7 Essential Contract Basics for Real Estate Success
Issue #2210
- WEALTHY: Become a native speaker of "real-estate-ese" (David Finkel)
- HEALTHY: 4 ways to enjoy the holidays without gaining weight (Yarixa Ferrao)
- WISE: Robert Kiyosaki on having too much money
ALSO IN THIS ISSUE:
- Tell us how we can help you achieve your goals for 2008 (Charlie Byrne)
- How long does your sales copy need to be? (Clayton Makepeace)
- It’s Fun to Know… about India’s population explosion
- Add the Indian word "pajamas" to your vocabulary
Welcome to the Turning Point in Your Life
How can it be a group of people in the same city, with the same education, upbringing, bank balance and opportunity make riches beyond their dreams, and others don’t??
Answer: They used a system… a set "proven" process which set them apart.
Want to know what this system is?
They followed a set of simple instructions which made money automatically come their way… money was attracted to them like metal to a magnet long BEFORE they became wealthy.
It was following these simple instructions I now call "The Billionaire Way" which gave ME an unbelievable ‘piggy-back ride’ from a simple insurance sales guy to founder of the world’s first TV shopping network.
"I have a problem with too much money. I can’t reinvest it fast enough, and because I reinvest it, more money comes in. Yes, the rich do get richer."
Robert Kiyosaki
7 Essential Contract Basics for Real Estate Success
By David Finkel
Over the years, I’ve helped more than 200,000 entrepreneurs and investors develop the "financial fluency" they need to create, maintain, enjoy, and share great wealth. When it comes to real estate, a big part of that fluency is mastering the art of contract negotiation.
Just as math is the language of physics and money is the language of accounting, contracts are the language of real estate. The more fluently you speak that language, the more successful and profitable you’ll be. And the keys to becoming a native speaker can be summed up in seven contract essentials.
But before I reveal these fundamentals, I want to make something absolutely clear. I am not looking for you to act like your own attorney. Nor am I asking you to become a real estate law expert. In fact, you will need to have a sharp attorney look over and write up many of your real estate contracts. But it’s critical for you to understand the basics for two reasons:
- Many times, you’ll be ready to strike a deal and you won’t have your attorney with you. If you wait until your attorney can draw up the agreement, you might as well kiss the deal goodbye.
Imagine you’re meeting with the owner of a six-plex that you’d like to buy. Because he is highly motivated, he’s verbally agreed to sell you a $1.2 million property for $700,000. And you say, "Gee Mr. Seller, I’m glad we could come to an agreement on price and terms for a cash sale. I’ll go meet with my attorney to get the paperwork written up. It should take three or four days for me to get it back…"
What do you think would happen to your great deal in those three or four days? Hint: Look for another investor walking out the seller’s door with a silly grin on her face and a signed contract in her pocket.
You’ve got to know how to lock up the property on the spot. Then, later, you can have your attorney draft the more involved documents for the actual closing.
- Sometimes you’ll need an important written agreement immediately, and it will make sense for you to get it done on your own.
One goal of building your successful investing business is to have a file of "attorney-approved" documents. This will include lease agreements, purchase contracts, rent-to-own paperwork, and standard releases from contractors. And once your attorney has gone over these documents, you need to know how to use them in the day-to-day management of your properties.
Now you know why you need to know the basics. So here they are:
Contract Essential #1: Relax. A contract is just an agreement between two or more parties. One party makes an offer, the other party accepts the offer, and something of value changes hands.
Many contracts don’t need to be in writing to be enforceable. But a real estate contract typically does. Even if this isn’t the case, take my advice and always put your agreements in writing.
Contract Essential #2: Clearly and accurately identify all the parties to the agreement.
Now this may seem obvious, but you’d be surprised at the number of people I’ve seen write up a deal and use vague language as to who, exactly, is involved.
If you are the buyer, make sure you list the seller’s full name on the purchase contract exactly as it is on the deed. Did they use a middle initial? Or did they spell out their middle name? Do they hold title as the trustee on behalf of a revocable living trust? Make sure you get it right.
If you are leasing a property to a family, make sure you list all adults who are party to the lease as "tenants."
Are you requiring a co-signer for a loan agreement? If so, make sure you identify the co-signer and get his signature.
Are you selling a four-unit property to a corporation? If so, make sure you identify the legal name of the corporation and the state in which it is incorporated. And remember to get the title of the person doing the signing.
You can’t be too careful.
