Index

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Addendums, 118–119

Advertising, 176, 195

Agents and Realtors, 147–153

bigger equity houses and, 148

brokers as customers, 151–152

as buyers, 152

contracts and, 109, 118, 120, 121

convincing them to call you, 147–148

difference between, 147

as investors, 149

lease/options and, 149–150, 171–172

listing agents, 148–149

open versus exclusive listings, 150–151

real estate licenses, 152–153

selling through, 217

short-term buying/selling and, 159

Aggressive Tax Avoidance for Real Estate Investors (Reed), 221

Allen, Robert, 12

Amortization schedules, 62, 79, 86, 225

Apartment buildings, 2–5

Applications for rentals, 197

Appreciation, 2–3, 5, 10–11

The Art of the Deal (Trump), 110

“As is” condition, 112, 130, 161–162

Assuming an existing loan, 88, 114

Attorneys, 109, 129

Auctions, 141, 185–186

Average prices, 5–6

Bankers, referrals from, 177

Bank fraud, 84

Bank loans. See Financing and loans

Basements, 19

Bidding against yourself, 141

Borrowing. See Financing and loans

Brokers. See Agents and Realtors

Bruss, Bob, 166

Bubbles. See Market cycles

Business plans, 170–171

Buying, 15–43. See also Contracts to purchase; Financing and loans; Offers; Sellers

