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• TAO of Flipping and Investing in Real Estate - Part 4.2 - Insurance and Taxes

  Determining the cash flow of a purchase is important to the overall calculated risk you will be taking in relation to any real estate you will buy.  Knowing the actualy cost of the property insurance and taxes on the property are 2 things you will be able to obtain.  These two factors will be added into your overall purchase price based on a formula we will discuss in another section on this blogisode.  Insurance and taxes will eat a portion of your proceeds when you purchase a house, so whether you are buying it to hold for long term (investing) or planning on flipping the house immediately after purchase, you will have to pay both.

  The property insurance that you will need on a home, whether it is personal or for investment can be thought of as being the equivalent to car insurance.  If you don’t have it, you bear the full responsibility of the actions taken with it.  If you do not have property insurance, you essentially are fully responsible for any and all problems that may happen to the house.  In Texas, insurance for a $100,000 home can range anywhere from 400-800 dollars a year.  Imagine this cost doubled or tripled for a home in the half million dollar range; as you can see, it can get very expensive.  The easiest way to find out the monthly fee for property insurance is to call a local or national insurance provider and tell them you want a good faith estimate on what the property insurance will be for the target property.  They will be able to give you a figure that should be very close to the actual fee you will pay.  When purchasing a home for flipping, you may be required to pay 3 to 6 months of the premium for insurance up front and if your holding for long term investment, you need to know what the monthly fee is for the insurance, so you can average that into your total montly mortgage payments along with the property taxes you will pay.

  The bulk of your payment for a property, aside from the mortgage itself will come from the property taxes.  This includes everything from couty, city, school taxes, and even medical facility maintenance and availability.  In Texas, the average taxes on a 200,000 home is between 3500-4500 dolalrs a year.  By calling your county tax appraisor or the court house, you should be able to speak with someone that can tell you the annual property taxes for the target property.  This tax can be offset by claiming this property as a primary residence, also know as homestead or providing proof of disability which can offer a substantial discount to your taxes on the property.  Your property taxes are important to pay, if you fail to pay them, you can be subject to forclosure by the city or state for failure to pay on time — death and taxes are the only 2 things we can be guaranteed in life.

  When buying a home, it is normal to consider the mortgage, property insurance, and the property taxes as a package deal.  Most people will pay all three of these to their mortgage company if they own a home.  The insurance and taxes will go into an escrow account and be paid as they are due.  Being a investor is no different than a home owner, so try and calculate these into your purchase price along with the mortgage.  As an example, if you buy a house for $100,000 and find that the house will rent for $900.00 a month, then you will need to know what your mortgage payment is, your property taxes and insurance are and then calculate this into your purchase price.

  House Purchase price:  $100,000

  Monthly Mortgage:  $575.00

  Monthly Property taxes:  $225.00

  Monthly Property Insurance:  $35.00

  ———————————————-

  Total Monthly Payment:  $835.00

   The total cash that it will cost (at a minimum) to own this property is $835.00 and this does not even account for rent loss, management fees, holding costs, maintenance and the lsot goes on.  Being able to calculate the property taxes and insurance will help you in the final determination of what your willing to pay for a target property and ultimately allow you to know some of the variables without having to guess on them.  Any time there is a mortgage on a property, there will most likely be property insurance that you will have to pay.  The only way to get around this is by paying cash for a  property.  I would still highly advise having insurance on any property you own, it is in the best interest of your investment and the safety of the public.  As far as your taxes go, this must be paid, and there is no way to get around this aside from getting a discount for disability or homestead.

                      

  
  

• TAO of Flipping and Investing in Real Estate - Part 4.1 - Criteria

   

  Author:  Scott Hurst                                                              

  When buying an investment property, there are two things that must be immediately considered–Are you going to hold this property for long term cash flow OR are you planning on doing rehab and selling it for profit?  Both require knowledge of understanding how to purchase a property for the right price and we are going to duscuss this today.

