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Understanding Appraisals April 2, 2007

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Title Insurance: Why You Need It, and How to Shop For It

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If you get a mortgage, you’ll have to purchase title insurance – all mortgage lenders require it for an amount equal to the loan. The policy stays in effect until the loan is repaid. So how does title insurance work?

The buyer pays the premium at the time of closing. Title insurance protects against loss arising from problems connected to the title to your property. Before you purchased the house it may have gone through several ownership changes, and the land on which it stands might have gone through many more. There may be a weak link at any point in that chain that could pop up to cause trouble. For example, someone along the way may have forged a signature in transferring title. Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.

Title insurance protects against losses arising from events that occurred prior to the date of the policy. Coverage ends on the day the policy is issued and extends backward in time for an indefinite period. (This is in stark contrast to property or life insurance, which protect against losses resulting from events that occur after the policy is issued, for a specified period into the future.)

The title insurance required protects the lender up to the amount of the mortgage, but it doesn’t protect your equity in the property. For that you need an owner’s title policy for the full value of the home. In many areas, sellers pay for owner policies as part of their obligation to deliver good title to the buyer. In other areas, borrowers must buy it as an add-on to the lender policy. I recommend doing this because the additional cost, above the cost of the lender policy you have to get, is relatively small.

Protection under an owner’s policy lasts as long as the owner or any heirs have an interest in or any obligation with regard to the property. When they sell, however, the lender will require the purchaser to obtain a new policy. That protects the lender against any liens or other claims against the property that may have arisen since the date of the previous policy – in other words, against something you may have done.

For example, if the contractor you failed to pay for remodeling your kitchen places a lien on your home, you are not protected by your title policy: the lien was placed after the date of the policy. You will probably be required to get the lien removed before you can sell the property. But in the event the lien hasn’t been removed and a search has failed to uncover it, the new lender will be protected by a new policy.

You can shop around for title insurance. Unlike mortgage insurance, where the carrier is always selected by the lender, borrowers can select the title insurance carrier. Few do, however. Most leave it up to one of the professionals with whom they’re dealing: the real estate agent, the lender, or their attorney. This means that competition among title insurers is largely directed toward these professionals who can direct business rather than toward borrowers.

And it can pay to shop around. It’s difficult to generalize because market conditions vary state by state, and sometimes within states. I would certainly shop in states that do not regulate title insurance rates: Alabama, District of Columbia, Georgia, Hawaii, Illinois, Indiana, Massachusetts, Oklahoma, and West Virginia.

You would be wasting your time shopping in Texas and New Mexico, because these state set the prices for all carriers. Florida also sets title insurance premiums but not other title-related charges, which can vary.

In the remaining states it may or may not pay to shop. Insurance premiums are the same for all carriers in “rating bureau states”: Pennsylvania, New York, New Jersey, Ohio, and Delaware. These states authorize title insurers to file for approval of a single rate schedule for all carriers through a cooperative entity. Yet in some there may be flexibility in title-related charges. More promising are “file and use” states — all those not mentioned above — that permit premiums to vary between insurers.

It’s a good idea to ask an informed but disinterested person whether it pays to shop in the area where the property is located. Just keep in mind that those likely to be the best informed are also likely to have an interest in directing your business in the direction that’s to their advantage.

Title insurance protects against losses that might occur due to another party claiming ownership of the property.

Title insurance covers:

Issues missed by the title examiner
Issues missed when a deed or other public document is determined to be invalid or forged
Liens from unpaid taxes or from a former owner.

Title insurance will pay your legal fees if you have to go to court to defend the deed, and if you lose the property, the title insurance will cover your loss up to the amount of the policy.

Keep in mind that if you’ve owned the property for a few years and it has risen in value, the title insurance policy you purchased at closing will only reimburse you for the original amount, not for the new value of the property.

You may be thinking, “Wait a minute… if I pay an attorney to perform a title search, why do I need title insurance? Isn’t it his or her job to make sure the title is clear?” Yes, it is… but unexpected problems can pop up – title insurance is a cheap way to avoid the cost of major problems that could pop up.

About the Author

Mark Sumpter is a national speaker, author and full-time real estate investor. He is the founder of The Wealth College Inc, which develops comprehensive, systematic approaches to securing financial freedom through real estate investment.
Mark offers a FREE audio CD on “Building Wealth Through Real Estate” by logging onto www.therealestateinvestortoday.com.
He also offers a series of 52 “Short Sale and Pre-foreclosure Tips That Will Make Your Pockets FAT!” absolutely FREE-of-charge by logging onto www.shortsaleexpert.com.

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Set Goals to Succeed in Short Sales March 23, 2007

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Without goals you won’t know where you’re going – and you won’t know whether you’re getting there. Without goals, you won’t succeed. It’s that simple.

Goals are like building blocks: extremely short-term goals support other short-term goals, and short-term goals support mid-term and long-range goals. To determine your short-term goals, you’ll have to determine your long-term goals first.

Let’s say your goal is to own $10 million in real estate in twenty years. Great! Now you have to get there. You can break that goal down into manageable chunks:

After five years: own $1 million in real estate.
After ten years: own $3 million in real estate.
After fifteen years: own $7 million in real estate.
After twenty years: own $10 million in real estate.