after a crash, 27

avoiding too big or too fancy houses, 19

in best neighborhood affordable, 17–18

buying strategy worksheet, 42–43

checklist, 131

different houses for different reasons, 15–17

finding opportunities, 33–41

first house, 24

house sizes and long-term tenants, 18–19

houses versus apartments and commercial buildings, 2–5

for less than retail price, 11–12

lots, importance of, 19–20

market cycles and, 25–32

neighborhood change and, 20

with nothing down, 12–13

planning and goals, 15

10/10/10 rule, 63–65, 226, 232

value and, 232

Buying and selling, short-term, 155–162

annual profit, 156–157

fastest selling price range, 157

investing versus, 155–156

journal keeping, 158

neighborhood, identifying, 157–158

researching a deal, 158

selling “as is” houses, 161–162

setting minimum profit goal, 158

taxes and, 159–160

time factor, 156

which houses to buy and not buy, 160

Buying strategy worksheet, 42–43

Capital gains, 16, 99, 220

Car buying negotiations, 143–144

Cash flow

for buying versus paying off debt, 224

factors in producing, 21–22

financing and, 20–21

lease/option sales and, 169–170

leverage and, 74–75

liquidity, 46, 63

quick profit versus investing, 155–156

refinancing versus, 92–93

Cashiers’ checks, 127–128, 199

Cash on hand, 28, 62

Cleaning a house before renting, 192

Closing costs, 91, 113–114

Closing date, 112

Collateral, 72–73, 76

Commercial buildings, 2–5

Commissions. See Agents and Realtors

Comps (comparables), 49–50, 125

Construction cycles, 30

Consumer debt, 69–70

Contracts to purchase, 107–122

addendums, 118–119

assuming or taking subject to existing loans and liens, 114–115

be willing to walk away, 119

buyer “and/or assigns,” 111

clauses enforceable after closing, 120–121

copying after signing, 118

earnest money, 111

filling in the blanks, 110–111

form contracts, 109

informal agreements, 110

length of, 120

loopholes, 117

modification by striking through, 118

offer acceptance, written, 121

reading and understanding, 107, 108–109

Realtors’ contracts, 118, 120, 121

right to negotiate or discount existing loans and liens, 116

sellers’ contracts, 110

simple, 108

specific performance, 116–117, 119, 121

terms and conditions, 111–113

written, importance of, 107–108

Corporation structure, 101–102, 160

Crashes. See Market cycles

Credit cards, 70

Credit cycles, 30

Dealer property, 218

Debt, dangerous, 69–79

avoiding personal liability, 29

balloon clauses, 78–79

banks versus individual lenders, 76–77

collateral and, 72–73, 76

consumer debt versus mortgages, 69–70

credit cards, 70

good debt versus bad debt, 69

leverage, wise use of, 73–74

negative amortizing loans, 71–72

personal guaranteed, 72

rule for borrowing safely, 73

Schaub’s laws of leverage, 74–75

short-term loans, 71, 77–78

unintentional debt, 70–71

variable-rate loans, 71

Delinquent homeowners. See Foreclosure and preforeclosure purchases

Demographics, 7

Deposits, security, 182–183, 193–194, 199, 200, 208

Deposits with offers, 127–128

Depreciation, 217

Discount rates, 46–47

Distressed properties, 50–51, 177

Distressed sales, 48–49. See also Foreclosure and preforeclosure purchases

Diversification of properties, 5

Doubling your money (rule of 72), 10–11

Down payments

accepting smaller houses as, 220–221

banks and, 81–82, 83–84

on houses versus commercial properties, 3

investor financing, advantages of, 97–98

net return on, 65–66

nothing down, 12–13

small, for houses needing work, 161–162

Earnest money, 111

Empty houses

appreciation and, 2–3

in foreclosure, 186

as opportunities, 12, 34, 40

raising rents and, 209

selling and, 216–217

zero-interest, single-payment notes for buying, 88–89

Evictions, 209

Exclusive agency listings, 150–151

Exclusive right of sale, 150

Fair Housing Act, 191–192

Fairness, doctrine of, 140–141

Federal Housing Administration (FHA), 114, 180

Financial calculators, 86–87

Financial incentives for tenants, 203–204, 206

Financing and loans, 55–105. See also Contracts to purchase; Debt, dangerous; Investor financing; Lease/option sales; Owner financing

