest line I've ever written)

Tuesday’s Tip #54: Buying with Cash

2008-04-15T17:19:20Z

Foreclosure filings have jumped 57% from a year ago. The bubble has burst, and if you think this only affects us here in the US, you're wrong. It's has spread overseas.

You can call me a pessimist, but the reality is staring us in the face. We're in a recession. And, if these articles and everything else that's happening are indicators of our situation, it's going to get worse before it's going to get better.

There is no better time to buy.

The hype is done. The boom is over. We've dropped and the opportunity is now. So, how do we buy when things are tight and the market is tough? We buy smart. If you're buying rental and cash flow properties, the prices are right and your methods are important. Our dollar has continued to slump in value and, while it drops, it would be wise to put what you have left of it into something that will not only bring you a regular monthly return, but eventually return to you on the appreciation end.

Take your cash and put it into something that makes sense. You have a great opportunity in front of you. The market is ripe for the picking. What are you going to do about it?

Tuesday's Tip: Use your cash before it fades away.

Tuesday’s Tip #53: Specialists on Your Team

2008-04-08T18:43:03Z

Over the past year, I’ve talked quite a bit about the importance of putting together a solid team of advisors and workers in your investing. The right team will make or break your efforts to invest wisely. Given the nature of the current market, I encourage you to really get serious about this piece of your strategy.

One of my recent posts about the bus tours provided some insight into this very thing and really forces an investor to look at the truth and be real about it. Who is really there to help you and who is there to make a buck?

On my team, I like to have people who are specifically geared towards each and every specialty within the market. I have people whom I trust for a better understanding of the sale of residential properties. I have other people who are great with pre-foreclosures and people who understand seller-financing. As well, I have people who get the property management on a different level and who do it well.

Whether you’re building the Mile High Tower or purchasing some rentals for extra cash flow, take time to build a resource of irreplaceable people. Make sure they fit into your team and your strategy of investing. Don’t think that one person with a wealth of knowledge will know how to handle any and every detail of your problems. That’s foolish.

Tuesday’s Tip: No one person has all of the answers. If you think they do, it’s probably a good idea you rethink that thought.

BTW, we’re going to start a series soon with one of my advisors on short sales and the negotiation of them. I’ve asked Kevin, of Save or Sell Your Home, to help piece this together and educate all of us. I know he’ll offer us some great stuff.

Tuesday's Tip #52: Persistent or Annoying?

2008-04-01T15:08:36Z

If you aren't where you want to be as an real estate investor, persistence is key. If you don't know what persistence is, I suggest you read what Seth Godin said of it:

"Persistence isn't using the same tactics over and over. That's just annoying.

Persistence is having the same goal over and over."

I hope you have goals. But, I hope you have the smarts to go along with them as well.

Tuesday's Tip: Don't be "annoying". Be persistent.

Playing on Your Emotions

2008-03-28T13:53:13Z

I hate how so much of the real estate industry likes to play on your emotions as an investor. They create a sense of urgency when the market is going up and out of control to ensure you don't "miss out". All the while, "urgency" is inflating values. That sucks.

But, they do it again by taking you on bus tours to view homes being lost in foreclosure so you feel a sense of urgency to "buy now" while you're surrounded by other buyers.

Be smart about what you allow salesman to do to manipulate you. As an investor, you want facts. Emotions must be laid to the side.

In the News: More Bad News

2008-03-28T13:16:52Z

California's home prices fell 26% in February from a year ago:

"Nationally, prices fell over the past year at a rate of $338 per week; in California, prices fell at a rate of $2,788 per week."
"'It's bad. It's really bad,' market analyst Nima Nattagh told the Daily News."

(To check out the story, click here.)

How they didn't see this coming, I don't know. As I've posted before, you can't call a $499,900 rental property "bread and butter" when you would net -$2,500, especially when it just lost somewhere around 20% of it's equity.

