New Rules Abound for Real Estate Investors
Issue #1978
- WEALTHY: Why now’s the time to start lining up some cash (Justin Ford)
- HEALTHY: Eat meat and help save the planet (Jon Herring)
- WISE: Thomas Hardy on our reaction to change
ALSO IN THIS ISSUE:
- How to give criticism in a positive way (Bob Bly)
- Tips for breaking through blog block, part 3 (Michael Masterson)
- It’s Fun to Know… about manila envelopes
- Add "disabuse" to your vocabulary
This Business Opportunity Is Wide Open
Trade between the United States and China has created a vast marketplace, and clever entrepreneurs are right in the middle, making millions in the import/export game.
But how do you get started? Aren’t there a lot of rules, regulations, and bureaucratic tangles?
The truth is importing high quality goods from Chinese manufacturers and selling them to consumers has never been easier.
No experience and minimal start up capital necessary. Get in on the action today.
"Time changes everything except something within us which is always surprised by change."
Thomas Hardy
New Rules Abound for Real Estate Investors… but the Old Principles Still Apply
By Justin Ford
One of the few constants in real estate is change. Look at any half-dozen "hot" neighborhoods today, and chances are half of them were ghost towns or problem areas 10 or 20 years ago. But it’s not only the locales that change. So do the rules, especially when it comes to the money to do your deals…
Used to be you needed 20 percent down to buy a house for yourself and at least that to buy an investment property.
Now major banks will lend you 103 percent of the purchase price of your home - sometimes more. In some cases, you can even get 100 percent bank financing on small residential investment properties (one to four units) without paying loan-shark or hard-money rates.
Used to be a property had to be "seasoned" before you could do a cash-out refi. That means you had to own it for at least a year and have a good payment record before you could get a new loan that would let you cash out your down payment and perhaps other cash costs (such as closing fees and repairs).
But I just bought a property for "cash" (using a credit line) - and in just over two months, I pulled out 97 percent of the purchase price. And it was through one of the three largest banks in the country, at a very competitive rate (seven percent fixed and one point).
Used to be a bank would stop lending to you on small properties after 10 mortgages, even if you had good credit.
But, thanks to "portfolio" loans, I have over a dozen first mortgages with banks at low, fixed rates on cash-flow-positive properties. Another investor I know of at the same bank has about 45 first mortgages - all at rates far lower than he would pay with hard-money lenders or even private money.
Used to be you needed at least 25 percent down to buy a commercial property.
But I’m at contract on a commercial apartment building and just received a competitive bank quote that permits 90 percent CLTV (combined loan to value). Specifically, they can provide an 85 percent LTV (loan to value) first mortgage and allow a five percent LTV second mortgage. And I’m also looking at alternative options that might allow me to finance nearly 100 percent plus repairs, and pull all that out with a lower-rate bank refi within the year.
It ain’t your dad’s money market or real estate market anymore. In many parts of the country, it’s a brave new world where the money’s cheap and properties are ridiculously expensive.
This can create great opportunities for value-focused investors. But if you’re not disciplined and you accept floating rates and chase cash-flow-negative properties in the hopes of quick profits on a quick flip … the cheapest money in the world can end up costing you dearly.
Get Your Cash Ready
Perhaps the simplest definition of a good investor is a person who consistently makes money in up and down markets. He’s not just "a genius in a bull market." These good investors - whether in stocks, commodities, or real estate - tend to do a few things when markets go to extremes.
First, they don’t chase hot markets. They don’t pay huge premiums to what the fundamentals support (e.g., rent and household income in the case of real estate) simply because it happens to be the "price du jour." In hot markets, they become even more careful cherry pickers - only buying the occasional deeply underpriced deal that still makes economic sense. They also rotate their capital to value markets that show signs of being in the early stages of an upswing rather than the late stages of a market peak.
Last but not least, as the hot markets get hotter - and fuller of hot air - they get their cash ready. They know that just as markets tend to expand in the late stages of a bull market beyond what they’re worth (on the basis of fundamentals), they also tend to correct in the late stages of the ensuing bear market to prices below what they’re fundamentally worth.
That’s why these investors amass cash. So they can move in and buy cheaply in the bear market what others paid far too much for in the bull market.
I suggest you get your cash ready now.
Doesn’t Have to Be Your Cash
Even if you have poor credit and little or no cash, you can buy real estate if you learn how to find undervalued cash-flow deals. If you can’t get bank loans yet, turn to your network of private lenders and equity investors.