Now you can break that down further:

After one year: own two properties worth $175,000.
After two years: own four properties worth $350,000.
After three years: own six properties worth $550,000.
Etc.

If you keep breaking your goals down into more and more manageable chunks, what seems like an insurmountable task – owning $10 million in real estate – can actually be quite achievable. And if it feels manageable, you’ll have more confidence, and you’ll be more likely to stay on the path to your dreams.

For instance, let’s say you currently don’t own your own home – say you own no real estate at all. But, based on the above goal breakdown, your goal for your first year is to own two properties worth $175,000. How will you get there? Here’s how you could break it down:

Goal: Own Two Properties Worth $175,000 in One Year
Month 1
Week 1: Meet with at least two lenders to determine if I qualify for financing. If I don’t, focus on seller-financed properties, see if relatives will co-sign on loans, and identify other creative financing possibilities by the end of the week.

Meet with and interview at least three real estate agents to find an agent you’re comfortable with, and who has the kind of expertise you’re looking for.

Look at newspaper listings, internet listings, and local real estate agency advertisements for at least thirty minutes every day to get a sense of available properties and the local market.

Week 2: Choose an agent and make appointments to see at least four properties that fit your needs and financial situation.

Plan to generate as much capital for a down payment as you can: sell assets, shift money out of stocks or other investments (if necessary).

Call sellers offering owner financing, make appointments to inspect appropriate properties.

Week 3: Determine if any available properties are suitable for you; if so, assess their value and make an offer. Negotiate as necessary.

Find a good real estate attorney to handle your real estate affairs.

Week 4: Finalize contract (if negotiations are successful); if not, continue inspecting at least four properties per week. If successful, begin process of finalizing transaction; in the meantime, continue inspecting at least two properties per week for future investments.

…

Week 26: Make offer on second property…..Etc.

If you work backwards from the creation of long-term goals to mid-term and short-term goals, you’ll create an action plan that will allow you to reach your dreams in short sales or otherwise. It’s not hard to do, and it can be really fun – simply think as big as you like, and then work backwards to decide what you’ll need to do to make your dreams happen. Don’t start from where you are today; start from where you want to be, and work backwards to today.

To make your own goal worksheet, simply take a pad of paper and put your long-term goal at the top. Then, in outline form, break down the intermediate steps you’ll need to achieve them. Under those steps, break down the tasks further. When you’re done you should have short-term goals you wish to reach that are no longer than one week in duration – if you allow yourself too much time, you’re more likely to put them off.

Once a goal or task is complete, check it off your list. You’ll enjoy the sense of accomplishment, and you’ll stay on track with your action plans.

Remember, you can revise your action plans at any time. If you find an investment that’s too good to pass up, you might change your short-term goals. Just make sure you don’t change your goals or your action plans due to inactivity – you’ll never reach your dreams if you don’t take action on a consistent basis. It will take work and effort, but you can do it. Thousands of people are successful real estate investors – there’s no reason you can’t be, too.

About the Author

Mark offers a FREE audio CD on “Building Wealth Through Real Estate” by logging onto www.therealestateinvestortoday.com.

He also offers a series of 52 “Short Sale and Pre-foreclosure Tips That Will Make Your Pockets FAT!” absolutely FREE-of-charge by logging onto www.shortsaleexpert.com.

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Put Seller Financing to Work for You

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Seller financing is an important and popular tool that can help buyers purchase a property they could otherwise not be able to buy. Sellers are sometimes willing to become “banks” for the buyer, taking payments just like a bank would until the loan is paid off. In all other respects the transaction is the same as through traditional financing – the deed is transferred to your name, and you simply make your payments to the seller instead of to a bank.

More and more sellers are offering financing because the rate of return they can get is better than through income-producing investments like certificates of deposit, money market accounts, or other “safe” investment vehicles. It’s easy to understand: a seller will be much happier receiving 7 percent interest on the mortgage he offers you than receiving 2 or 3 percent from a money market account.

For buyers, seller financing can be a cheaper alternative. You won’t pay loan fees, or PMI premiums, and in many cases the credit checks and underwriting requirements are much lower. (Some sellers won’t even check your credit.) In general the closing costs involved in seller financing are much lower than with traditional financing.

Why would the seller be willing to finance your purchase of their property? There are a number of possible advantages. The seller may be willing to offer financing if:

The property type is difficult to finance through traditional third party lenders.
The property has been on the market for 90 or more days.
An “as-is” closing is desired on a property in need of repairs.
The owner has not met minimum holding time or title seasoning requirements required by traditional lenders.
An immediate closing required due to imminent foreclosure or other financial burdens.
A quick closing is preferred by seller to free up investment capital.
The seller wants long-term interest income.

The last situation listed is especially common. Here’s why: let’s say you’ve owned a rental property for a number of years and have paid off the mortgage. You enjoy the monthly income you receive from rental payments, but you’re not interested in being a landlord any more. By selling the property and offering owner financing, you still get monthly income – but you avoid all the duties of being a landlord, since that’s now the new owner’s role. In addition, you’ve avoided any capital gains taxes that might be due if you sold the property outright.