Tuesday’s Tip #51: How to Buy in an Unstable Economy

2008-03-25T15:41:56Z

I just got off of the phone with Australian real estate investor and teacher, Nigel Kibel. He's a great guy and has some wonderful insight into international investing. It's been good to talk with him and get to know him better. We've actually become friends, and I'm thankful for the time chatting and learning.

We were discussing the current market and economic situation across the world, but particularly here in the US. He was asking what we and our investors are finding the greatest amount of success with these days. He was concerned about the dynamic of a falling economy and what types of property provide the most stability and possibility through rough economic times.

My answer to him was very simple, "Buy low to low-middle income area properties. Don't even consider anything above that, unless the price is unbelievable (in that case, it's likely the price is truly unbelievable)." BTW, I'm not talking about low-income slum areas.

As small to average-sized investors, you need to reduce your risk in a market where there are so many questions about the volatility of the economy. The best way to accomplish that is to do the following:

Purchase properties where rents can remain affordable to potential tenants no matter the market swing. If you're buying in the right markets, this should be easily attainable.
Put enough down to ensure that your rents will cover the mortgage, even if/when the rents must be dropped to match the market conditions. Biting into the equity a little and allowing for more potential cash flow is a must.
Ensure your property manager is capable of dealing with the challenges and risks involved. They will make or break you.

Tuesday's Tip: Take a realistic approach to the market. It will settle your balance sheets and your stomach.

Rising Home Sales?

2008-03-24T19:40:05Z

According to AP writer Martin Crutsinger in his article entitled "Home Sales Rose, Prices Fell in February":

"Sales of existing homes posted an unexpected increase in February...
The National Association of Realtors said that sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. It was the biggest increase in a year."

Great news, huh? Well, all except for the fact that in February, the median existing home sales price fell to $195,900. That makes the drop the "largest year-over-year drop on records that go back to 1999."

Given our size, population, and amazing prosperity as a nation, it's no wonder international investors are seeking property here in the states while prices are dropping. Especially after news today that the US now ranks only 22nd of the "most stable and prosperous countries in the world".

I said it in my last post about purchasing rental properties and will say it again, it's no wonder why those international investors are seeking property in the US. It is the time to buy.

Losing Equity? Think Rentals

2008-03-21T12:21:04Z

Foreclosures are up significantly these days, and it's killing you and me. Americans are losing an incredible amount of equity as houses all around their own are losing value like crazy. The market is flooded with desperate sellers and limited financing options, while few buyers are willing to brave the market.

No one is immune. Even Fed Chairman, Ben Bernanke, appears to be losing value fast.

While it may not seem like much, solutions are being developed around us. It's in everyone's best interests to make this work. And, if you buy correctly now, it should be a lot easier to not only sustain in a tough economy, but profit as well.

I've long said that this is no market to be playing with flips and rehabs, especially if you have very little and/or no experience. The market is far to volatile for speculation as real estate investors. It's time to be searching for and purchasing rentals for cash flow.

My feelings about this are consistently confirmed by the number of international investors we have contacting Land Chasers these days. Investors from all across the world, and especially Australia, are aggressively coming into the United States seeking good, positive geared properties where they can make solid returns monthly.

What about you? Are you serious about putting your money in while the market is down? The returns can be incredible. It's up to you.

Tuesday’s Tip #50: Recession Realities

2008-03-18T13:31:13Z

Peter Lynch has been quoted as saying the following:

"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets."

Peter understands this is reality. Do you? Just as there are ups and downs in the stock market, there are ups and downs in the real estate market. Welcome to reality!

Greenspan explained yesterday why he thinks this is the worst situation the economy has been in since World War II. We're down and things don't look like they're going to get much better for a while.

What are you doing to take advantage of our down economy?

Tuesday's Tip: Don't let down times depress you. Recognize they're part of reality and learn from them. Then, move forward.

Outside the Box

2008-03-12T20:22:04Z

Karen Crawford and Dennis Kelly get it. They do.

