Here are a few more great tips for real estate investors who are interested in increasing their profits on many of their transactions:
When finding second mortgages to buy, you can often make a quick profit selling to the man who is PAYING that mortgage. EXAMPLE: a $20,000 mortgage for which you pay $13,500. Go to the person paying that note and offer it to him for $16,500. He saves $3,500 and reduces his monthly payments. He can refinance the house to get the money. You make a quick $3,000 overnight.
TRY THIS: a mortgage is less secure than a tax-deferred municipal zero coupon bond (buying stock in a city or state - but use caution in cities/states that are in financial difficulty, or facing bankruptcy, as Stockton, CA just did). Such bonds can be bought for about 50 cents on the dollar. Like Savings Bonds, they are worth full value when they mature. So, find a mortgage holder who has a $20,000 second mortgage and offer them a more secure $20,000 in municipal bonds for greater security. You buy the bonds for $10,000, so you purchased a $20,000 mortgage for $10,000 instead of the usual $13,500-$17,000. Trade the $20,000 mortgage as a $20,000 down payment on an $80,000 home. Now, that $80,000 home only costs you $70,000. Or, you can sell the mortgage to an investor - or the guy paying on that mortgage - for a quick profit.
For those properties that need to be fixed up, avoid paying retail for new materials. Buy lumber, brick, sinks, stoves, electric service panels and other items from the local salvage shop - they tear down buildings and recycle the materials. It saves you a lot of money.
Paint, wallpaper, carpeting - most of these things can be bought at huge discounts from places like Building 19 that buy up merchandise from stores going out of business, fire sales, etc. and they resell cheap. Home Depot & Lowes often sell pre-mixed paint at discounts - folks order the paint, then decide the color is not right. Sometimes that paint sells for as much as 30-50% discount.
During your own hunt for properties, keep your eyes open for buildings that need to be taken down due to storm damage etc. Offer to take them down and remove the debris, either for free or charge a modest fee. Use the salvage materials for future fix-ups.
Not enough money to do the fix-ups? First, use credit wherever you can - the payments are small and you can pay it off later from your profits. Second, consider barter - offer a builder, painter etc. something of value other than money. Are you good at something that can benefit them? Trade services for services, goods for materials etc. A dentist I knew traded dental services in exchange for adding a beautiful deck on his home.And if you own equities in other properties, offer them some of it, or the interest on mortgages you hold, or even the monthly payments from them until your bill is paid. Better still, tell them the profit you will be making, and ask them to wait to be paid until you cash out.
Can't get credit from the bank? Try life insurance companies. They are always looking for good investments, particularly in real estate. Their rates may be higher, but your chances are better.
Cash in on your equities. Many "money stores" will loan up to the full amount of your equity, or more. Since it is a loan, it is tax free. Use the money to buy and sell more properties that will repay the loan and still make you a profit.
Uh-oh! These techniques have put you in a high tax bracket. Tsk!Tsk! Remember all those freebies you get - lawnmowers, furniture, tools, equipment etc.? If you sell them off you may get 50% of their value. But you also have more money to pay out in taxes on that income. Why not give that stuff away (except for antiques, etc.)? Donate these things to charity and write off 100% of their value on your taxes. What you save on taxes will more than make up for the loss from what you might have made selling those items. And, you become a big hero to those charities, as well. You are a benefactor to many, while lining your own pockets even more.
If you have a number of credit cards with cash advance options, you can borrow the cash to quickly close a deal, resell, then pay off the loans before interest is due. Generally, the more cash used in buying a property, the lower you can negotiate the price. This is also true for being able to close quickly. If you can borrow $10,000 each on 8 cards for $80,000, you should be able to purchase a $100,000 property for the $80,000 cash, particularly if the seller is in a hurry to close. Quickly resell for full value, pay off the loans and pocket the $20,000 cash. (And you didn't even have to use other techniques.)
