Easy affordable education

In late 2006 I had just received my first ipod as a birthday gift from my wife. A few weeks later I discovered these little audible downloads called “podcasts”. As a very busy full-time appraiser at the time I spent many many hours driving all over Southern California. Podcasts were a great fit for me as I could listen to hours and hours of whatever podcast show, discussion, topic I chose to subscribe to.

I came across a show called Get Real Real Estate Investing. At the time it was rated in the top 5 business / real estate podcasts on itunes. I listened to several shows that day and I decided I had to become a real estate investor. Hundreds of hours of shows and many other educational sources later Andrea and I were buying, selling and renting property full-time. Of course, there were many things to learn before we purchased our first property.

Much of the best education that we have received has come from free or very low cost information that is out there available to you every day. Here are a few of the sources that we have used and are extremely valuable resource for real estate investing education:

Podcasts: Although I started out by listening to Get Real Real Estate Investing, I don’t listen much anymore. It is not as good as it used to be. If you can get some of the older episodes when Lynn Voss was co-host, those are worth listening to. A new one I like is Escape the 9-to-5. It’s from an experienced wholesaler in the Pheonix market. The Norris Group Radio Show. This is Bruce Norris’s weekly radio broadcast with interviews of important figures and investors in today’s market.

Real Estate Investing Clubs: Actually, by listening to podcasts I learned that there was such a thing as real estate clubs. The truth is there are lots of them out there. They usually run $10-25 per person but it is well worth it for the learning and the networking. Simply the best place to meet other investors in your area. Just google “real estate club” in your area and I’m sure you’ll find some.

Blogs & Forums: There are many blogs and forums that provide excellent information, education and networking opportunities. Here are few of the ones I like: BiggerPockets.com, FarBelowMarketForum.com, ForeclosureForum.com, ForeclosureRadar.com.

There is certainly a case to be made for spending good money on weekend seminar training from the respected professionals. We certainly attend our fair share. However, don’t overlook the value in the free or low cost learning out there. Take advantage of it.

2010 wrap-up

How did we do? Our goals were simple:

1. 6 additional rental houses
2. Buy-sell 18 houses for profit
3. Raise $500,000 in private money

With a last minute purchase we got accepted on Dec 23rd and closed on the 30th, it brought our total buy-sell purchases to 16. We ended up landing 4 rentals (all of which came in the 2nd half of the year). As far as raising private money, we well exceeded the $500k goal. Overall, not too shabby.

The last few months of the year we proceeded extremely cautiously as this market tries to figure out which direction it wants to go. We slowed our acquisition way down, only picking up 2 rentals and one flip in November and December. On the whole we are very satisfied with our progress this year and will be posting our 2011 goals very soon.

I'll also be updating our progress on the "Cash Flow Challenge". Real progress has been made and the challenge has already been a success as it has succeeded motivating us and keeping us accountable to acquiring that "get out of the rat race" cash flow.

As for next year, I expect it to be the best year yet for investors! Continued low prices and motivated sellers along with rock-bottom interest rates. Can you say "perfect storm?" Post a comment and let me know what you think.

How much to rehab?

We were taught that when trying to sell a house you don’t want to be the house that isn’t selling because "we didn’t fix the house enough!" What if you fixed the holes in the walls and repaired the air conditioner but decided to save some money by just cleaning the old carpets and leaving them in place. Do you think this would have any affect on a buyer's willingness to pay top dollar for your house? Whatever the “one repair” is that was not done could ultimately be the deciding factor for a buyer to pass on your house. The point is that if you “under repair” your properties in a down or flat market you are just that much less likely to sell them for the price you desire or to even sell them at all.

So how do you know how much to repair your properties? Well, we have always taken the approach of being at least on par with or one step better than your top tier competition in your particular marketplace. For example: If all the top resale comparable houses in your neighborhood have granite counters and stainless steel appliances, don’t expect your 20 year old yellow tile counters and white appliances to bring you the same demand. You need granite and stainless too! In a hot market, this theory goes out the window. Anyone and everyone is just trying to get their hands on some real estate. As long as the house isn’t falling down you are probably going to get it sold at a reasonable number. That type of market is not what we are experiencing currently.

In our houses we tend to use the same materials (flooring, counters, paint, etc.) that seem to appeal to most buyers. We take a bit of pride in improving the asset from something that was a hideous neighborhood eyesore and turning it into a beautiful home. We do all this, of course, with a budget in mind of what will ultimately bring in the highest return on our money. There have been many times where neighbors thank us for fixing up that "dump" and improving the neighborhood. Those "thank you's" are validation that we are doing a good thing, not just for business, but for the communities.

Your rehabs will vary of course, based on the needs of the house and the demands of the marketplace. For example, here are some pictures of a house we recently fixed. The house pictured below was actually in good shape when we bought it (nothing needed on the outside at all). It was just a little dated and no upgrades. We simply replaced the kitchen counters and appliances, painted the cabinets and walls, replaced a few fixtures and called it a day. By doing this we improved the value of the home nearly 30% and brought the home to the expectations of a buyer willing to pay top dollar for a home in the area. We resold this house in 1 day.