Contract Essential #3: If the contract uses an acronym or another shortcut to reference a proper noun, make sure the shortcut is clearly defined and consistently used.
This is just a fancy way of saying that if you use a label like "Closing Agent" in your agreement, make sure there’s a statement somewhere in the agreement that says, "The ‘Closing Agent’ shall be XYZ Title Company located at 2211 Main Street, Anytown, CA, 91960."
Contract Essential #4: Accurately describe the property.
You’re getting the idea. Half the battle is being crystal clear about who or what you are discussing in the agreement. When it comes to identifying the property, a street address can be enough for something like a lease agreement or a repair contract with a roofer. But for any document that will be legally recorded, make sure you use the "legal description" of the property.
Here’s an example of a legal property description:
"Lot 3, Block 24 of the High Hopes Subdivision as recorded on Map No. 322 recorded in the County Recorder’s Office on May 1st, 2006 in the County of Glorified, State of…"
You can find the legal description of a property in public records at the county courthouse. But you don’t have to make a special trip to get it. It will be on the Preliminary Title Report that you’ll get from the title company as part of your due diligence work. (If it’s a really long legal description, I just photocopy that section of the report and attach it to my document.)
You can also find the legal description on the loan docs the property owner has in her files… on an old copy of her title insurance policy… or on a copy of her deed, if she has any of that handy.
You probably won’t have the legal description when you meet with the motivated seller and make the deal. So use the property’s street address to fill out your purchase contract. And in the space where it asks for the "legal description," simply write, "To be provided later."
Contract Essential #5: Lay out, in plain language, what both parties are agreeing to.
In the event that there is a disagreement down the road, this will help a judge or other neutral third party interpret your agreement the way you intended it.
Contract Essential #6: Always be the one who drafts (or pays the attorney to draft) the agreement.
For every point you discuss and agree to orally, there will be two more that never come up during negotiations. And there is a subtle yet strong pressure to accept any written contract pretty much the way it is written. That’s why you want to be the one in control of the paperwork.
Let’s say you agreed to buy a house for $600,000 with a down payment of 10 percent ($60,000). You also agreed that the seller would carry back the balance at five percent interest.
This is a real deal I did on a house in San Diego a few years back. Because I volunteered to write up the paperwork, I was able to specify that the loan was for "interest only," which lowered my monthly payments considerably… that I had a "first right of refusal" to buy the note if the seller ever tried to sell it to a third party… and that I got the washer/dryer, drapes, yard furniture, refrigerator, and a few other items. Though I ended up paying the seller a few hundred dollars for the refrigerator, I got the rest because I had included them in the agreement.
What do you do if the other party insists on writing up the paperwork? Okay, let them do it. But don’t be lazy. Make the effort to draw up the agreement yourself too… the way you want it done. That way, you’ll have a contract that favors you to compare, side by side, to the other party’s document.
Contract Essential #7: If you use a fancy formula or hard-to-describe condition in your contract, give an example or two of how you want it interpreted.
Here’s an illustration of what I mean. I once bought a two-bedroom condo from a motivated seller who was in the military and had been transferred. To sweeten the deal for him, I agreed to an "equity split." In other words, a portion of the profits I earned when I resold the property would be paid back to him. To clarify how this split would work, I included something like this in the agreement: "For example, if the Buyer resells the property for $200,000 then the seller shall get paid the Option Price of $105,000 plus 12 percent of the amount over $130,000. In this case, the Seller would get $105,000 plus 12 percent of $70,000."
Again, the idea is to make it easy for a third party to understand how the deal works.
As I said at the beginning of this article, contracts are the language of real estate. Train your brain to get good at them by following this simple rule: A contract doesn’t need to use fancy words. You don’t have to sprinkle it with "whereases" and "ipso factos." Just clearly lay out who agrees to do what, by when, to what standard, with what consequences, with what warranties, and for what payment.
Mastering these seven basics won’t take much time or effort, but it can make a big difference in your income. You only need to save one deal to be glad you did.
[Ed. Note: David Finkel is the best-selling author of The Real Estate Fast-Track, The Maui Millionaires, and The Maui Millionaires for Business. He’ll reveal the secrets that have made him a self-made multimillionaire in an exclusive teleseminar with Justin Ford on Wednesday, November 28. This presentation is free, but slots are limited. Click here to reserve yours today.]
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ETR Insider Report: It’s Time to Get Unstuck in 2008
By Charlie Byrne
Are you stuck?