Here’s why seller financing can be advantageous to you as the buyer:

You can often put little or no money down. Some sellers will require ten, twenty, or thirty percent down, but many will accept less than ten percent, especially if their goal is to receive monthly income from the property in the form of mortgage payments.
You’ll face lower credit requirements. As I mentioned earlier, some sellers won’t check your credit at all. Most will simply make sure you’ve had no bankruptcies or foreclosures in your past.
Sellers won’t require you to have an underlying (qualifying) income. If it’s an investment property you’re buying, a traditional lender will expect you to have sufficient income to cover at least some of the monthly payments on the property in case your units are vacant for a period of time. Sellers assume your income will be derived from rent payments. As long as the rent you will receive covers the monthly payments, the typical seller won’t ask about your monthly income from other sources.
The terms can be more flexible. You and the seller agree on terms – you can decide on any terms you’re comfortable with. Price, interest rate, terms, and any other loan requirements are all up for negotiation. If you have unusual needs, you and the seller may be able to reach an agreement that a traditional lender won’t. For instance, let’s say you work on commission, and at year-end you always receive a lump-sum payout. If the seller agrees, you could make lower monthly payments for eleven months of the year, and a larger payment on the twelfth month.
Closing costs are lower. Sellers don’t usually ask for points, loan application fees, origination fees, etc. The seller isn’t covering advertising costs, overhead, or other costs that a lending institution has to cover.
You’ll complete less paperwork. Sellers don’t answer to a bureaucracy, so the only paperwork you’ll complete is what’s absolutely necessary for the transaction to be legal in your locality.
The sale can take place much more quickly. I’ve known people who have been able to close on a property within a week of signing a contract.

Some sellers will ask for a balloon note – they want monthly payments for a certain number of years, and after that they’d like to cash out. Situations like that are common when the owner is nearing retirement age. If the owners are in their early 60s, for instance, they’re probably not concerned about receiving mortgage payments for the next 30 years… five or ten years may be long enough.

When the balloon payment is due, you’ll simply get traditional financing (or use another creative financing method.) If your goal is to refurbish the property and re-sell it, make sure you negotiate for enough time before the balloon note becomes due for you to complete your repairs and sell the property.

Keep in mind that the loan agreement you reach can have “unusual” requirements. It’s not uncommon to buy a property using owner financing and find a clause in the contract stipulating you can not sell the property for at least five years – the owner wants to be sure he receives mortgage payments for at least five years before receiving the balance of the principal. Make sure you’re comfortable with whatever agreements you reach.

There’s a major advantage to using seller financing if you’re trying to accumulate properties: if you’ve bought a property financed by the seller, the transaction will not show up on your credit report. That can be an advantage if you’re trying to buy multiple properties, or if your credit is marginal to begin with. Properties purchased through seller financing are “transparent” to lending institutions.

When you’re looking for properties, some will be advertised as “owner financing available” or “seller financing available.” In many cases, the seller may be willing to offer financing but isn’t advertising that fact. If you find a property you want to buy, you can always make seller financing a contingency of your offer.

Like most things – you won’t know until you ask. If the seller isn’t interested in carrying financing, that’s okay… because he or she doesn’t have to agree.

If the sellers weren’t originally offering financing, they’re unlikely to entertain the idea unless you put the request in writing as a part of your offer to buy the property. Think about it: if you’re selling a property, and a person casually asks if you’re interested in financing it, you’re likely to say no. If their request comes with an attractive offer on the property, and you haven’t had many offers… you may be more willing to at least look at the possibility.

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Lease-Options: A Different Way to Buy and Sell Property March 16, 2007

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Are you having difficulty selling a property? Would you like to buy a home or an investment property but you don’t have enough cash for a down payment?

If you answered yes to either question, a lease with option to purchase (lease-option) can solve your problem. But it’s important to understand the pros and cons of lease-options to maximize your benefits.

A lease-option is a combination real estate rental, sales, and finance technique. It is a property lease for a fixed time period, such as 12 or 24 months, with an option for the tenant to buy the property at an agreed option price during the lease term. (Lease options are sometimes also called “land contracts.”)

In general, the lease-option technique is one of the quickest and least expensive methods available to investors for buying and selling real property. The purchaser is not required to conform to the various underwriting guidelines that banks and other lenders require. The seller, unlike an underwriter working for a mortgage company, requires little in the way of documentation. The seller providing the financing doesn’t care where the money for a down payment comes from as long as it comes from somewhere. After all, to the seller cash is cash.

Buyers like lease-options because little up-front cash is required. Sellers also like lease-options because they provide necessary cash flow to pay the mortgage and property taxes from a tenant who has a vested interest in treating the property well and who is likely to buy it.

A lease-purchase is different from a lease-option because it obligates the tenant to purchase the property at the end of the lease. With a lease-option the tenant has the right, but not the obligation, to purchase the property.

With both, however, the tenant usually pays an above-market rent and receives a monthly rent credit toward the down payment. And, of course, both a lease-option and a lease-purchase obligate the seller to sell the property at the previously agreed-to terms.

What hurdles will you face? It should come as no surprise that the biggest obstacle to a lease-option transaction is often the real estate agent. The reason is the agent receives only part of their commission up-front at the time parties enter into the lease-option. The commission balance is paid when the option is exercised. Many agents who can’t afford to wait for part of their commission don’t realize a lease-option is better than no sale at all.

