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• Investing in Real Estate
• Contents
• Acknowledgments
• Prologue: Invest in Property Now
• 1: Achieve a Prosperous Future: 22 Ways You Can Earn Profits with Property
• 22 Sources of Profit from Investment Property
• Will the Property Experience Price Gains from Appreciation?
• Will You Gain Price Increases from Inflation?
• Earn Good Returns from Cash Flows
• Magnify Your Equity Gains with Leverage
• Magnify Returns from Cash Flows with Leverage
• Build Wealth through Mortgage Payoff
• Over Time, Returns from Rents Go Up
• Refinance to Lift Your Cash Flows
• Refinance to Pocket Cash
• Buy at a Below-Market Price
• Sell at an Above-Market-Value Price
• Create Property Value through Smarter Management
• Create Value with a Savvy Market Strategy
• Create Value: Improve the Location
• Convert from Unit Rentals to Unit Ownership
• Subdivide Your Bundle of Property Rights
• Subdivide the Physical Property (or Space within a Property)
• Create Plottage (or Assemblage) Value
• Obtain Development or Redevelopment Rights
• Diversify Away from Financial Assets
• Is Property Your Best Investment Choice?
• 2: OPM: Borrow Smart, Raise Cash, Build Equity
• The Birth of “Nothing Down”
• Should You Invest with Little or No Cash or Credit?
• What’s Wrong with “No Cash, No Credit, No Problem”?
• Leverage: Pros and Cons
• What Are Your Risk-Return Objectives?
• Maximize Leverage with Owner-Occupancy Financing
• Owner-Occupied Buying Strategies
• Current Homeowners, Too, Can Use This Method
• Why One Year?
• Where Can You Find High-LTV Owner-Occupied Mortgages?
• What Are the Loan Limits?
• High Leverage for Investor-Owner Financing
• High Leverage versus Low (or No) Down Payment
• Creative Finance Revisited
• Are High-Leverage Creative-Finance Purchases Readily Available?
• Build Confidence with Lenders, Investors, Sellers, and Sales Agents
• Credit Scores and Credit Record
• Capacity (Monthly Income)
• Cash Reserves and Source of Down Payment
• Collateral
• Loan-to-Value Ratios
• Recourse to Other Assets or Income
• Character
• Competence and Experience
• Compensating Factors
• Automated Underwriting (AUS)
• 3: Appraisal: Ins and Outs of Market Value
• What Is Market Value?
• Sales Price Doesn’t Necessarily Equal Market Value
• Underwriting Rules Determine the Value in LTV
• How to Estimate Market Value
• Property Description
• Identify the Subject Property
• Neighborhood
• Site (Lot) Characteristics
• Improvements
• The Cost Approach
• Calculate Cost to Build New
• Deduct Depreciation
• Lot Value
• Estimate Market Value (Cost Approach)
• The Comparable Sales Approach
• Select Comparable Properties
• Approximate Value Range—Subject Property
• Adjust for Differences
• Explain the Adjustments
• The GRM Income Approach
• Income Capitalization
• Net Operating Income
• Estimate Capitalization Rates (R)
• Compare Cap Rates
• Relative Prices: The Paradox of Risk and Appreciation (Depreciation)
• Valuation Methods: Summing Up
• Appraisal Limiting Conditions
• Valuation versus Investment Analysis
• 4: Maximize Cash Flows and Grow Your Equity
• Will the Property Yield Good Cash Flows?
• Arrange Alternative Terms of Financing
• Decrease (or Increase) Your Down Payment
• Buy at a Bargain Price
• Should You Ever Pay More than Market Value for a Property?
• The Debt Coverage Ratio
• Numbers Change, Principles Remain
• Will the Property Yield Profitable Increases in Price?