If the property has an "asset" such as an inground swimming pool, don't let the seller include it in the price. That was HIS toy, not yours. And it's not an asset - it's a liability. It increases taxes, increases insurance and liability. Explain to him that as an investor, you cannot pay for liabilities. Later, as negotiations proceed, you can always agree to pay about 1/2 the value of the pool in exchange for getting the seller to pay closing costs, or provide something else of greater value. Remember - you should not allow sellers to "tack on" to the price tag just because they added a luxury that others may not want.
If you will be holding onto the property as a rental, try to get the seller to accept a balloon or deferred down payment that you can pay out of the excess rents. For example, if the down payment is $5,000 and you estimate a net profit of $200/month from the rents, offer to pay the seller $2500 cash each year for the next 2 years. You then get in without any down payment out of your pocket.
Consider using barter to make your down payment. You can offer the seller your "second" car, your boat, or equity you might have in another property. You can even trade your services: if you are a builder, for example, the seller may want a new deck built on his new home. There is no law that says a down payment must be in cash!!!
If you have $500 overdraft protection on your checking account, consider getting 3 or 4 additional accounts at other banks - all on the same day. Set up overdraft protection on each. With 5 such accounts, you now have an instant line of credit in the amount of $2500 which is likely to come in handy.
Although you may buy low, you may not be able to find a ready buyer to buy high. So, refinance high to get your equity out, then resell.
When looking in the classifieds for properties, don't forget to look under "Rentals" and "Apartments". Often, the owner will consider selling, especially if the ad is for "Lease with option to buy". In many cases, these sellers are motivated and flexible because the place is empty, costing them money.
If you own apartments, consider installing vending machines and a coin laundry to increase profits.
Profits without buying - lease nice properties - homes or apartments - and then sublet for a profit on each. If you can obtain a lease on a $100,000 home for $750/month, you may be able to sublet for $850/month.
Okay, so you are doing very well. Your child is ready for college and the tuition will wreak havoc with your finances, right? Not necessarily. Cash in some of the equities you own and buy a 4 bedroom home in the town where the kid will be going to college. Own it free and clear. Make your child the building manager. Lease the other three rooms out to 6 other college kids BY THE FULL YEAR. Make sure their parents sign the lease agreement if the student is under 21. Those rents will pay your child's college costs.
While your child attends college, there is no housing expense because the child has a room in the house. The child is the building manager and you can pay him/her a management fee, tax deductible for you, and the money buys the child's books etc.
When your child comes home for Holidays or you go to visit, the expenses are tax deductible - you are meeting with your hired building manager. It's business.
The leases from the 3 other bedrooms, each room shared by two students ( a total of 6 rents if your child has a PRIVATE room) earns you enough money to pay all the buildings expenses plus many of your child's college expenses. College is getting cheaper all the time.
When the child graduates, contact the parents of students who will be attending the college next year and tell them what you did. Surely one will buy the house from you. The proceeds will pay off the remaining college loans with money left over.
Well, as I said, there are a lot of ideas and tips. Half the fun of this business is in using the imagination and becoming creative. Go ahead, give it a try!
Save on closing costs. First, negotiate the asking price down (example: asking price of $90,000 negotiated down to $82,000). Then, try to talk the seller into paying ½ the closing costs. He will probably refuse. So, tell him you will pay an extra $3,000 for the home if he will use that extra $3,000 to pay $3,000 in closing costs. He still gets the same amount of cash at closing. You have managed to save $3,000 in cash by having the closing costs "merged" into the mortgage. You pay an extra $20/month on the mortgage, but you save $3,000 in cash, now.
Take the $3,000 cash you saved in the previous tip and pay off your short-term obligations - credit cards, car payment, etc. This will lower your monthly expenses by about $200 each month, which you can now use to pay on your mortgage. You have transferred 3-4 years of high interest debt on depreciable assets into 30 years of low interest debt on appreciable assets.
There are untold ways to boost profits, but you will not find these powerful secrets in courses offered by Armando Montelongo, Carlton Sheets, Dave Lindahl or Larry Goins or any of the "infomercial gurus". You will only find them in "The Simple Man's Guide to Real Estate" offered by IntelliBiz.
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