Advantages for Sellers
Unless your property is located where there is very strong demand from buyers, lease-options can be especially advantageous for home sellers.

Primary property seller advantages are:

Strong Demand from Prospective Buyers: No matter how slow the local real estate market might be, there is almost always good demand from lease-option buyers. Many prospective home buyers can usually afford the monthly payment but they often have insufficient cash for a down payment. The lease-option solves this problem by giving the tenant-buyer a rent credit toward the down payment. In addition, the tenant-buyer usually pays up-front, nonrefundable consideration for the option; typically several thousand dollars.

Top Dollar Option Price: Because of strong buyer demand for lease-options, home sellers can often demand and get top dollar for their properties. Usually the option price is set at the market value when signing the lease-option. If the market value of the home goes up during the lease-option term, the buyer benefits. If the property drops in value, then the tenant typically doesn’t complete the purchase. (That’s an advantage of a lease-option; there’s no obligation, just the right.)

Higher Quality Tenants: During the lease-option, the tenant-buyer usually takes good care of the property; after all, they’re hoping to own it someday. The average lease-option tenant will take much better care of the property than a typical renter will.

Above-Market Rent: Another seller advantage is earning above-market rent. Landlords can usually charge tenants 10 to 20 percent above market rent levels.

Seller Keeps the Tax Deductions: During the lease-option period, the seller retains all the property income tax deductions. If a tenant complains about not receiving any tax benefits, a reminder about the rent credit toward the down payment usually ends the discussion.

Advantages for Buyers
Lease-option benefits aren’t one-sided deals. Advantages for buyers include:

Small Amount of Up-Front Cash Required: The amount of up-front cash needed to acquire a home or other property on a lease-option is usually small; often just a few thousand dollars for the first month’s rent plus non-refundable option consideration. This option money is in lieu of a security deposit.
Monthly Rent Credit Builds a Down Payment: The unique characteristic of a lease-option is the rent credit toward the buyer’s down payment. Typically, the rent credit is 10 to 100 percent of the monthly rent, depending on how motivated the seller is to sell. The higher the rent credit percentage, the greater the probability the tenant will buy.
“Try Out” the Property before Buying: Another special lease-option benefit for the tenant is the ability to try out the property before buying. If it turns out to be undesirable, the tenant hasn’t tied up a large amount of cash in a home that might be difficult to resell.
Control Property with Very Little Cash: Buyers enjoy great leverage; they have the ability to control a property and profit from its market value appreciation with very little cash. Lease-option buyers have this unique advantage.
Longer Terms Mean Greater Profitability: Although most residence lease-options are for short terms, such as one or two years, smart investors seek lease-options with the longest possible term. They assume the property is likely to appreciate in market value over the long term.

As a seller, you should try to collect the maximum amount of option money you can. The more the buyers or tenants have invested in your property, the better they will take care of it. And, if they decide not to exercise their option, you’ll keep the option money – so the more you get down, the more you keep.

The amount of the premium will vary depending on where your property is located. In general, an option premium can range from $1,000 to $10,000. Your goal will be to charge what the market will bear in your particular area.

As a buyer, on the other hand, your goal will be to pay as low an option premium as possible. Why should you invest more than you have to? Then, if the property appreciates in value, when you exercise your option your profits will be greater. In effect you can build equity in the house while you’re leasing it.

To help you understand the process, here’s an example of a lease-option. A buyer has signed a lease-option agreement for a single-family house that gives him the right to purchase it at any time during the next twelve months. (Again, he doesn’t have to buy the house; he has the right.) He agrees to purchase the house for $100,000, and he gives you a $2,000 option premium. If you give the buyer $100 in credit towards the purchase of the house from each month’s rent payment, at the end of the 12-month option period the buyer would have accrued a total of $1,200 in credit that could be applied toward the purchase price. (If you wanted to be more generous and offer the buyer $200 per month in credits, you could simply increase the price of the house by a corresponding amount.)

If he exercises his option at the end of the 12-month period, then his purchase price for the house is $98,800. If he doesn’t exercise the option, you keep the credit towards the purchase and the option premium (if your original lease-option contract is written that way).

A lease-purchase works in a similar way, except the buyer has entered into a contract to purchase the house; he simply hasn’t completed that purchase. If the lease-purchase contract is for 12 months, at the end of 12 months he must purchase the home or he is in default. You keep the option premium and any credits he’s accrued if he defaults.

The lease-option technique is similar to a purchase option in that it grants the right to investors to purchase property at a predetermined price within a predetermined period of time. The lease-option technique, however, combines the basic lease or rental agreement with an option to purchase contract. Whether you are a buyer or a seller, lease-options provide greater flexibility in structuring transactions while simultaneously reducing your level of risk.

Mark offers a FREE audio CD on “Building Wealth Through Real Estate” by logging onto www.therealestateinvestortoday.com.

He also offers a series of 52 “Short Sale and Pre-foreclosure Tips That Will Make Your Pockets FAT!” absolutely FREE-of-charge by logging onto www.shortsaleexpert.com.

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Why Real Estate is Your Best Investment

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Think about it: Are real estate prices higher now than they were ten years ago? Absolutely! Think about what your parents paid for their house. (For example, a friend’s father paid $12,600 for his home back in 1963. Today the home is worth $415,000.) Rent prices also continue to rise. Years from now, the price you’ll pay for the average home will be much higher than it is today.