Has another year gone by with too much wishing… and not enough doing? Did you fail to make that big breakthrough you’d been hoping for?
Early to Rise wants to help.
Tell us the single biggest obstacle… the largest barrier… that you faced in reaching your top goals this year. You tell us that, and there’s a good chance we can get you over that hump…
Along with Michael Masterson, Bob Cox, and Patrick Coffey, I’m putting the finishing touches on our new 2008 Achievement Program. But we want to make sure we’ve got your specific situation covered!
So please send me about 25 words on "The Number One Reason I Couldn’t Reach My Goals in 2007." Just drop a quick e-mail to Breakthrough@ETRFeedback.com.
And then we’ll see what we can do to help you accomplish all your goals in 2008.
Long Copy vs. Short Copy
I’ve never seen short marketing copy win in a heads-up test against long copy.
Just this year, I’ve tested several #10 envelope packages with 8-page sales letters against 8.5" x 11" self-mailers with 24 pages of text. The long copy beat the short copy by 50 percent to 70 percent each time.
However, the cost that goes along with longer copy plays a big role in this debate. If your profit margin is smaller, you may have no choice but to go with shorter copy. And if your market is best reached with print ads, TV, or radio, you’re also limited.
My philosophy: Write about the benefits of your product until you run out of things to talk about. Then go back and make your copy as tight as a drum. Then let the sales message TELL YOU how long or short it wants to be!
So long as you’re speaking to your prospective customer’s self-interest… so long as you’re deftly stroking his dominant emotions about the subject at hand… and so long as the copy is clear, concise, even fun to read, he’s going to stay with you and give you a chance to make the sale.
[Ed. Note: Clayton Makepeace has spent the last 35 years creating direct-mail, Internet, and print promotions that have sold well over $1 billion worth of products. He publishes the highly acclaimed e-zine The Total Package to help business owners and copywriters accelerate their sales and profits. ]
Don’t Be Fooled by Statistics on Holiday Weight Gain
According to the New England Journal of Medicine, Americans gain an average of only one pound during the holidays. A lot less than you thought, right? Even so, that doesn’t give you a license to stuff yourself.
Do not be suckered by that statistic. Remember, it is an average - which means that some people gain MORE than a pound. Not only that but most of them probably gain three to five additional pounds by February or March.
Fortunately, you can enjoy all the parties without gaining weight. Here’s how:
- Work out right before any meal that you expect will be sinful. Then, when you indulge yourself with something that’s high in sugar (with some protein), you’ll actually be helping your muscles recover from the exercise.
- It’s okay to treat yourself to something you like, just make smart choices. A Starbucks decaf Pumpkin Spice Latte - with only two pumps of flavored syrup instead of three - is a perfect cheat and a good way to get those holiday flavors. And if you want a piece of pie, eat it. Just don’t have three slices.
- Moderation is the key. Keep a daily food journal throughout the holidays. It takes almost no time. Writing down what you eat is a good way to keep yourself on track.
Live life - not your belly - to the fullest!
[Ed. Note: Yarixa Ferrao is the certified personal trainer and founder of "Get Fit in 6" who has been whipping some Early to Rise staffers into shape. Coach Yari’s e-course newsletter series explains the exercise and nutrition secrets that can help you burn fat. Click here to sign up and get two bonus reports that will help you look your best for the holidays.]
It’s Good to Know: India’s Population Explosion
The population of India is about 1.1 billion, and is growing by just over 18 million a year. Based on its present 1.6 percent growth rate, it looks like India will surpass China to become the world’s most populous country by 2050.
(Source: Population Reference Bureau)
A Top Business Breakthrough Known Only by a Handful of Insiders Turns Out to Be One of the Best New Ways to Make a Bundle…
Plenty of people make tons of money every day in Real Estate and on Wall Street. But if you’re looking for something different… and if you don’t have $100,000 to invest or even $10,000…
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What is it? All I can tell you is that more than half of the world’s billionaires have made their money this way. You’ll have to read on to learn more about it.
Finally the cat’s out of the bag… Click here to read more…
Indian Word to the Wise: Pajamas
"Pai jamahs" are loose trousers tied at the waist that are worn by Muslims in India. The name was probably derived from the Persian for "leg clothing." Westerners adopted a similar garment - "pajamas" (puh-JAH-muz) - as sleepwear.
Fun example (as used by Groucho Marx in the movie Animal Crackers): "One morning I shot an elephant in my pajamas. How he got in my pajamas I’ll never know."
[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