  Lets think of real estate invest as being a cake.  To make a good cake you need two things — the ingredients and the directions.  Real estate investing can be looked at in much the same way.  If you want to make money in real estate, create a cookie cutter way to make your purchases and apply this to your offer and sale.  In part one, we talked about the six things that you need to know before purchasing a property, in parts 4.1 - 4.6 we will concentrate on:  How much is this property worth if it were in perfect condition, how much is the property taxes and insurance on this property, how much to deduct for maintenance fees, rent loss, and management fees, how much will it cost to repair the property to make it move-in ready, how much would the property rent for after repairs and LASTLY, how much do I offer for the property?

  We will be going over these  six parts during the course of this series, but today will start with determining the value of the property.  This is the most crutial part of learning how to invest in real estate because if you do not know what your buying, you will not know what its value is and in turn either lower your profit margin or worse — take a loss.  To determine this, we have to account for the location, age/dillapidation, size, ammenities and lastly comps.  Using these factors will help us determine a good value for the property based on rent ready condition.  This is what we would like for it to rent or sell for on the open market.

  In determining quality of location, you may need to drive the neighborhood many times over a week or two and see if it has any faults that may be accounted for in your purchase price.  Just because a property may not be in the best part of town doesnt mean it is not worth looking at.  Everyone needs a roof over their head, and the rich and poor aren’t different in this aspect.  Account for the quality of the neighborhood in your purchase price, but do not discard a property just because of the area.

  The age of a property is important for two reasons; it may need extensive repairs if the roof, plumbing, foundation, and hvac are reaching that ten year threshhold and secondly, it’s value is not comparable to a new or near new home.  I really like to look at older properties because this is where you will see a lot of owners with homes that are paid off, or have a lot of equity built up.  With equity and full ownership comes better deal making; you may be able to work more with the owner on a better offer if they do not have a mortgage or lean on the home.  Additionally, if there are significant repairs needed, you will be able to discount the property to account for the repairs and labor you will incur.  Not all older homes are a great buy, but keep your eyes out because they are more prevelent than finding great deals in new construction.

  Many people believe that the bigger the house, the better the deal–this is not always true.  In fact, the majority of buyers and renters are looking for a median house size of 1700 square feet with three bedrooms and two bathrooms.  A two car garage is the next thing that most people like to see after they have met the fore-mentioned criteria.  This should be your bread and butter and this criteria will bring in the most buyers and renters.  It can sometimes be difficult tweaking your criteria for determining what buyers like, but I have found this to be a great starting point.  Once you have determined the size, you will then be paying close attention to the ammenities that the target house has.

  Pool, Jucuzzi, sun room, tennis court–these are some things that can either increase or decrease the value of any target property.  Knowing how to determine their value and apply it to your offer price is where all that homework you do on determining the value of ammenities will come in.  It is imperative that a person that is learning to invest spends as much time as possible learning what things cost.  Knowing the price difference of laminate wood flooring and brazillian hard wood flooring can be many thousands of dollars in difference.  Learn what things cost, so you can make a viable offer and save yourself some money in return.

  After you have done your homework and know as much about the porperty as possible, it is time to do your comparables.  This is when we will look int he paper for homes int he same area and subdivision and see what they are selling their house for or calling the owners that we find listed on sites such as craigslist.com and realtor.com.  You will be surprised at how easily you can get owners to tell you how much their house is listed for; they are in fact trying to sell it, so this information will be expected.  A popular and more accurate way to get comparables is by locating a real estate agent that is familiar with the market area you are concentrating in.  Take them to lunch, talk to them about your interests, you will be surprised at how interested they may in turn be in you!

  In the next part, we will be discussing the taxes (yikes!) and interest that you will be responsible for, how it applies to your purchase, and why it is a important factor in your offer.  Class Dismissed!

  
  

• TAO of Flipping and Investing in Real Estate Part 3 - Using the Internet to Flip

  Author:  Scott Hurst 

  Flipping a house comes down to 2 things:  Price and Price.  I say that because no matter where the house is, what it looks like, or even the age and condition; if its priced right for the market, BUY it!  With that in mind, there comes a time when you will finally start actually looking for properties to buy.  Once you do, you will have many avenues available for doing your research.  Whether it be driving neighborhoods, looking  to see who isn’t  putting out trash cans, mowing their lawn, or searching the probate listings, you will find what works best for you.  Once you have a method of searching for foreclosures and distressed owners, you will then start to really learn how to work this avenue of finding your prospects.

