Issue #2412
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WEALTHY: The "Grave Dancer" strategy of buying real estate (Marc Charles)
- HEALTHY: The sexy side effects of watermelon (Kelley Herring)
- WISE: Sam Zell on being an opportunist
ALSO IN THIS ISSUE:
- What you meant to say isn’t always clear (Suzanne Richardson)
- Could this be the most common confusion in English? (Don Hauptman)
- It’s Fun to Know … about life in the ocean
- Add "kluge" to your vocabulary
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"I’ve always been called a professional opportunist, and in the future I’m open to anything."
Sam Zell
How to Avoid the Foreclosure "Spin" and Make a Bundle in This Crazy Market
By Marc Charles
The news media is all doom and gloom about the current real estate market, and the economy in general. But let me tell you. You can still make money with foreclosed property, especially in today’s economic climate. I’ve had great success with this, and it can work for you too.
But it’s crucial to separate the facts from fiction and ignore the hype.
Almost everyone approaches real estate investing with the same point of view. They try to convince themselves that they’ll make a ton of money quickly, without any risk whatsoever. You’ve seen many of those people profiled on evening news shows or in newspaper articles. They’re the ones who were caught short when the real estate bubble burst.
The get-rich-quick impresarios almost never reveal the full extent of the downside risk of the strategies they’re promoting. And the downside risk is a big deal for me.
Take, for instance, the "buy, fix, and flip" strategy. The days when you could make money doing this are over for the short term (the next three to five years). Why? Because buyers are scarce.
Despite all this, opportunities for making huge profits with foreclosed and bank-owned properties can’t be ignored … even by entrepreneurs who are coming into the market for the first time. This is especially true if you are able to acquire foreclosed or bank-owned properties at deep discounts.
But before you jump on the "foreclosed train," here’s something to keep in mind …
Just because a property is foreclosed or a bank owns it, does NOT make it a good deal. As with any business or investment opportunity, due diligence is necessary. Whatever your experience level, the best foreclosure deals can be identified through patient research.
The Perfect Insider Strategy
The current trend in real estate emphasizes rental revenue (versus appreciation). That’s why foreclosed and bank-owned property is worth a look.
If people can’t afford their homes or condos, where will they live? Smaller, more modest homes and/or rentals. So there are still buyers and renters out there, but they are looking at smaller, cheaper properties. That’s where the opportunity lies for you.
One way to capitalize on this current market demand is to acquire foreclosed homes or bank-owned properties – at deep discounts − and rent them out. When I tell you to purchase at deep discounts, I’m talking about buying from desperate sellers – sellers who must sell, no matter what.
Billionaire real estate developer Sam Zell is known as the "Grave Dancer" because he gets interested in a property when it’s almost dead and gone … and no one wants it. You should take a similar approach if you want to make money with foreclosed and bank-owned property.
One of the largest banks in the world is Bank of America. They have a new website featuring hundreds of bank-owned properties for sale. You’ll be amazed at some of the deals. But don’t go hog wild. Be patient and develop a clear strategy for your business.
Before You Get in, Know the Downside
Buying foreclosed property can be a lot of fun and it can be very profitable. But it’s important to avoid the typical foreclosed property "spin."
If a renter’s bull market develops, you’ll want to be sure you’re not left holding the bag. So always consider the worst-case scenario. There’s always a possibility that something will go wrong – especially when it comes to real estate.
Consider the fact that millions of so-called investors who were planning on making big bucks with their "buy, fix, and flip" strategy are now holding properties that are worth less than what is owed. Most of the homes the flippers are trying to unload are too nice (or pricey) to offer as rentals. But what if hundreds of those fixer-uppers hit your market at the same time?
In larger cities, renters have been easy to come by. But what happens if the rental market softens or collapses? Can you afford that foreclosed or bank-owned property you have your eye on if the rental income goes down? This is a calculation you must make before buying.
Let’s say you’re looking at a foreclosed property within two miles of a Super Wal-Mart for $50,000. (A potentially excellent investment.) Let’s say the mortgage payment is $415 a month ($50,000 at 5.75 percent for 15 years).
Your objective would be to recoup the cost of your mortgage payment, simple maintenance, insurance, property management, taxes, and background checks on prospective tenants. And let’s say those expenditures add up to $650 month. So, in this case, you’d need to rent the house for $650 to cover expenses.