Below is a video of a major rehab projects we have done recently. This house was completely destroyed on the inside and needed a lot of work. The transformation on this house was probably the most dramatic of any house we have repaired. Added value: 90%

The photos below were a house that also ended up being a major rehab. This house needed everything: roof, windows, flooring, kitchen, bathrooms, fixtures, a/c, heater, pool work & landscaping. Value added: 110%

Is it ime to unload your Inventory?

Below is a chart from the latest ForeclosureRadar monthly Foreclosure report...




Take a look at June on this chart. There were more than 2 times as many cancellations of Trustee Sales as there were properties that reverted back to the bank. In September, the number was virtually the same.

I seem to remember hearing one of my most respected mentors Bruce Norris at The Norris Group recently say something to this effect: "When properties begin to go back to the bank at a higher rate and the number of cancellations dramatically decrease I'm going to dump every thing I own." I don't want to mis-quote Mr. Norris but I think this is what he was saying. I'm not sure about you, but to me, the chart is screaming "SELL, SELL, SELL!!!!".

If you are a flipper hoping for retail profit (as I am), this is important stuff to pay attention to. If you are a buy-hold person (as I also am) you may want to plan to get your funds together because prices could be lower soon.

This is nothing that we haven't heard before in the past several months, but the chart seems to be confirming the inevitable. I'm certainly no economist nor an expert on market trends. I merely try to pay attention to what is happening and follow the advice of people I respect. Who knows what will happen. I'm still buying, but with this chart in mind and appropriate exit strategies.

Goals update...

I thought I'd put a quick update on the goals we had for this year and how we are looking as of the first of October.

Our goals were simple...

1. 6 additional rental houses (Avg cash flow $250 per house)
2. Buy-sell 18 houses for profit
3. Raise $500,000 in private money.

We also have a visual "monopoly" board to help us see how we are doing. Here is what it looks like now (see picture). So far in 2010 we have purchased 14 houses to sell and 4 rentals properties. We also have a 5th rental and 15th flip that should find their way into escrow in the next couple of weeks. As far as private money, this one is a little tougher to gage. We are currently borrowing somewhere in the neighborhood of $625,000 from private individuals and their IRA accounts right now. Of that total, about $450,000 was raised this calendar year. We are always looking for more people with "lazy money" that would like to put it to work earning 8, 10, or 12%. If you are interested please contact me.

One thing that Andrea and I have learned about setting our goals is that they can and probably should change and morph as we go along. We try not to set unrealistic goals but at the same time are not afraid to challenge ourselves either. I may write another post about that later. We'll check in again at the end of the year and see if we ended up meeting all of our goals.

Let the Cash Flow Challenge begin!

Well, it's official. The cash flow challenge begins today. What cash flow challenge you say? Let me enlighten you...

A few weeks ago Justin Williams, a fellow investor friend of mine thought it would be a good idea to have a competition that would push both of us toward the ultimate goal in our real estate centered business life, financial freedom. You know, the point in your life when you wake up and realize you don't need to get up and work today because the rent checks that have just arrived in the mail box are more than enough to cover all your expenses for the month. You are now free to do as you choose. Financially free. Anyway, the challenge was issued as simply the first one to reach $4,000 in monthly positive cash flow wins. What's at stake? The loser sends the winner and spouse on a cruise. The challenge was accepted and the word was getting out.

Since that time, the challenge has grown and morphed into a 4-way "team" challenge featuring some more investor friends of ours. Team Justin & Doug vs Team Bill & Kevin. After a lunch meeting in a dark and musty Italian restaurant (more dramatic), the rules were laid out:

1. First team to arrive at a documented $8,000 net positive cash flow will win. (total rent X 30% expense ratio - debt service & property management fee's etc = net cash flow)
   
2. The team must maintain the $8,000 for 2 consecutive months.
3. All types of real estate which is purchased for cash flow in which a "tenant" pays some sort of rent will be allowed. (i.e. 1-4 units, apartments, mobile home parks, office buildings, etc)
4. All forms of financing the properties is allowed and encouraged. (Conventional, Hard Money, Private Lenders)
   
5. Any currently owned cash flowing property does not count.
6. Each team will fully disclose their progress along the way.

The prize remains basically the same. The loser sends the winners on a cruise.

I'll post updates on the blog periodically so please follow the blog if you don't follow it already. You can also read about it on Justin's blog.

I'm going to enjoy that cruise!

Goal setting "Monopoly" style

My friend Derek gave me this idea of posting monopoly houses on the wall. The idea is to post the number of green houses that you want to flip in a year and replace them one by one with pictures of the actual houses as you buy them. The red hotels will represent keepers that you hope to pick up. I'd never done anything "visual" like this when setting my goals so I wasn't sure if it would make difference or not. We decided to try it this year.

It started off a little slow. January came and went and the board had not changed at all. Then February and March came and a couple green houses were taken away and replaced by photos. The months continued to fly by and we saw our board begin to have a new look to it. In July we changed 4 more green houses to photos!

We're right on track for our "flip" goals for the year, but way behind on our keepers. Those red hotels are getting dusty up on the wall. Our new 'short term revised goal' in August is to pick up 2 keepers and we'll re-evaluate after that.

I must say that I love the monopoly wall goal setting and I'm glad we did it. It's right in our office where we can see it every day and it really is a great motivational tool to help us stay focused to meet our goals, one small green house at a time. to see some of our projects and wholesale deals available go to our website www.FreedomRealEstateOnline.com