They couldn't sell their home for an entire year and a half. So, they shifted gears. They didn't sit and pout about the economy or ask for pity. They looked for solutions, found one, and then moved on it.

This couple got creative and created a raffle to help sell their house. Tickets were to cost $100 a piece. More than 5,000 tickets later, translation more than $500,000, the lucky winner will have won a house for $100. As well, the extra proceeds will be donated to the charity that helped make the raffle happen.

When times get tough, stop looking for reasons to be angry at the world. Start thinking outside the box.

Tuesday’s Tip #49: False Assumptions

2008-03-11T16:52:59Z

Foreclosures are on the rise. They have been rising for quite a while now, as I'm sure you already knew. This problem is having an extremely negative impact on the economy and many other areas of our society. The fact is, none of us are immune from it's impact.

But, there is a good side to all of this for those of us on the investment side of the market. In fact, there are two really good things about it. Despite the dropping property values, there are desperate sellers and there is creative financing. We've talked about this before and I'm sure it will be the topic of discussions for quite a while to come. Numerous home owners, banks, and even investors, are in a very difficult position trying to sell their properties.

In view of these situations, we've been talking about the necessity of doing your research, communicating effectively, and learning how to creatively finance them. The goal is to learn everything we can. Being in the Information Age, you, and only you, are to blame if you aren't learning. What you know won't just save you a few dollars, it could save you tons of headaches.

I can't emphasize enough how important it is that you do your research. Most times, we are dealing with desperate sellers and creative financing at the same time and that can be dangerous. We're dealing with people who have an incentive to tell you what you want to hear. They want out of their predicament and you appear to be their ticket. They'll lie about liens, late mortgage payments, unpaid taxes, lapsed insurance policies and everything else you can imagine.

Being their outlet, you're in a very vulnerable position. It's really important that you understand this from the first moment. You have to stay on your guard so as to remain focused on getting the necessary information. Don't assume you know something because someone said it. Get the facts and have them in front of you.

Tuesday's Tip: Assuming is for donkeys. Don't let anyone make an ass out of you.

In the News: Real Estate, Economic, and Personal Finance Woes

2008-03-06T11:55:32Z

In February of 2008, Americans filed an average of 3,960 bankruptcy petitions daily. That puts us up 28% from one year ago. As well, we're at a 23 year high on late mortgage payments.

That's scary.

Things are looking down. Times are hard. How are you helping those who are suffering? There's a lot of opportunity to make a lot of money through long term investing in this market. But, more importantly, there's an opportunity to help a lot of people.

Good investors don't just look for ways to help themselves. They are always looking for ways to help others. It's in helping others that we find the greatest enjoyment of building wealth. If it's just about the money, I'm not interested.

Tuesday’s Tip #48: Keep Good Tenants

2008-03-04T20:02:08Z

I’ve been working closely with my property manager over the past several months. He’s been helping numerous investors across the country to turn their properties around and straighten out their cash flow.

Why? Cash flow investors have been screwed by property managers in Indianapolis for years now. Rents have not been collected for the investors, nor were they paid out to them. Bills have been paid by investors for repairs done only to find out later that nothing was actually done.

That’s why it’s been a huge relief to me to be dealing with someone that has some integrity. He’s done a heck of a job of managing the properties, and I hear it over and over again from our investors. Having a good property manager in place gives all of us the chance to move on and ensure we maintain good cash flow.

As he and I have been talking, my mind has been really focused on simple ideas to keep good tenants around. Keeping good tenants can solve numerous problems:

It keeps steady cash flow
Repairs are taken care of as needed because they’re reported
Long drawn out vacancy between tenants is reduced and sometimes eliminated
Clean out costs between tenants is reduced and sometimes eliminated

This can be huge. Reducing the headaches can help you move on to the next property and continue adding to your cash flow.

