Entering the real estate market as a new investor can be very intimidating. That’s why so many people are tempted to add contingencies to their purchase contracts that allow them to escape from an offer unharmed. Not that there is anything wrong with this line of thinking. Protection is good and necessary. The error is found in the use, or should I say “abuse,” of these contingencies when the buyer uses false contingencies, or “weasel clauses,” to secure his or her protection at the expense of the seller.

For those of you unfamiliar with the concept, weasel clauses say things like, “This offer is subject to the approval of buyer’s partner,” when the buyer doesn’t really have a partner or, “This offer is contingent upon the inspection of the property by my spouse,” when your spouse has already seen and approved of the property. The real reason for these contingencies is to provide the buyer with a bogus reason to back out of a deal by later claiming that their “partner” (possibly his dog) or their wife/husband didn’t approve of the purchase. The problem with these contingencies is that the buyer is deceiving the seller and, even worse, if the buyer exercises a weasel clause, other events in the seller’s life (bill payment, purchase of another house, helping a relative, etc.) may be significantly delayed when the settlement doesn’t occur as expected.

Just the description of “weasel” never sat well with me. I didn’t ever desire my reputation to be that of someone who “weaseled out” of a deal every time the chips were down, so I made a pledge to myself when I began investing to see every deal through to completion whenever a seller accepted my offer. My sole condition was that I had to be able to obtain sufficient funds in order to settle. Such funds would either come from lenders, my own bank account, or a combination of the two.

Believe me when I tell you I can relate to many of you who offer tens of thousands of dollars for a home with little to (in my case) no money in the bank. This seems so illogical, however, like you, despite my lack of funds, I knew I had two choices, make offers or go home. Not being the “quitting” type, I found a solution to my problem, a financing contingency that would allow me to purchase an investment property by borrowing ALL of the required funds while informing my seller of my cash position. My standard contingency (certainly nothing new or magical) read as follows:

“This offer is contingent upon the buyer obtaining financing from ABC Lenders. A prequalification letter from such lender is attached.”

The difference between this financing contingency and a “weasel clause” is that it discloses truthfully to the seller upfront that I am dependent upon my hard money lender to provide me with enough money to purchase their property. I’m not hiding anything or creating an escape hatch.

Financing Contingencies In Practice

As I quickly discovered when making offers on bank REO properties, weasel clauses were unacceptable even if I did intend to use them. Banks had been burned by weasel clauses time and time again, and they weren’t accepting contracts containing them. In fact, they were selling their properties “as-is,” so inspection contingencies were out of the question as well. My only choice was to make truly clean offers (no contingencies) or offers with a financing contingency. Since I didn’t have my own cash, I had to make offers with financing contingencies.

As with many of you, my goal when I first started was not want to buy homes but rather to wholesale them, pick up my check, and move on to the next deal. Now, if I purchased a home at the right price, wholesaling was not a problem as I always had buyers waiting in the wings. However, if my offers were too high, it was difficult to find a wholesale buyer since I had paid too much.

Chances were if I paid too much for a house and couldn’t wholesale it, then my hard money lender wouldn’t give me enough money for the purchase either. They might have agreed to finance a portion of it, but if I didn’t have the rest of the funds required to settle, I couldn’t buy the home and they didn’t have any choice but to turn down my loan request. If they turned me down, I could exercise my financing contingency to release myself from the contract.

Now, I’m not suggesting that anyone should attempt to wholesale properties by haphazardly making offers that may or may not be too high knowing that the financing contingency can legitimately bail them out. Whenever you start to exit a lot of deals, however ethically or gracefully, sellers will still be upset and word will start to spread that you can’t be trusted to settle and your offers won’t be accepted. Plus, you risk losing your earnest money deposit, depending upon the language in your contract.

What I do recommend is that you to go into every deal with the intent of closing if at all possible. Even the “cash poor” among you should take heart. It won’t be long before you have some cash to assist you in those situations where your hard money lender comes up short. In my case, I was only three months into my investing career before I had made $23k and was able to put away some cash which enabled me to purchase and rehab some of my “bad” wholesale deals on my own, even when my hard money lender couldn’t finance the whole purchase.

Hidden Problems Not A Problem

While you might not be able to insert an inspection clause into your contract, you will still be protected from material defects in the property by your financing contingency. For example, let’s assume that after signing a contract to purchase a home, you discover some major repair issues that weren’t disclosed or uncovered prior to your making an offer (by major, I mean significant structural damage, a dry well, etc. Most little things don’t make a difference since you are buying properties at such reduced prices). Upon discovering this problem, you have an obligation to your lender to call them so they can make an educated decision regarding the loan. They will reevaluate and probably reject your loan request, protecting themselves and preventing you from getting involved in a bad deal. As a result, you will be able to exercise your financing contingency and exit the deal.