  I will only be discussing online research, so please bear that in mind when you read this blog.  When you do research online, you will find that there are MANY different neat little places to get a bit of information to use in your house hunting.  You will want to bookmark each of them, until you have created a good reference list that you are comfortable with.  I have more than 50 bookmarks that I use on a regular basis for finding houses for flipping, but only 3 or 4 that I consistently use for deciding whether a property is ideal for taking a second look and making a offer.

  Another thing you need to do, before you start your searches, is identify your criteria for what you want to buy.  Typically, a 3 bedroom/2 Bath/2 car garage with around 1200+ square feet of living space is ideal for a buyer, so this is what you can usually concentrate your efforts on.  Also, are you looking for homes in a particular part of town?  If you are trying to do your own management and you are going to buy and hold the properties, you may want to keep your purchases within a close proximity so you can easily make commutes.  Lastly, make sure you are aware of any major changes in the development in the area of your purchases, whether it be a new mall being build right down the road, or a new parking garage being built for the apartments around the corner; be aware of these details.  They will play a big role in what you are willing to pay, for a given property.

  I cannot go over every avenue that is used for doing online research, but I will hit on some of the top places for finding deals, doing research, and finding out what your price point should be.  One website I particularly like to use for finding properties for Investment is www.southwestalliance.com; this site is great for finding houses that are controlled by HUD (Housing and Urban Development).  HUD has certain rules that you must be aware of when buying their properties and it is best to pay close attention to what you are buying, since most are not in move-in condition.

   You will most likely be doing some rehab work to make these houses livable.  On the site, it will list whether there are foundation issues (if known), whether the seller is willing to contribute funds toward repairs, and also information about the foreclosed house itself - size, square footage, pictures, etc..  You will see many that may be valued at an average of 15% under value and 1 or 2 gems that may be as much as 30-40% off.  Keep in mind that there are others that will be looking at these houses too, so be sure you know what you are buying.

   Contact your local realtor, if you want to bid on these properties; there is a bidding process, so a realtor has to be involved in all bids.  The best way to win a bid on these properties is to constantly watch the site for properties that keep reappearing.  Sometimes they will get overlooked by the investors if they have had too much exposure on the site, then you may be able to step in and offer a lower bid and win. 

  The second thing you can do, if you are the type that likes to buy a house and move in, do your own repairs, and make an offer on the property is a “owner occupant”.  An owner occupant is a person that will occupy the property as a primary residence; they have bidding priority over all other bidders and are most likely able to not only offer a lower bid amount, but also have much less competition for the purchase.  What you will have to remember as an owner occupant is you must live in the home for at least 1 year and cannot actually sell the home until 2 years after purchase.  If you are not buying as an owner occupant, this rule does not apply.

  www.trulia.com and www.zillow.com are 2 great sites for looking for properties for investing and also flipping.  Bear in mind that when you start looking at the commercial sites for properties to buy, you are also potentially decreasing the profits you can make.  Most properties that you see on Trulia.com and Zillow.com are also listed on conventional sales sites with the most popular being the Multiple Listing Service (MLS).  There will still be some great deals to find on these sites, but they are not as easy to find as doing your due-dilligence and walking subdivisions yourself.  In order to work these deals, you will actually be doing some calling the owners and realtors to find out more about the houses.

  Both Trulia.com and Zillow.com offer the ability to narrow searches down by location and parts of town, so if you are particular on where you want your property searches to concentrate, this is a good feature for you.  Additionally, they both offer history reports of prior sales so you can see what other houses in the neighborhood sold for.  You can query these sites for home sales trends, average sales prices, and even specific reports on subdivision average sales price.  Without using a real estate agent, you will have to use these many tools to find out what the property is most likely worth.

  A great way to capture information on all the residential properties in MLS is by using the website www.realtor.com.  This site collects the MLS data for recently listed homes and populates its database with the detailed information for the listing.  I like to use this site for doing my comparables because it has recent information and can most closely help you find other houses that you can compare against the one you are buying to see if it’s a good purchase. 