In most areas of the United States and Canada, this property would be fairly easy to rent. Of course, if hundreds of inexpensive rental properties suddenly hit your market, renters would have a smorgasbord of options. Bad for you. However, few of the "buy, fix, and flip" real estate investors and developers are likely to be in this particular market. The kind of properties they’re sitting on would have to rent for far more than $650 a month.
Sam Zell is confident the trend toward rental revenue (versus appreciation) has already begun. This doesn’t mean a foreclosed or bank-owned property will not appreciate. But don’t count on it. Instead, focus on patiently acquiring deep-discounted properties that will provide you with rental revenue. In 10 years, when it’s time to get back into "buy, fix and flip" real estate, you can sell all your rental properties for cash, or just sit on them with mortgages paid in full.
What happens if other landlords sweeten their deals to renters by including heat, electric, and water? This may happen in apartment buildings, but I don’t see it happening in single-family home rentals. You’ll have to adjust your strategy accordingly if this occurs. But I think you’re safe.
As with any business, you should expect the best but prepare for the worst.
The Big Upside
Despite the risks, there’s a big upside to buying foreclosures. Because foreclosed property can often be purchased for less than market value.
Contact the top 20 mortgage lenders in your state. Ask for the Real Estate Owned (REO) department. They’ll send you a list of REO properties that are currently available. Banks typically sell foreclosed properties "as is," and buying them is like buying anything else "as is": There are no warranties or guarantees. However, you can review the property (and its assessed value).
The next step is to submit an offer to the bank (with proper due diligence, of course). The bank will often return with a counter offer that is higher than you expected. If you feel the property still has tremendous potential, you should counter their offer with a new offer.
Granted, locating and purchasing a property before it reverts to the mortgage company is always the best way to go. But REO properties give you a way to get started quickly. The main objective is to find smaller homes at deep discounts and rent them out to qualified tenants.
If you purchase two deep-discounted properties this year and two each year thereafter for the next 10 years, you’ll have 20 rental properties. The debt service on those properties should be very manageable.
Let’s say you rent each of your 20 homes for $1,250 per month. If the debt service, taxes, insurance, and maintenance on these homes is $12,000 (about $600 per property), you could conceivably net $13,000 per month.
I hate generic illustrations. But if you work the numbers, you’ll find that acquiring deep-discounted bank-owned properties with a view toward renting them makes sense.
Hundreds of bank-owned property websites are popping up every month. Why? Because banks are not in the real estate business; they are in the money business. And so they are eager to get these properties off their books.
Getting Started
Okay. So how do you get your hands on deep-discounted foreclosed and bank-owned properties?
There are many sites on the Internet that list foreclosed homes for sale. And, of course, real estate agents always try to get in on the action. Though they seldom tell you about properties that are not listed by their agencies, it is possible to find agents who are unbiased and knowledgeable.
Here are some sites to help you locate deep-discounted foreclosed and bank-owned properties:
- HUDWorks.com
- RealtyTRAC.com
- iForeclosures.com
- Foreclosure.com
- FannieMae.com
- BidSelect.com
- ForeclosureNet.net
- Countrywide.com
- BealBank.com
- DowneySavings.com
Don’t be scared away by all the negative press the housing market is getting. It IS possible to make a great living and build substantial wealth by purchasing foreclosed and bank-owned properties.
[Ed. Note: You don't have to limit yourself to traditional ideas when you're thinking of ways to make money. Plenty of profitable opportunities exist just out of sight. Marc Charles - the "King of Business Opportunities" - can show you just where to look for unique and sometimes unusual possibilities.]
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E-Mail Screws Up Another Relationship
Last week, I got into a huge fight with one of my coworkers at ETR.
Okay – so inter-office bickering isn’t news. What was so weird about this "fight" was that I didn’t know about it. Until, that is, I got a phone call from "Sam" saying, "I can’t believe how nasty you are being about this." Then I got an earful.
We’ve talked before in ETR about how important it is to be clear and specific in your writing. And that means your e-mails, too.
Sam had sent me an article he’d written. I made a few suggestions, and he didn’t agree with one of them. "I want to keep this the way I had it," he wrote in his e-mail to me. I could see his point, so I wrote back, "Sure. I don’t really care."
What I meant was that it was a small point, and nothing he had to anguish over. Had I been speaking to him on the phone or in person, he’d have known from my tone that I wasn’t upset in the least.
But what I meant doesn’t matter … because Sam interpreted my e-mail to mean that I thought he was wasting my time. That my way was right – and if he didn’t think so, I’d get in a snit about it.