• Low-Involvement versus High-Involvement Investing
• Compare Relative Prices of Neighborhoods (Cities)
• Undervalued Neighborhoods and Cities
• Beverly Hills versus Watts (South Central Los Angeles)
• Demographics
• Accessibility (Convenience)
• Improved (Increased) Transportation Routes
• Jobs and Economic Base
• Taxes, Services, and Fiscal Solvency
• New Construction, Renovation, and Remodeling
• Land-Use Laws
• Pride of Place
• Sales and Rental Trends
• Summing Up
• 5: Pay Less than Market Value
• Why Properties Sell for Less (or More) than Market Value
• Owners in Distress
• The Grass-Is-Greener Sellers
• Stage-of-Life Sellers
• Seller Ignorance
• Prepare Screening Criteria
• Bargain Sellers
• Networking/Get the Word Out/Social Media
• Newspapers and Other Publications
• Cold Call Owners
• Agent Services
• Internet Listings
• Seller Disclosures
• The Disclosure Revolution
• Income Properties
• Summary
• 6: Profit with Foreclosures
• The Foreclosure Process
• Lender Tries to Resolve Problem
• Filing Legal Notice
• The Foreclosure Sale
• REOs
• Buy Preforeclosures from Distressed Owners
• Approach Owners with Empathy
• The Difficulties of Dealing Profitably with Owners in Default
• Prequalify Homeowners and Properties
• Finding Homeowners in Default (Prefiling)
• Networking
• Mortgage Collections Personnel
• Drive Neighborhoods
• Find Homeowners (Postfiling)
• Cultivate a Relationship with Property Owners
• Two More Issues
• Vacant Houses
• Satisfy Lenders and Lien Holders
• All Parties Are Better Off
• Win by Losing Less
• Profit from the Foreclosure Auction
• Why Foreclosures Sell for Less than Market Value
• Make the Adverse Sales Efforts Work for You
• How to Arrange Financing
• The Foreclosure Sale: Summing Up
• 7: Profit from REOs and other Bargain Sales
• Sad for Sellers and Builders, Bargains for You
• How to Find REOs
• Follow Up with Lenders after Foreclosure Sales
• Locate Specialty Realtors
• HUD Homes and Other HUD Properties
• Homeowners versus Investors
• As-Is Condition
• Potential Conflict of Interest
• Buyer Incentives
• The Bid Package
• Department of Veterans Affairs (REOs)
• Big Advantages for Investors
• Fannie Mae and Freddie Mac REOs
• Agent Listings
• Investors Invited
• Federal Government Auctions
• Buy from Foreclosure Speculators
• Probate and Estate Sales
• Probate
• Estate Sales
• Private Auctions
• How to Find Auctions
• 8: Profit by Creating Value
• Fix, Sell, Profit!
• Your Fixer-Upper Search
• The Browns Create Value in a Down Market
• Research, Research, Research
• Improvement Possibilities
• Deep Clean the Property
• Add Pizzazz with Color Schemes, Decorating Patterns, and Fixtures
• Create Usable Space
• Create a View
• Capitalize on Owner Nearsightedness
• Eliminate a Negative View
• Enhance the Unit’s Natural Light
• Reduce Noise
• Required Repairs and Improvements
• Plumbing
• Electrical System
• Heating and Air Conditioning
• Windows
• Appliances
• Walls and Ceilings
• Doors and Locks
• Landscaping
• Storage Areas
• Clean Well
• Safety and Health
• Roofs
• Improvements and Alterations
• You Can Improve Everything about a Property—Including Its Location
• South Beach: From Derelicts to Fashion Models
• Community Action and Community Spirit Make a Difference
• Neighborhoods Offer Potential
• What Types of Improvements Pay the Greatest Returns?
• How Much Should You Budget for Improvements?
• Beware of Overimprovement
• Other Benefits
• No-No Improvements?
• Budgeting for Resale Profits
• Estimate the Sales Price First
• Estimate Costs
• Future Sales Price – (Costs + Profit) = Maximum Acquisition Price
• Comply with Laws and Regulations
• Should You Buy a Fixer-Upper?
• Too Little Time?
• Put Your Creativity to Work
• 9: More Techniques to Profit with Property
• Lease Options
• Here’s How Lease Options Work
• Benefits to Tenant-Buyers (an Eager Market)
• Benefits to Investor-Sellers
• The Lease Option Sandwich
• How to Find Lease Option Buyers and Sellers
• A Creative Beginning with Lease Options (for Investors)
• Lease Purchase Agreements
• Seems More Definite
• Amount of the Earnest Money (Option) Deposit
• Contingency Clauses
• Conversions
• Condominium Conversion
• Convert Apartments to Office Space
• Tenants in Common
• Master Leases
• Assignments: Flipping Purchase Contracts
• Summary
• 10: Negotiate a Win-Win Purchase Agreement
• Win-Win Principles
• The Purchase Contract
• Names of the Parties
• Site Description
• Building Description
• Personal Property
• Price and Financing
• Earnest Money Deposit
• Quality of Title
• Property Condition
• Preclosing Property Damage (Casualty Clause)
• Closing (Settlement) Costs
• Closing and Possession Dates
• Leases
• Contingency Clauses
• Assignment and Inspection
• Public Records
• Systems and Appliances
• Environmental Hazards
• No Representations
• Default Clause
• Summary
• 11: Strategic Management Builds Equity
• The 10:1 Rule (More or Less)
• Think First
• Know Yourself
• Know Your Finances
• Know Your Capabilities
• Smart Strategic Decisions
• Tailor Strategy to Local Markets
• Craig Wilson’s Profit-Boosting Market Strategy
• How Craig Wilson Used Market Information to Enhance Profitability
• Results
• Cut Operating Expenses
• Energy Audits
• Property Insurance
• Maintenance and Repair Costs
• Property Taxes and Income Taxes
• Add Value: Closing Words
• 12: Develop the Best Lease
• The Mythical Standard Lease
• Your Market Strategy
• Search for Competitive Advantage
• Craft Your Rental Agreement
• Names and Signatures
• Joint and Several Liability
• Guests
• Length of Tenancy
• Holdover Tenants (Mutual Agreement)
• Holdover Tenants (without Permission)
• Property Description
• Inventory and Describe Personal Property
• Rental Amounts
• Late Fees and Discounts
• Multiple Late Payments
• Bounced Check Fees and Termination
• Tenant “Improvements”
• Owner Access
• Quiet Enjoyment
• Noxious Odors
• Disturbing External Influences
• Tenant Insurance
• Sublet and Assignment
• Pets
• Security Deposits
• Yard Care
• Parking, Number, and Type of Vehicles
• Repairs
• Roaches, Fleas, Ants
• Neat and Clean
• Rules and Regulations
• Wear and Tear
• Lawful Use of Premises
• Notice
• Failure to Deliver
• Utilities, Property Taxes, Association Fees
• Liquid-Filled Furniture
• Abandonment of Property
• Nonwaivers
• Breach of Lease (or House Rules)
• No Representations (Full Agreement)
• Arbitration
• Attorney Fees (Who Pays?)