aggressive, high-risk lenders, 175–176

banks versus individual, 76–77, 81–85

cash flow and, 20–21

collateral, types of, 72–73, 76

credit cycles, 30

fixed-rate versus variable-rate loans, 21, 71

for houses versus commercial properties, 3

interest-only payment versus 30-year amortizing loan, 62–63

lender preference for houses, 4–5

leverage, 8, 13, 73–75

lines of credit, 28, 89, 169–170

at longest available term, 62

long-term versus short-term loans, 21, 71, 77–78

market prices and availability of credit, 48

nothing down and, 13

paying off, 62, 224–229

refinancing, 21, 90–92, 178, 214, 226–228, 229

renegotiating, 29

rental rates and debt repayment, 60–62

safely borrowing a million dollars, 82

sales, financing of, 4

second mortgages, 91

10/10/10 rule and, 63–64, 226, 232

terms your tenants can afford, 86–87

using cash flow from existing property, 92–93

zero-interest, single-payment notes for buying empty houses, 88–89

First-time buyers and interest rates, 6

Fixed-rate loans, 21

“Flipping.” See Buying and selling, short-term

Foreclosing on a property, 219

Foreclosure and preforeclosure purchases, 173–187

advice for delinquent borrowers, 178–179

at auction, 185–186

bubbles and, 25–26

how and why foreclosures occur, 173–174

knowledge and experience, need for, 186–187

lender negotiations, 184–185

lenders, dealing with, 179–180

from lenders after foreclosure, 186

negotiating purchase and lease, 181–184

nonopportunities, 175

from owners in default, 179

prices and, 48–49

renting back, 180–181

sharks, caution against, 174

sources of delinquent homeowners, 175–177

state laws on, 181

talking with owners, 178

testing owner’s motivation, 178

treating people well in, 174

Free-and-clear ownership, 223–230

discounts, asking for, 228–229

goal setting, 223–224

rate of return and, 217

refinancing and, 214, 226–228, 229

retirement income and, 229–230

by selling off some houses, 225–226

using cash flow, 224–225

Fuller, Linda, 235

Fuller, Millard, 235–236

Fuller Center for Housing, 235–236

Garages, 19

Government regulation, 7

Habitat for Humanity, 235

Home equity lines of credit (HELOCs), 89

Home inspections, 112–113, 117, 128–129

House cycles, 31

Income. See also Profit; Renting

calculating, 59–60

free-and-clear ownership goals and, 223–224

operating cost and, 59

paying off loans and, 223–224

from rentals, 2–3, 10, 13, 17

retirement and, 229–230

from starters versus more-expensive houses, 16–17

value as separate from, 2–3

Income approach to valuation, 52

Inflation, 8–10

Inspections, 112–113, 117, 128–129, 206

Installment sales, 218–219

Insurance, title, 112

Interest rates

first-time buyers and, 6

investor financing and, 104

prices and rents, impact on, 58–59

prime rate, 89

profit and, 10

refinancing and, 21, 227, 229

10/10/10 rule and, 64

varying, 21

Internet advertising, 195

Interviewing tenants, 197–199

Investor financing, 95–105

by agents, 149

approaching investors, 96–97

borrowing from other investors, 103

for down payments, advantages of, 97–98

first investor example, 102–103

identifying potential investors, 95–96, 105

interest-only terms, 103–104

protecting both parties, 100

rules for, 104–105

shared tax benefits, 99–100

splitting profits fairly, 98–99

title as tenants in common, 100–101

title in trust, corporation, or LLC, 101–102

IRC Section 1031 tax-deferred exchanges, 219–220

Job market trends, 49

Landlord burnout, 210–211

Landlording. See Renting; Tenants

Landlord surveys, 55–58

Lawn care during vacancies, 196

Lease/option sales, 163–172

advantages of, 218

agent sales compared to, 171–172

agents and, 149–150

“as is” condition and, 161–162

business plan for, 170–171

defined, 163–164

to family members, 172

lines of credit on, 169–170

not as management tool, 166–167

option payment, rent, and price, 164–166

qualifying your buyers, 164

renegotiating, 168

risks in, 167

term, monthly credit, and extensions, 167–168

terminating, 168

to young investors, 172, 218

Leverage, 8, 13, 73–75. See also Financing and loans

Licenses, real estate, 152–153

Liens, 114

Limited-liability companies (LLCs), 101–102, 160

Limited-liability partnerships (LLPs), 101–102

Lines of credit, 28, 89, 169–170

Liquidity, 46, 63

Listings, open versus exclusive, 150–151

Loans. See Debt, dangerous; Financing and loans; Investor financing; Owner financing