In 2003, the U.S. government published statistics regarding median home prices. Take a look at how rapidly the average home has appreciated over the past 35 years:

1970 $23,000

1975 $35,300

1980 $62,200

1985 $75,500

1990 $95,500

1995 $113,100

2000 $138,400

2005 $182,000 (estimated)

What’s interesting to note is that while prices have boomed in the past five years, prices have risen at double-digit levels in every five year period. Very few investments can match that level of appreciation over the long-term.

Real estate prices are extremely likely to continue rising. There are a number of reasons why; let’s look at just a few. Over the next twenty years, the following is expected to happen:

The U.S. population is expected to grow by more than 40 million people.
The U.S. median income is expected to increase by 50 percent.
Ten million people will choose to buy vacation homes in the U.S.
More than sixty million children and grandchildren of baby boomers will enter the housing market.
Environmental restrictions and land shortages will tighten property development in popular areas, causing a decrease in supply and an increase in housing prices.
More than 60 million baby boomers will seek retirement income, and many will sensibly turn to real estate investments.
Minorities and immigrants will continue to buy homes in record numbers. Currently 75 percent of whites live in their own homes, while only 40 percent of Hispanics and Asians own their homes. As their rate of home ownership increases, demand for housing will increase.

So what’s the end result? Real estate prices will continue to rise – making smart real estate investing a great way to grow wealth.

There are two basic ways to get income (cash) from real estate investing: buying and selling properties for a profit, or by collecting rent from tenants who occupy your properties. Most successful real estate investors do both.

If you “flip” properties, the profits can be either used as income for living expenses, or to invest in more properties. The average real estate investor doesn’t seek to earn an income from their properties (at least not at first); most try to increase their net worth. But over time, you can do both.

For example, let’s say you buy a house for use as a rental property for $150,000. If your mortgage payments, taxes, insurance, etc add up to $1,200 per month, and you collect $1,300 per month in rent, you’re generating very little monthly income. But you are building wealth.

How? Each year, more of your principal is paid off and as the property appreciates in value, your equity grows. (In effect, your tenants are paying your mortgage for you.) If interest rates fall and you refinance your loan, you may be able to widen the gap between your expenses and your rental income. Or you may choose take a “cash out” refinancing in order to free up capital for other investments. Whether you leave the equity in the property or take cash out, you’re building wealth.

As years pass, you’ll have significant equity in the property. If you hold the property long enough, you’ll eventually pay off your mortgage… and the money you were putting towards mortgage payments can now be used as income or to fund other investments.

If you’re a “buy and hold” investor, then your short-term income potential is low, but your long-term wealth potential is high, and eventually your income potential is high once your properties are paid off. If you “flip” properties, you can still build wealth by continually reinvesting profits, or you can use some of the profits as income.

In either case real estate investing is profitable and financially rewarding – and over the long-term, it’s one of the best investments you can make.

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Determine the Right Style of Real Estate Investing For You March 6, 2007

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Determine the Right Style of Real Estate Investing For You

Real estate is an industry with so many aspects that anyone can find a profitable way to build wealth that is suited to his or her particular talents and interests.

Should you specialize in a particular area? You can, but you don’t have to. Many people specialize in types of real estate that generate positive cash flow: single-family houses, apartments, or rooming houses. Others find a particular niche and focus exclusively on that: rehabs and fixer-uppers, for instance. You can choose to start with one type of real estate, especially if you’re operating with limited capital, and expand into other areas as you generate cash and equity.

If you’re relatively new to real estate investing, you have to start somewhere. The following is a breakdown of how you can get started based on your financial situation, your skills, and your personal interests. Use this as a guide to determine the best ways to invest in real estate, and some of the best investment options, based on your individual skills, capabilities, and interests.

Do You Own Your Own Home?

Yes: Consider ways to increase the value of your property: renovations, additions, improvements. Remember your home is an investment as well as a place to live – if the improvements you make are attractive to you, they will be to other buyers.

No: Unless you live with your parents and plan to continue living with them, the first real estate investment you should make is to purchase your personal residence. If you’re paying rent, you’re paying someone else’s mortgage – plus you don’t benefit from the appreciation of the property.

Do You Have a Down Payment and Good Credit?

Yes: Consider bank financing. You can probably qualify for excellent terms, and in addition you’ll build a business relationship with a lender that will be beneficial in the long run.

No: Consider seller financing or lease options. Sellers often are much more flexible in offering terms to buyers with poor credit. In addition, work hard to improve your credit rating – pay all your bills on time, and work to pay down your debts. The better your credit rating, the more readily you can get financing and the easier it will be to invest in real estate.

Do You Have Carpentry Skills?

Yes: Consider rehabs and fixer-uppers. Instead of paying others to do the work, you can do so yourself – in effect you’ll be paying yourself a wage in addition to increasing the value of the property. Keep in mind, though, that rehabs can take considerable time to renovate, so make sure you have that time available.

No: Focus on buying rental properties, on wholesaling properties, or on other investments where your personal “sweat equity” is not required. Or, find skilled craftsmen who can do the work for you on rehabs or fixer-uppers.