And if you have cash and great credit, you should still develop your network of private lenders and equity investors. They’ll make it possible for you to gradually move up on the size of your deals as you develop expertise. And they’ll enable you to act on the best deals on the market when they appear, regardless of how much of your own cash or credit you happen to have available at that moment.
There are many other ways to line up the right financing with the right deals. These include "subject-to" purchases (where you take over an existing mortgage) … owner financing (more common in commercial real estate)… bridge financing (a short-term loan, usually for the acquisition before you get the building "performing" and lock in a lower fixed rate) … home equity lines of credit … business lines … lease options … land contracts … wraparounds … and more.
But whatever your source of cash, remember that the quality of the deal comes first. In bubble markets, only buy the rare under-market deal that still cash flows. And look to roll some of the inflated equity from properties you may have in bubble markets into the emerging value markets.
When buying in the value markets, try to buy below the market average on a dollar-per-square-foot basis. Make sure you’re buying at a price that cash flows depending on how much leverage (borrowed money) you’re using. And lock in your interest rates for longer than you think you’ll own the property.
Keep your eyes on new opportunities arising in the changing money and property markets. But never forget the core principles of value investing that will work in any market.
[Ed. Note: Learn about new opportunities in the property markets, creative financing techniques, the best cities to invest in now, and more (much more!) at the 2007 Real Estate Wealth Builder’s Summit in Coral Gables , FL May 18-20. Click here to find out all the exciting details…]
What’s the Secret to Dave’s Multi-Million Dollar Lifestyle?
Dave Lindahl makes more money in a month than most Americans earn in a year – and that’s just counting the passive income he takes in.
The story is similar for Steve Cook…Alan Cowgill…and Ray Alcorn, just to name a few.
You see, they’re all successful real estate investors who’ve mastered a few key secrets to generating a whole lotta’ income without a whole lotta’ work.
These multimillionaires are the first to admit that building real wealth in real estate is not rocket science. In fact, it’s one of the easiest, safest ways to invest and grow rich – once you know the secrets. What’s stopping you from doing the same? Put their secrets to work for you today.
Reader Feedback: "The advice in Automatic Wealth helped me gain a $9,500 raise in less than a year."
"I was sitting in the airport waiting for my flight home and reading Michael Masterson’s latest book, 7 Years to 7 Figures . I paused a moment to let what I had just read sink in, and a fellow traveler asked me what I was reading. Without thinking, I replied that it was ‘a book written by a friend of mine.’
"The truth is that although I’ve only had the pleasure of meeting Michael on two occasions, after listening to him speak and reading his books, I have to say that I consider him a friend. That’s the way he comes across in both his speaking and writing, as a friend imparting wisdom that can change your life.
"I’m sure the fact that the advice he gave me in Automatic Wealth helped me gain a $9,500 raise in less than a year, as well as establishing the foundations for multiple streams of income, didn’t hurt either. Given the chance, I’d submit my two weeks notice and head south to learn everything he has to offer about the business world."
Bill Reilly
Frankfort, IL
The Meat Eater’s Dilemma
By Jon Herring
Last week, an acquaintance e-mailed me an article that suggested it is impossible to be "a meat eater and also an environmentalist." The article quoted a World Watch report which called "the human appetite for animal flesh" a "driving force behind virtually every major category of environmental damage, including deforestation, erosion, fresh water scarcity, [and] air and water pollution."
But while it is true that conventional cattle farming is detrimental to the environment and your health, that’s not true of the way grass-fed beef is raised.
First of all, grass-fed cattle spend their time outside, munching on grass. So there’s no need to feed them grain (which requires a significant amount of fossil fuels to grow and transport). Furthermore, these animals return their biodegradable, nutrient-rich waste to the field.
In a commercial feedlot, however, thousands of animals cramped into small spaces are fed an antibiotic-laced diet. Their waste concentrates in sludge pools which - should they break or leak - can poison entire streams and pollute the underlying groundwater.
If you’re a meat eater, you don’t have to give up those juicy steaks and burgers you love. The only thing you need to be concerned with is where they came from.
To learn about farmers in your local area who are devoted to protecting the environment, start with a visit to EatWild.com. And if you’re interested in some of the very finest grass-fed beef (and you don’t mind having it shipped), try uswellnessmeats.com.]