Losses, limiting, 29

Lots, 19–20

Maintenance, 18, 22, 203–205, 216

Market cycles, bubbles, and crashes, 25–32

assessing current market direction, 31

bank loans and, 84

buying after a crash, 27

causes of bubbles, 25–26

changing strategy, 31

construction cycles, 30

credit cycles, 30

house cycles, 31

neighborhood cycles, 30–31, 48

opportunities throughout the cycle, 32

preparing for the next crash, 27–29

refinancing and, 229

regional crashes, 26

rent and price cycles, 30

selling and, 213–214

signs of top of the bubble, 27

strategies for surviving, 29

Market prices. See also Valuing a house before making an offer

cycles of, 30

fastest selling price range, 157

interest rates, impact of, 58–59

median (1975–2015), 32

rents, relationship with, 30

time lag in, 27

unpredictability of, 45

Market sales approach to valuation, 49–50

Markets for housing, local versus national, 5–6

Mortgage Guarantee Insurance Corp. (MGIC), 180

Mortgages. See Financing and loans

Move-in and move-out inspections, 206

Multiple Listings System (MLS), 150–151

Napier, Jim, 140

National Association of Realtors, 48

Negative amortizing loans, 71–72

Negotiations, 133–145. See also Agents and Realtors; Offers

being a fair but good negotiator, 134–135

dishonest negotiators, avoiding, 144

ending, 145

fairness doctrine and, 140–141

knowing value before you offer, 140

knowing when to walk away, 144

lease/option sales and, 166

on least important items first, 140

with lenders on default properties, 184–185

loan authority in banks, 137

with multiple sellers in conflict, 141–142

not bidding against yourself and silence as a tool, 141

one-sided deals that fail, 135

of purchase and lease on default properties, 181–184

questions to ask beforehand, 137–139

team ally approach, 142–144

with tenants, 138

where to meet with sellers, 139–140

win/lose results, 136–137

Neighborhoods

average appreciation by, 11–12

best that you can afford, 17–18

cycles of, 30–31, 48, 216

distressed properties in, 51, 177

diversifying, 15–16

as dynamic, 7

improved streets, signs of, 50–51

long-term residents, looking for, 51

notifying of rentals, 195

over- and under-improved houses on a street, 51

price trends by, 50

selling and, 214

short term buying/selling and, 157–158

studying a neighborhood, 66

tenants, 190

on the way up, 20

Neighbors, 17, 192–193

Net worth, 233, 234

Newspaper advertising, 195

Nickerson, William, 199

Norris, Bruce, 50

North, Gary, 9

Nothing down, 12–13

Nothing Down (Allen), 12

Offers, 123–131. See also Negotiations; Valuing a house before making an offer

acceptance tips, 130

counteroffers, 125–126, 127

deposits, 127–128

getting the seller’s highest price first, 124

inspections and, 128–129

investor financing and, 95–96

knowing value prior to, 140

low, 47

owners not at the table, 129–130

picking price for, 124–126

sellers’ motivation, understanding, 123–124

sellers’ third parties and, 129

“shopped” offers, 126–127

talking with sellers before, 123

written acceptance of, 121

Open houses for rentals, 196

Operating costs, 59, 175. See also Maintenance

Options to buy, 29. See also Lease/option sales

Owner financing

advantage of, 77

assuming an existing loan, 88, 114

balloon clauses, 78–79

bank loans versus, 76–77

banks versus individual lenders, 76–77, 81–85

burned-out investors, looking for, 84

contract terms, 112

right to renegotiate or discount existing loans and liens, 116

selling to owner occupants with, 218–219

taking subject to existing loans and liens, 114–116

Personally guaranteed loans, 72

Pets, 19, 191, 198, 203

Population changes, 7

Postcard mailings, 176–177

Prices. See Market prices; Purchase price; Sales price

Profit. See also Income

compounded rate of, 10

inflation and, 9

lease/option sales and, 164, 165

leasing back default properties, 184

minimum acceptable, 66–67

minimum targets, 158

from rents versus selling, 214

selling a losing property, 216

from short term buying/selling, 156–157, 158–159

short-term versus long-term, 155–156

spent on paying off loans versus buying new houses, 225–226

Property taxes, 22

Purchase price. See also Market prices; Offers

averages, skepticism about, 5–6

below retail, 11–12

diversification and, 5

factors affecting, 7–10

minimum acceptable profit and, 66–67

rental market, studying, 55–58

retail versus wholesale and discount rates, 46–47

10/10/10 rule and, 64–65

Rates of return

average, 10

compounded, 10–11

free-and-clear properties and, 217

leverage and, 52, 66, 217

long-term, 65–66

return on investment in normal versus distressed markets, 49

rule of 72 and doubling the investment, 10–11

10/10/10 rule and, 63–65

Real estate contracts. See Contracts to purchase

Real estate licenses, 152–153

Real estate owned (REO) properties, 186

Realtors. See Agents and Realtors

Reed, John T., 221

References of prospective tenants, 197

Refinancing

defaulting loans and, 178

for down payments, 90

of loans in default, 178