The situation degenerated from there. He didn’t send me the final article. So a few days later, I asked for it.
He sent it over, and I noticed that he’d implemented the change I’d suggested. Curious about why he’d changed his mind, I e-mailed, "I thought you were going to keep this the way you originally had it?" That’s when I got the frustrated phone call.
We’ve since worked things out. But that little experience reminded me just how important it is to be crystal clear in your e-mails. Spell out exactly what you want. Don’t leave anything to interpretation. And – even though it may not always be professional – the occasional smiley face or exclamation point can soften an otherwise cold, impersonal e-mail … and help convey the friendly tone you are going for.
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A Summer Favorite for "Fireworks"
Do you love watermelon? If so, you should know that America’s favorite summer fruit has recently been found to have some interesting "side effects."
Watermelon is packed with a variety of phytonutrients, including citrulline. In the body, citrulline is converted to arginine – an amino acid with many benefits for the heart and circulatory system … and one that may surprise you.
"Arginine boosts nitric oxide, which relaxes blood vessels, the same basic effect that Viagra has," says Dr. Bhimu Patil, director of Texas A&M’s Fruit and Vegetable Improvement Center.
Dr. Patil notes that extra nitric oxide could not only help men who have "performance" problems, but also those who need increased blood flow to treat angina, high blood pressure, and other cardiovascular problems.
To maximize the benefits of watermelon, leave the uncut melon at room temperature, then chill just before serving. And don’t be shy with your bites. Most of the citrulline is found in the white rind, not the red flesh.
[Ed. Note: It truly is possible to have the healthy life you've always wanted just by making a few simple changes to your diet and lifestyle. Learn how to feel better and live longer right here.
And for delicious, healthy recipes that taste nothing like "health food," check out nutrition expert Kelley Herring's website, HealingGourmet.com.]
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The Language Perfectionist: Use These Words Effectively
By Don Hauptman
In a major business publication, I found this sentence: "Is the slowing economy effecting how businesses conduct marketing?"
Using the verb effect for affect is surely one of the most common of all linguistic errors. And it gets even trickier, because the words have various meanings as nouns as well as verbs.
Let’s try to sort this out:
- The verb affect means to influence or change. "Jim wondered if reading a review would affect his judgment of the book."
- The verb effect means to cause, bring about, or execute. "The manager was certain that his plan would effect a solution." Or "The treatment effected a cure."
- The noun effect means result. "Martha’s speech had a powerful effect on the audience."
- The noun affect is rarely used outside of psychology and psychiatry. It means a feeling or emotion. The emphasis is on the first syllable.
As if all that isn’t enough, another sense of affect as a verb is to pretend or show off. "Charlotte affects a French accent, but she was born and raised in Kansas." The faux accent would be criticized as an affectation.
The distinctions above may be a bit complicated, but understanding them will affect your language skills positively, and the effect will be an improvement in your communication skills.
[Ed Note: For more than three decades, Don Hauptman was an award-winning independent direct-response copywriter and creative consultant. He is author of The Versatile Freelancer, an e-book forthcoming from AWAI, that shows writers and other creative professionals how to diversify their careers into critiquing, consulting, training, and speaking.]
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It’s Fun to Know: Life in the Ocean
A worldwide team of marine biologists and other scientists are developing a comprehensive online database of all the species that live in the world’s oceans. The World Register of Marine Species, found at marinespecies.org, is free and available to the public. It currently lists more than 100,000 verified individual marine plants and animals, and more species are added to the list daily.
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Word to the Wise: Kluge
A "kluge" (KLOOJ) – perhaps from an ironic use of the German for "smart/clever" – was originally slang for a computer system made up of poorly matched elements or elements originally intended for other applications. We now use the word to refer to a clumsy or inelegant – but effective – solution to a problem.
Gary Marcus used the word in the title of his recent book Kluge: The Haphazard Construction of the Human Mind.
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Copyright ETR, LLC, 2008
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Been doing this for 35 years and all of a sudden find myself in a postion where I might be losing one of the many that I own, can’t seem to give it away, but it’s a new house with 88k equity and if anyone out there wants it for 10k and take my mtg. @6.125% fixed for 30 years contact me
What is the mtge balance? Where is the house located? Why is it not selling? What is condition of Roof; Foundation; Windows; paint/siding; heating system; windows & plumbing?