Do You Like Working with People?

Yes: Consider buying and managing your own rental properties. You’ll save on property management fees, and you’ll build relationships with local lenders, government officials, and craftsmen. You may even rent to tenants who later will become buyers of other properties you invest in. In addition, you can consider selling your properties yourself instead of using the services of a real estate agent.

No: If you invest in rental properties, use the services of a property management firm. You’ll probably also want to use real estate agents to sell your properties. Landlords have a number of interpersonal dealings with tenants; if you don’t like working with people, managing your own properties will be frustrating.

Do You Have Solid Financial Management Skills?

Yes: Consider handling your own accounting and bookkeeping. You’ll have a better sense of the day-to-day health of your business. On the downside, if your investments are substantial you’ll find you spend a lot of time handling the clerical tasks necessary to run your real estate “empire.” At that point you may decide you’re better off handing the clerical duties to someone else while you focus on finding and making great investments.

No: Educate yourself: attend seminars or take classes. Or, utilize the services of an accountant you trust.

Do You Want (or Need) a Steady Stream of Monthly Income?

Yes: Consider income-generating rental properties. Properties with a positive cash flow (meaning your income exceeds your expenses) can provide you with extra income each month. Many investors specialize in investments in rental properties: they increase their monthly income, and over time build equity as they pay down the mortgages on those properties, and as the value of the properties increases.

No: Consider rehabs, fixer-uppers, options, and other shorter-term investments. Buying a house in poor condition, making improvements, and selling it for a profit will generate income, but not on a steady, predictable basis. If your goal is to build wealth instead of increasing cash flow, you can also invest in properties with longer-term appreciation potential.

Do You Have a Source of Capital to Invest?

Yes: Use your capital to make down payments, to purchase options, and to help you obtain necessary financing. You can also use your capital to finance improvements to your properties.

No: Focus on investing in properties where limited capital is necessary. Look for little or no money-down loans, seek owner financing, and guard the capital you have closely. Don’t sink all of your capital into one property unless you plan to sell the property quickly; otherwise you won’t have capital available to make other investments until that property sells. If you buy rehabs or fixer-uppers, you may have to finance the repairs and renovations using outside financing like credit cards, personal loans, etc.

Is Your Current Income Level Low?

Yes: Invest in properties that yield a positive cash flow. If you don’t yet own your own house, buy a home that is suitable for renting a room or portion of the home to third party. You’ll lower your monthly expense requirements and can possibly buy a larger home than you could otherwise afford.

No: Invest in properties to build wealth or to make shorter-term profits. Of course, you can still invest in rental properties that generate a positive monthly cash flow, using that cash flow to fund additional investments. You can also rent a portion of your home to a third party if you want to increase your income.

Do You Like to Help Other People?

Yes: Consider buying pre-foreclosure properties. You can help people stop a foreclosure, find a home they can afford, and you can profit from the transaction. Or consider buying properties in less-desirable areas; you can provide affordable housing to low-income persons.

No: Keep in mind that helping people can be profitable from a business point of view and also immensely gratifying on a personal level.

Do You Have a Real Estate License?

Yes: List your own properties and buy properties too. You’ll save on commissions when you sell one of your properties, and you will be in a position to negotiate a better deal when you buy a property, since as the buying agent your portion of the commission essentially goes into your pocket.

No: Consider getting a license for the reasons mentioned above. In most states you’ll simply need to take a 3-month class and pass a licensing test. Once you’ve passed, you can place your license with a local real estate agency. You don’t have to sell real estate full-time; many agencies will allow you to simply handle your own transactions. (Of course, you may also occasionally decide to list homes for friends or relatives, generating additional income for yourself.)

About the Author

Mark Sumpter is a national speaker, author and full-time real estate investor. He is the founder of The Wealth College Inc, which develops comprehensive, systematic approaches to securing financial freedom through real estate investment.
Mark offers a FREE audio CD on “Building Wealth Through Real Estate” by logging onto www.therealestateinvestortoday.com.
He also offers a series of 52 “Short Sale and Pre-foreclosure Tips That Will Make Your Pockets FAT!” absolutely FREE-of-charge by logging onto www.shortsaleexpert.com.

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Have the Courage to Succeed in Short Sales

Posted by marksumpter in : General , add a comment

Have the Courage to Succeed in Short Sales

Have you ever heard the expression, “Feel the fear and do it anyway”? What do you need to get past your fears? You need courage.

A definition of courage is the ability to confront fear in the face of pain, danger, uncertainty or intimidation. Courage is easily identified when we see firefighters enter a burning building, but it also exists in subtle ways. It takes courage for a child to ride their bike for the first time without training wheels, and it can take courage to defend an unpopular point of view.

Think of it this way: Is a parachutist “courageous”? You might feel it takes courage to jump out of a plane (and I certainly think it does), but what if the person jumping isn’t afraid? If they’re not afraid, are they courageous?

What is courageous to one person may not be to another. You may never have thought of it quite this way, but taking a business risk is another form of courage.

Maybe you think it would be safer to not take risks in the first place. People who never take risks because they’re afraid “something will go wrong” live with a false sense of security. Things can and do go wrong even if you do nothing at all. The best way to be safe is to be the one in control – and you’re not in control if your fears make the decisions for you.