Notes From Michael Masterson’s Blog: No One Cares What You Had for Lunch, Part 3
On Tuesday and Wednesday, I gave you some of the best ideas I found in Margaret Mason’s book, No One Cares What You Had for Lunch: 100 Ideas for Your Blog . Here are four more:
- Want to write that novel? You can set up a separate serial-novel blog in a few minutes, Mason says. Or you can mix in book excerpts with your regular blog entries. "Start with a few sentences a day or try to hit 500 words, whatever you can do consistently." Let your readers see your progress. They will get involved in it along with you. When it comes time to sell your book, if you intend to sell it, you will have already pre-sold it to some of them.
- Categorize your readers. Make up a test that allows you to put them into little boxes … and then tell them about it. Amazingly, Mason says, they will like it.
- Interview an expert. "Someone you admire but don’t necessarily know," Mason suggests. In ETR #1861, I talked about how Nettie Hartsock does it - and how she developed an impressive Rolodex of famous people in the process.
- "If you don’t already have a Flickr.com account, you need one," Mason advises. Flickr is Yahoo’s photo-sharing service. "It lets you organize, share, and print your photos, see photos from your friends, and participate in simple group projects by adding descriptive tags to images. Most importantly, it gives you an easy interface for posting your images to your blog."
So now you’ve got 16 great ideas from Mason’s book - but even the best ideas won’t make your blog a success unless you contribute to it on a regular basis.
No matter what you decide to write about, you need to put writing your blog entry at the top of your to-do list. By making it the first thing you do every day, your blog won’t suffer the fate of 90 percent of all blogs: dying out simply because the writer failed to keep up with it.
This is what I do. At about 7:00 a.m. every morning, I am seated in front of my computer, drinking coffee and typing up the bits and pieces I’ve scribbled in my journal. I break my journal entries into two categories: (1) personal stuff and (2) public stuff that will go into my blog or be turned into articles for ETR. Doing this first thing every morning revs me up creatively.
Once you make it a habit (and all habits can be formed after about 15 or 20 repetitions), the writing becomes pretty easy.
- Michael Masterson
[Ed. Note: To read more of Michael’s unedited, uncensored (and sometimes unexpected) ruminations, check out his blog here.
Learn how you can be part of an exclusive group of 25 to 50 ambitious businesspeople that Michael will be leading through an elite 5-day program that can help you dramatically increase the profitability of your business here.]
Quick Management Tip: Softening the Blow
By Bob Bly
It’s possible to criticize someone’s work in a way that softens the blow and preserves the recipient’s ego. I learned how to do it from Terry Smith, my boss back in the days when I was an employee at Westinghouse.
First you say, "Here’s what I liked" - and then recap at least three positive points. (If you look hard enough, it’s impossible not to find at least three good things to say about almost anything.)
Then you say, "Now, if it were mine to do…" - and proceed with your list of specific criticisms. Putting it this way implies that what you are telling the recipient is your opinion, and not an accusation of incompetence or shoddy work on his part.
[Ed. Note: Bob Bly is the editor of ETR’s Direct Marketing asters Edition, a program to help you start your own successful direct-mail business. Sign up for Bob’s e-zine, The Direct Response Letter at bly.com/reports.]
It’s Fun to Know: About Manila Envelopes
Manila envelopes and folders are named after the Filipino capital, because they were originally made of the fibers of the Musa textilis plant, which was grown in the area. Today, manila folders and the like are made from other types of paper.
(Source: Dictionary.com)
Do You Need To Start Out Small?
If you don’t have an Internet business yet, or if your company is smaller than $1 million then you need something different… something that lets you start off small.
One man I know turned $10 into over $500,000. How’s that for starting small!
Let me show you how to get a similar Internet income stream running for almost nothing.
- Patrick Coffey
Word to the Wise: Disabuse
To "disabuse" (dis-uh-BYOOZ) is to free from deception or error.
Example (as used by syndicated columnist Kathleen Parker): "Jay Leno’s man-on-the-street interviews have disabused us of any fantasy that Joe Blow - the same fellow driving all those political polls out there - is fluent in current events."
[Ed. Note: Become a more persuasive writer and speaker … build your self-confidence and intellect … increase your attractiveness to others … just by spending 10 VERY enjoyable minutes a day with ETR’s new Words to the Wise CD Library.]
Michael Masterson
Copyright ETR, LLC, 2007