• Written Notice to Remedy
• Tenants’ Rights Laws
• Tenant Selection
• Property Operations
• Evictions
• Landlording: Pros and Cons
• Possibilities, Not Probabilities
• Professional Property Managers
• 13: Create Promotions that Sell
• Design a Winning Value Proposition
• Yet Generic Prevails
• USP versus WVP
• Craft Your Selling Message
• Use a Grabber Headline or Lead
• Reinforce and Elaborate
• Add Hot Buttons
• Establish Credibility
• Compare to Substitutes
• Evoke Emotional Appeal
• Reduce Perceived Risks
• Make It Easy for Prospects to Respond
• Follow Up with Your Prospects
• Reach Potential Buyers
• For Sale Signs
• Flyers and Brochures
• Networking (Word of Mouth)
• Websites and Links
• Sales Agents
• Should You Employ a Realty Agent?
• Services to Sellers
• Services to Buyers
• Co-Op Sales
• Listing Contracts
• 14: Pay Less Tax
• The Risks of Change and Complexity
• Homeowner Tax Savings
• Capital Gains without Taxes
• Rules for Vacation Homes
• Mortgage Interest Deductions
• Credit Card Interest
• Rules for Your Home Office
• Depreciation Expense
• Land Value Is Not Depreciable
• Land Values Vary Widely
• After-Tax Cash Flows
• Passive Loss Rules
• Taxpayers in the Real Property Business (No Passive Loss Rules)
• Alternative Minimum Tax
• Capital Gains
• A Simplified Example
• The Installment Sale
• What’s the Bottom Line for Sellers?
• Implications for Buyers
• Tax-Free Exchanges
• Exchanges Don’t Necessarily Involve Two-Way Trades
• The Three-Party Exchange
• Exchanges Are Complex but Easy
• Are Tax-Free Exchanges Really Tax Free?
• Section 1031 Exchange Rules
• Reporting Rental Income and Deductions
• Tax Credits
• Complexity, Tax Returns, and Audits
• Use a Tax Pro
• Property Taxes
• Summary
• 15: More Ideas for Profitable Investing
• Out-of-Area Investing
• Reasons to Invest Elsewhere
• What about Property Management?
• Tenant-Assisted Management
• Property Management Companies
• Emerging Growth Areas
• The Creative Class
• Implications for Investing in Real Estate
• Right Place, Right Time
• Emerging Retirement and Second-Home Areas
• Which Cities and Areas?
• Income Investing
• Out-of-Area Caveats
• Commercial Properties
• Low Effort Management
• The Upside and Downside
• Opportunity for High Reward
• Commercial Leases Create (or Destroy) Value
• Triple Net (NNN)
• Self-Storage
• Mobile Home Parks
• Profitable Possibilities with Zoning
• Tax Liens and Tax Deeds
• Localities Differ
• Are Tax Liens and Tax Deeds an Easy Way to Make Big Profits?
• Discounted Paper
• What Is Discounted Paper?
• Here’s How the Loan Sale Works
• Sell the Note at a Premium
• Delinquent and Nonperforming Loans
• Due Diligence Issues
• Should You Form an LLC?
• Different Strokes for Different Folks
• Court Rulings
• One Size Doesn’t Fit All
• 16: Opportunity for a Lifetime
• USA: Right Time, Right Price, Right Place
• Personal Opportunity
• Index