One idea we’ve talked about has to do with keeping your property looking nice while giving your tenants reason to take pride in it at the same time. When a property looks terrible, tenants don’t have any reason to take pride in paying their rent on time or in making sure the property is properly maintained.

Give your tenants ownership in caring for your investment property, and their home, by offering them a discount on their rent for keeping the property cleaned up. For instance, if the property is free of trash and clutter outside and the lawn is mowed regularly, they receive a $25 or $50 discount on their rent. A simple drive-by is done one week before rent is due, and if the place is as stated in the lease, they pay $25-$50 less.

Of course, you adjust this ahead of time to ensure the rent and your cash flow are both fair. You’re looking for win/win strategies.

Tuesday’s Tip: Give your tenants ownership while maintaining that steady cash flow. You won’t regret having gone above and beyond to keep that one good tenant in place.

Attracting Tenants or not?

2008-03-03T10:59:31Z

Sometimes, it's not just about attracting tenants, but keeping others away.

Long Term Investing

2008-02-29T10:46:36Z

Warren Buffet has been quoted as saying:

"Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."

Are you focused on long term investing? If not, start rethinking things. Short term benefits don't work so well in our economy. Can you afford to lose what you have already built for retirement? If we go into a recession, how will your investments hold up?

Think about it. If not, you're likely to regret it.

"Distinctly Less Favourable" Economy

2008-02-27T19:21:20Z

Where are you investing your money? How are you securing it? What makes that investment secure?

Today, news broke that the dollar has hit a new record low against the Euro. Fed Chairman, Ben Bernanke, has sparked this through his recent comments about the economy when he said things are “distinctly less favourable” and as a result, promised further rate cuts.

The article states "Consumer spending 'appears to have slowed significantly' in the face of higher gasoline prices and a weakening labour market, he said, adding: 'The business sector has also displayed signs of being affected by the difficulties in the housing and credit markets.'"

Investors have good reason to be concerned about the direction of the economy and the security of their hard earned money. It's time to take a long hard look at ways to secure what you've worked so hard for, if you haven't already started.

Historically, real estate has been one of the most stable investments. With the dollar sinking and interest rates dropping, it would be smart for you to take time and consider the positives and negatives of investing in real estate to start building positive cash flow. As they always say, "people will always need a place to live" and while prices are low, the opportunity is greater than ever.

We've talked about this before, but it seems as if every day ushers in new evidence that now is the time.

Tuesday’s Tip #47: Be Resourceful

2008-02-26T14:52:01Z

If you’ve ever been in the rental business, you know how expensive it can be to rehab a property after a tenant moves out. You try to fix things well and put in nice things and tenants destroy them. You put in something cheap and end up replacing it four times before the nice one would have worn out. Sometimes it feels like a lose/lose situation.

Your goal is to maximize cash flow by creating a comfortable environment for a renter without putting in a ridiculous amount of money in to rehab it. That can be challenging. Sometimes, it can seem down right impossible.

This is when it’s important to be resourceful. How can you find good deals on windows? What about doors? Cabinets? Stop running to Lowes or Home Depot. Start thinking outside the box. Again, your goal is to maximize your cash flow by saving where you can.

So, why not talk to a local carpenter who remodels homes? Ask him if he ever rehabs nice homes and has extra materials that he wants to sell at a discount. Better yet, ask him if he ever has good materials that he pulls out of homes when he’s replacing them. Does he have any good old doors, cabinets, windows, or flooring? If so, is he just going to throw it away? If so, tell him you’ll haul it for free. If not, how much would he be willing to take for it?

What if you could buy that new exterior door you needed for your single family for $50, instead of $150? Could you use an extra $100 right now?

What if you talk to a local landscaper about buying his extra mulch, plants, or mulch at the end of the season or after a job where he didn’t need them? How much could this save you on materials?

I’m getting free flooring for a house I’m rehabbing and most of the materials will be free for the job. How? I asked a rehabber.

Tuesday’s Tip: It’s not brain surgery. It’s called networking and resourcefulness. Do it.