  Another part of research for your purchase will be the rental market; this can also be retrieved from realtor.com.  We want to collect this information for the sole purpose of seeing what our future purchase will most likely rent for.  Do a query on the site and write down as many mls numbers and contact info as you can find comparables.  We DO want to know what the list rental price is, but more importantly, how much they RENTED them for.  By keeping records of active listings, we can call the owners and ask them if the property is still for rent, if it is not, we will ask how much it rented for.  By getting this info and comparing it against 4 or 5 others, we can reasonably tell what our future purchase might rent for.

  Every city has local realtors that sell and rent properties for that given city or town, we want to try and use these resources for our purchases.  If you can develop a good repore with a realtor, you may be able to get valuable information about your purchases.  Some of these include history reports on past sales, current lists of what is in MLS that meets your criteria, comparables on the properties you want to buy and even current and older pictures of them.  Realtors have access to many valuable tools to their disposal and if you are lucky enough to know or have one, your one step ahead.  That doesn’t mean you will get a better deal than someone who doesn’t use a realtor, it just means you have more tools available to help you narrow down your purchase price.

  Last thing we will address in this blog page is finding local websites for available properties.  In San Antonio, for example, there are online records that can be attained to assist in finding foreclosures and lis pendens (letter of default sent to owner).  One I frequently use is www.netronline.com , this site is great for getting records for foreclosure notices, deed records, and even public notices.  Another one I like to use is www.ustreas.gov/auctions , which has information on everything from Veteran Administration foreclosures to IRS and U.S. Marshall seizures.

  As you can see, there is a vast amount of avenues that can be used to find foreclosures and not all of them cost a penny to use.   Finding discount real estate is not a trick or a secret list that only a few can get, but it is the result of a lot of research, study, and due-dilligence on the part of the buyer.  To be successful in real estate, you will need to find the houses that deliver profit, and the way to start is by learning to find the deals!

  
  

• TAO of Flipping and Investing in Real Estate - Part 2 - Understanding the Art

  Author:  Scott Hurst 

  There are many avenues to making money in real estate and we will start this chapter off by going over Flipping and Investing.

  These are by far, not only the most common methods, but also the hardest to master.  I have found that just when you think you’ve seen everything there is to see about a particular type of investing, that’s when you get hit with a big whammy that you don’t know how to handle.  Knowledge is the key to being prepared and armed with the tools to make the most out of every transaction. 

  According to the wikipedia, “flipping” refers to the practice of buying an asset and then quickly flipping it for a profit. I would rather say that flipping is the practice of buying real assets for the eventual goal of making a profit.  Whether you are  holding an asset for a short or long time, your still flipping.  This is why I like to talk about investing and flipping as being closely related.  If you buy a property and decide to sell it in a month because you didn’t like the neighborhood, this could be considered flipping and if you lived in the same house for five years and then sold for a 50k profit, that is still flipping.  Flipping is not restricted to short term and quick sales. 

  Investing in real estate is a form of flipping and vice versa.  There are many forms of investing, but we are going to only be discussing long term holding.  I like to think of investing as an almost free 401k plan.  You basically put in a little bit during the tenure, but instead of paying the bulk of it, someone else is doing it for you!  This is great for those people who have trouble putting away money for long term due to always wanting to take it out to buy that big TV or dress they always wanted.  When you invest in real estate, you are making the initial deposit on a property and your tenants then make your payments for you until it is paid in full.  How nice would it be if your cars value increased instead of decreased and someone else made your payment.  You’d need a  larger garage for the cars!  Now that you understand the difference in flipping and investing, you can see how they are interchangeable and closely related.  During the rest of this blog, we will be focusing more specifically on flipping an investment for profit.

  Understanding the power of leverage is vital to your success as an investor. Leverage is the act of using small amounts of cash or capital to own and/or control large amounts of assets.  Investing is the product of using leverage in the arena of real estate and your profit is the bi-product of both.  If you were to invest 1000 dollars in the stock market today, you would be able to control only 1000 dollars worth of stock; alternatively if you invested 1000 dollars in the purchase of a real property, you could potentially control many thousands of dollars with just your 1000 investment.  We could also say that the 1000 dollars you invested in the stock market went up 10% over the year and you would make a 100 dollar profit.  On the other hand, what if you had controlled a 100,000 dollar property with an initial investment of that same 1000 dollars, you would have made a 10,000 profit over that same year, with the same investment!  Can you now see why leverage can bring a higher rate of return than stocks. Lastly, what if the stock market crashes, how long do you have to pull your 1000 out; days or maybe weeks.  In investing, you are able to determine your risk in the beginning by the purchase price that you offer. 