Here are some tips to help deal with your fears:

First, remember the things that “might happen” may never happen at all.
Instead of saying “I can’t do that…” say, “I can do that…”
There is no right or wrong way to do something. If you make a choice that doesn’t turn out like you hoped, it isn’t a failure – it’s just a setback. We learn and grow from our mistakes.
Keep your focus and expectations realistic. If you have a problem in one area of your life, don’t let it color your entire life.
Think of past achievements that required overcoming a fear. No matter how trivial they may seem now, at the time, they required courage on your part, so you know you have it in you!

Not all fear is bad. Fear of having an accident causes us to drive safely. Fear of disease means we have vaccines to keep us healthy. There are other types of fear, however, that may keep you from reaching your goals:

Fear of failure
Fear of success (it may seem odd, but some people are afraid to succeed)
Fear of what others might say or think about us
Fear of responsibility
Fear of the future
Fear of being insecure or unsafe

The more you fear something, the more power it has over you.

Here’s one way to deal with your fears. List all the reasons you are afraid and beside each write why you should not be afraid. List all the possible positive outcomes you may experience instead of what you fear may happen. Tackle one fear at a time. The more you practice confronting and conquering your fears, you’ll find yourself growing in confidence – and reaching your goals.

Remember, courage isn’t the absence of fear – courage is feeling the fear and doing it anyway!

** “Feel the fear and do it anyway” is a phrase used with the permission of Susan Jeffers, Ph.D., author of Feel the Fear and Do It Anway®.

About the Author

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The Basics of Buying Pre-Foreclosure Properties

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The Basics of Buying Pre-Foreclosure Properties

Want to avoid the auction process? You can, if you contact the owner of a property before the bank starts foreclosure proceedings. Once the bank starts foreclosure proceedings it starts tacking on late fees and interest penalties, and once they turn it over to lawyers they add on their own fees. If you can reach the owner beforehand there can be more equity in the owner’s property than if it goes to auction. “Pre-foreclosure” is the term used to describe buying a house during the foreclosure process but before the actual auction takes place.

Pre-foreclosure purchases are in many ways similar to a normal real estate purchase: you negotiate with the homeowner, sign a contract, and proceed with the transaction. The main difference is that instead of the homeowner listing the house for sale (and thereby being willing to sell), you’re the one finding potential homeowners to contact in order to try to buy their house… and often when they’re under a great deal of stress.

You can easily find homeowners in the early stages of foreclosure by checking public notices. You can also go to the county clerk’s office and read the postings.

A public notice in the newspaper will list the bank’s attorney. You can contact the lawyer for information, but don’t be surprised if they’re not particularly cooperative. The law office exists to provide legal services, and acting as a receiver for the property is just one of those services.

Remember, the lawyer has no vested interest in helping you purchase the property or in helping the homeowner get a better price for their home. The lawyer is simply interested in handling the transaction. The law office is paid to prepare paperwork and conduct the sale, not to act as a real estate information hotline. Unless you have a personal or business relationship with the lawyer involved you’re unlikely to get any more information than is already printed in the public notice.

If you choose to, you can contact the homeowner directly to attempt to purchase the property. Keep in mind, though, that in all likelihood the homeowner has already been contacted by real estate agents and other investors. If you’re interested in buying the home to live in, you may stand a better chance because homeowners in financial difficulty are likely to feel that investors and agents are out to “steal” their home. (Remember, the homeowner is already under a considerable amount of pressure, and is not likely to respond positively to your approach, no matter what your motivation or how good your intentions are.)

If you actively search, you may find a homeowner willing to sell their home at a bargain price. Just make sure you understand some of the dynamics involved.

The first is strictly emotional. Even if it’s in their best interest, most homeowners don’t want to give up their homes. They still desperately hold out hope that things will somehow magically work out. Most are also very upset they’re facing foreclosure ― even if they find themselves in that position through their own mistakes or lack of judgment. Even if it’s in their best interest, the typical homeowner won’t want to offer you a bargain on their property to avoid foreclosure. If nothing else, they don’t want to see anyone else profit from their loss… and you can’t really blame them. You’ll need to work through their emotional issues.

Another issue to keep in mind is a potential lack of existing equity in the house. If a judgment has been entered, the homeowner most likely will have to come up with the total amount of money required to satisfy the judgment, which at the very least will require the loan to be paid off in full. The homeowner needs to get the whole loan amount from the sale in order to pay off the loan. So unless the homeowner has a great deal of equity in the property, you’re unlikely to be able to negotiate a price a lot lower than the home’s value. The likelihood of significant equity existing is slim… or else the homeowner probably wouldn’t be facing foreclosure in the first place. When you find a potential seller, one of the first things you should do is try to determine how much equity they have in the home – that will help you quickly determine if the deal is worth pursuing.

There are as many reasons for foreclosure as there are individuals, but people facing foreclosure fall into several broad categories. Let’s take a look at a few of them so you’ll understand the situations you can be dealing with in the pre-foreclosure stage.