long-term loans and, 21

market cycles and, 229

to pay off other loans, 226–228

risk and, 91–92

selling versus, 214

unprofitability of, 90–91

Rental agreements, all-inclusive, 208

Rental income, 2–3, 10, 13, 17

Rental rates

cycles of, 30

debt repayment at different rates, 60–62

discounts as incentives, 203–204

house prices, relationship with, 30

interest rates, impact of, 58–59

in lease/option sales, 164

lowering, in soft market, 194–195, 210

raising, 209–210

for renting back, 180–184

setting, 193–194

surveys of competing landlords, 55–58

weekly, 209

Renting. See also Tenants

answering email and phone, 196

applications, 197

bookkeeping, 200

burnout, avoiding, 210–211

cash or cashier’s check for security deposit, 199

checklist of rents, 200

cleaning and repairing before, 192

evictions, 209

expiration dates, tracking, 200

houses never rented, 3

inspection sheets, 200

lawn care during vacancy, 196

laws applying to, 191–192

management consistency and control, 206–207

management policies, 207–208

market trends, 49, 215

move-in and move-out inspections, 206

nonpayment, responding to, 208–209

open houses, 196

payment in full before move-in, 199

pay or quit notices, 209

setting rent and security deposit, 193–194

showing the property, 196

signs and advertising, 195, 200

to your first tenant, 202–203

Reproduction of cost approach, 52–53

Retail versus wholesale prices, 46–47

Return on investment (RIO), 49. See also Rates of return

Risk, 13, 75, 76, 91–92, 167, 231–232

Rule of 72, 10–11

Sales price, 4, 164–166

Schools, 18

Second mortgages, 91, 175, 180, 185

Security deposits, 182–183, 193–194, 199, 200, 208

Sellers. See also Contracts to purchase; Offers

getting highest price of, 124

joint owners, 129–130, 137

motivated and ready to sell, 3, 39–41

motivation, understanding, 123–124

multiple, in conflict, 141–142

with problems, 13

questions to ask of, 36–39

refusal to close by, 119

talking with, before an offer, 123

Selling, 213–221. See also Agents and Realtors; Buying and selling, short-term; Lease/option sales

in “as is” condition, 161–162

avoiding hurry, 3

exclusive versus open listings and, 150–151

getting retail price and all cash, 4

inspection clauses and, 112–113

installment sales, 218–219

IRC Section 1031 tax-deferred exchanges, 219–220

to owner occupant with seller financing, 218–219

to pay off other loans, 225–226

questions to answer before, 213–215

retirement income and, 229–230

right and wrong reasons for, 215–217

taking a house on trade, 220–221

taxes, researching, 221

ways to sell, 217–218

“Shopped” offers, 126–127

Short sales, 48–49

Signs for rentals, 195, 200

Silence as tool, 141

Sizes of homes, 16, 18–19, 190–191

Specific performance, 116–117, 119, 121

Starter homes as opportunities, 16

Storage space, 19

“Subject to existing loans and liens” condition, 114–116

Taxes

on capital gains, 16

discounts, tax-free, 133–134

investor financing and shared tax benefits, 99–100

IRC Section 1031 tax-deferred exchanges, 219–220

property taxes, 22

on sales, learning about, 221

short term buying/selling and, 159–160

10/10/10 rule, 63–65, 226, 232

Tenants, 189–211. See also Rental rates; Renting

applications, 197

being firm and fair, 206

care of the property by, 18, 19, 22, 197, 201

with credit problems, 198, 201

with diversified employment, 28

eviction of, 191

financial incentives for, 203–204, 206

house and neighborhood to attract, 190

house size and, 190–191

in houses versus apartments and commercial buildings, 2

income levels of, 23–24

interviewing, 197–199

job markets and, 49

knowing the neighbors and, 192–193

legal relationship with, 191–192

long-term, 18–19, 197, 201–202, 204

maintenance and emergencies, 204–205

negotiation with, 138

neighborhoods and, 17–18

nonpayment, responding to, 208–209

“perfect,” 198

poor-condition houses and, 214

proof of income, 201, 202

reasons for turning down, 202–203

references, 197, 202

rent affordability, 193

responsible, 22–23

solving problems with, 191

stability and, 198–199

standards for selecting, 200–202

training with management policies, 207–208

what landlords and tenants are looking for, 189–190

Tenants-in-common title, 100–101

Third-party involvement, 129

Title, 100–101, 112, 114–116

in trust, corporation, or LLC, 101–102

Title insurance, 112

Title searches, 112

Trump, Donald, 110

Trusts, 101–102

Valuing a house before making an offer, 45–53

distressed sales and, 48–49

how much to offer and, 53

income approach, 52

liquidity and retail versus wholesale, 46–48

market approach, 49–50

market direction and, 48

normal return on investment (ROI), 49

perceptions of the future and, 53

price versus value, 45

reproduction cost approach, 52–53

Variable-rate loans, 21, 71

Veterans Administration (VA), 114, 180

Walk-through inspections, 113

Wealth-building, 231–234

Wholesale versus retail prices, 46–47

Yards, 19, 191

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