  Unlike stocks, you don’t pay market value because your an investor right?  We don’t buy retail, we buy low and sale high.  No matter when you bought a stock, your bought it retail; whatever that stock sells for, is what its market value was at the time you bought it.  Leverage makes investing in real estate viable, and properly leveraging your investments will assure you of great profits.  We all want that! 

  
  

• TAO of Flipping and Investing in Real Estate

  Author: Scott Hurst

  Thank you for taking the first step in learning real estate!  I will be discussing the things they DON’T tell you about in real estate flipping and investment books.  I plan on laying it all out for you, show you the pitfalls, the pay-outs and the less that spectacular work involved.  As this is my first blog entry on Real Estate Investing and Flipping Houses, it will signify the beginning of a long and descriptive series of  blog entries discussing different aspects of real estate investing and flipping in easy to understand lingo, so you, the regular person can understand it AND apply it.  This isn’t some pay course that only gives you a fraction of the information and makes you pay to see the rest blog.  I will be giving away all the information you will need to flip or invest, you just have to apply it!

  First off, let me tell you a little about myself and how I came to learn the field  of real estate and what you might be able to learn from my experiences.  I am 33 years old and have been doing real estate investing for more than 7 years.  I started mysapro.com to market myself as a realtor, but have also been using it to disciminate free information about investing in real estate to clients and investors.  During the course of its creation, I have been bombarded with questions about how to flip houses or how to buy them at a discount; this prompted me to start writing about the subject, and here we are! I have bought and sold millions in real estate and have learned that real estate investing is about calculated risk, healthy purchase advise and knowledge of funding opportunities.  When I first took steps to learn how to become an investor, I spent almost 2 years of studying and research before making my first purchase.  Even after that I have continued to develop and hone my love for knowledge so that I could better understand how to not only buy good deals, but to also fix them, market them and even SELL them!  As you will learn about me, it is all about CALCULATED RISK!

  Investing in real estate is a risk, just as buying stock is a risk!  If you do not take time to understand what you are doing, you will fail; you will not be able to succeed without arming yourself with the knowledge of making calculated accessment of what your risk is and making your purchases based on that calculation.  If I were to tell you that there was a nice 100,000 home in your neighborhood that you could get for 80,000, you might think that is a good deal.  For some this may be, but for the true real estate investor, this does not constitute a great purchase.  Many great writers and teachers will tell you that you make your profit when you buy it, not when you sell it.  We are not prospectors, we are investors of the product of proven application of the real assessment of value.  The product being the real estate assets you purchase from applying a calculated assessment of its real value.

  Let me quickly address the difference between Flipping and Investing.  Flipping a house is the purchase of a distressed and/or delapidated house that is repaired and sold quickly on the market for profit.  Investing is the strategy of purchasing property to hold for long term to maximize income and profit. When buying a property specifically for holding as an investment (I will discuss Flipping later in the blog series), there are key elements that should be looked at before coming up with your purchase price.  The reason im discussing this at this time is because I feel you need to know how to bake a cake before you get started, so you should have your ingredients to your cookie cutter real estate cake before you even start the oven.  Without all of these ingredients, you will not be able to make a cake that taste just right. 

  Here are the things you need to ask yourself:
   
  How much is this property worth if it were in perfect condition? 
  How much is the property taxes and insurance on this property? 
  How much to deduct for maintenance fees, rent loss, and management fees?
  How much will it cost to repair the property to make it move-in ready? 
  How much would the property rent for after repairs?
  and finally..
  How much do I offer for the property?

  This list that I gave you is the heart of what you will need to invest in or flip  real estate.  Over the course of my blog entries, we will dive deeper into why these are the basic elements you will need, how to apply them and why they work.  Please check often for Chapter II of  “The TAO of Flipping and Investing” AKA Free information on Flipping Houses and Investing in Real Estate!

  CLASS DISMISSED!