Absentee husband or wife: if one or the other party has left the relationship (and possibly the area), a transfer of property requiring both signatures simply won’t happen. You’ll never get both owners to sign the papers. Banks facing situations like this know the foreclosure process will take a long time, making them even more eager to sell the property if it eventually does become bank-owned. If you choose to, you can keep in touch with the bank and monitor the progress of the foreclosure. Eventually all formalities will take place, and a sale will take place… but not at the pre-foreclosure stage. Instead it will occur at the auction or bank-owned stage.
Businessperson facing business collapse: if a business owner’s once-promising venture is failing, your offer to buy the property may be of interest. After all, you’re offering the individual a way out that is more socially acceptable than foreclosure. Business owners typically are more realistic about cutting losses, selling assets, and making other rational business decisions, no matter how personally painful those decisions might be. You won’t know, of course, whether you’re dealing with this type of person until you call and they offer the reason why they’re in foreclosure proceedings… and the average homeowner probably won’t be forthcoming. But you can certainly try.
Fiscally irresponsible homeowner: easy credit has made many individuals ever hungry consumers… as long as people will permit them to keep consuming by giving them more credit. At some point the parties that extended easy credit want to be repaid and the homeowners find themselves in financial trouble. If they’ve gotten themselves in over their heads, you may be able to help them – and profit from the transaction, too.

The main difficulty in buying pre-foreclosure properties is identifying all the possible obstacles to purchasing the property. The homeowners can possibly have other judgments against them. They may not be honest and straightforward in their dealings with you. In fact, in this case your best bet is to deal exclusively with the attorney representing the homeowner. Any agreements, down payments, or other financial arrangements you make could be subject to an eventual bankruptcy on the part of the homeowner… in which case you may have no legal recourse.

Buying at pre-foreclosure does have two main advantages. The homeowner may be desperate and may be willing to do almost anything to avoid actual foreclosure.

In addition, you can enter the property to inspect it before purchasing, unlike when you purchase at auction. Buying at pre-foreclosure is another way to find great deals on houses you can flip or convert to rental properties.

About the Author

is a national speaker, author and full-time real estate investor. He is the founder of , which develops comprehensive, systematic approaches to securing financial freedom through real estate investment. Mark offers a FREE audio CD on “Building Wealth Through Real Estate” by logging onto www.therealestateinvestortoday.com.

He also offers a series of 52 “Short Sale and Pre-foreclosure Tips That Will Make Your Pockets FAT!” absolutely FREE-of-charge by logging onto www.shortsaleexpert.com.

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A message from Mark February 13, 2007
Posted by marksumpter in : General , add a comment
Success: The Right Skills

Attitude is incredibly important as you consider the topic of success. But even the most enthusiastic and overtly positive individual selling appliances, for example, will fall short of his/her goal of success if s/he isn’t educated about what is being sold and obtains the right skills.

You don’t have to have a Master’s degree in order to be successful—you don’t even have to have a Bachelor’s degree! Some of the least-successful people I know have advanced degrees, but the education does them no good, as their attitude and aptitude are poor.

It doesn’t matter if you want to be a college president or an auto mechanic—your educational needs are specific. If you have advanced degrees and no ability to educate, inform, and encourage others, you’re not likely to end up as a college or university president. Similarly, if you are an auto mechanic who doesn’t have the latest education about newer cars and all of the computerized systems in them, you won’t reach the top of your potential and be successful in your field.

There are some fields in which education isn’t particularly esteemed—professional sports is one of them. Young athletes are told to have an education “in case you get hurt,” but most college football players, for example, forego their senior year (and graduation) for the NFL draft.

But consider a football player who majored in business during college (and graduated) and bettered himself with the specific-knowledge of retail sport-related equipment. He would be in a much better place for success both in the NFL and in the lucrative world of celebrity-endorsements than if he’d had underwater basket-weaving for a major.

Additionally, if he was injured on the field and found retirement from professional football imminent, he not only has something to fall back on, but he has the trade of his name as he considers launching a piece of retail-sporting equipment or a line of retail stores. Are you prepared?

Education for a particular skill set is preceded by motivation. If you desire to succeed in your chosen field, you will pursue the education necessary to do so. That ties in to your attitude. If you excel at your chosen field and can display a great grasp of the skill set necessary in your line of work, you WILL succeed, because competition for good-paying, skilled jobs continues on a downward slope.

Your education starts here. Right now! Go here and test drive my latest newsletter.

–> www.thewealthcollege.com/cc

After you have read all the information, you will see the value in joining me every month on my group coaching calls, reading my monthly newsletter, and building your own collection of content rich CDs (which I send you every month), so you use the reference material at your leisure.

–> www.thewealthcollege.com/cc

Now go get some deeds,

Mark Sumpter

P.S. February’s newsletter is on its way to the printer. Make sure you register immediately, otherwise, you may not see one ‘til mid-March!

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older posts »

My Short Sale Profits

Understanding Appraisals April 2, 2007

Title Insurance: Why You Need It, and How to Shop For It

Set Goals to Succeed in Short Sales March 23, 2007

Put Seller Financing to Work for You

Lease-Options: A Different Way to Buy and Sell Property March 16, 2007

Why Real Estate is Your Best Investment

Determine the Right Style of Real Estate Investing For You March 6, 2007

Have the Courage to Succeed in Short Sales

The Basics of Buying Pre-Foreclosure Properties

A message from Mark February 13, 2007

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