On the other hand, you could keep the problem to yourself. But why? There isn’t anything wrong with informing your lender of the problem. In fact, it’s your duty and what they expect. How do you think they would feel if they discovered the problem later? Furthermore, how do you think they would feel if they discovered you knew about the problem? Sure, you could hide the problem and involve both of you in a deal that you shouldn’t be doing, but in the process you would jeopardize your relationship and prevent them from making an educated decision about how they invest their money. No question about it. You should be honest with your lender and move on to another deal.

Now, just as with your offering price, you should exercise care in doing your due diligence and arriving at a realistic repair estimate so you don’t back out of too many deals. Don’t get stuck in the details, but talk to an experienced investor and obtain a good understanding of the general repair costs in your area. When in doubt, estimate high, but try to remain in the ballpark. Otherwise, your offer will be too low to be competitive.

Summary

So, whether you need protection from high offers or significant repair issues, if you use your financing contingency correctly, it is the only clause you will ever need. Personally, I have only needed it twice. On both occasions, I was off the mark with my offers and could not obtain enough financing from my hard money lender as a result. In both cases, I was released from my contract through my financing contingency. As I said before, it’s the only contingency you’ll ever need.

There are many ways to make handsome profits in real estate. You can be a “wholesaler” - someone who quickly snatches up houses and flips them to other investors - or a retailer, someone who fixes them up to resell at the retail level. In almost every case, the bulk of the profit goes to the investor who fixes and up and sells properties to owner-occupants. Investors at other levels get their cut, but the retailer receives the biggest reward. And for good reason - for it is he who puts in the most work and takes on the greatest amount of risk.

But what if you’re an aspiring real estate investor who isn’t really sure which end of a hammer to use? Do you have to be Bob Villa in order to undertake rehab projects? The good news is that even the least handy of men (and women) can make it in the rehab biz. Construction knowledge is a plus, but you don’t need to be an architect or wear a hard hat to make the big bucks in real estate rehabs.

Know Your Strengths

So you were almost held back in junior high because you failed shop class… And your daughter had to put together her own doll house on Christmas morning… And you nearly killed the cat the one time you tried to use a nail gun - the important thing is that you recognize your limitations and know your strengths! Don’t waste your time on manual labor if it’s not your thing. Instead, hire a contractor or consider finding a partner to do the dirty work. After all, the less time you spend on repairs (and having your “repairs” repaired), the more time you will have to find and negotiate new deals!

Many real estate investors have become millionaires without much construction knowledge - but even more have lost fortunes due to ignorance and lack of experience. For this reason, it is a good idea to learn at least a little about home improvement. Touring the aisles of your local Home Depot or Lowe’s is a good place to start. Learn the prices of items that commonly need to be replaced - dishwashers, toilets, ceiling fans, molding, paint, etc. The big box home improvement stores also offer classes on activities such as tiling kitchen floors and replacing windows. By developing at least a basic knowledge of home improvement procedures and their costs, you will be better prepared to find a partner or contractor - and make sure that they aren’t ripping you off!

Playing the Partnership Game

There are plenty of people out there with a solid understanding of construction, a good deal of home improvement knowledge, and the willingness to get their hands dirty by putting in a long day of honest work. Many of these same people, for one reason or another, need you as much as you need them. Perhaps they think that their credit is too shoddy to get into the rehab game on their own. Maybe they mistakenly think that real estate investing requires more start-up capital than it actually does. Or maybe they’re just uncomfortable dealing with the paperwork, mortgage lenders, real estate agents, and prospective buyers. In any case, if you’re able to take care of the “white collar” aspects of rehabbing, you can usually find a partner with the requisite “blue collar” knowledge and skills.

If you take on a contractor or handyman as a partner, make sure they have experience at doing fix-and-flips. It’s one thing to know HOW to fix things, it’s another to know what to fix. An experienced contractor who is not an experienced investor may end up putting too much money or work into things that aren’t profitable, thus eating up your half of the pie. It’s worth giving up more than 50% of the profit to gain the experience in knowing what (and what not) to fix.

If you do decide to take a partner, be sure to establish a legal partnership and to put everything in writing.

Hiring Contractors

Taking on a partner may be a good idea for novice investors who lack even rudimentary home improvement knowledge and have virtually no experience in repairs. But a partner is going to demand a much greater reward than an independent contractor, and therefore, you may decide that hiring out your labor is preferable to going into business with a handy man once you gain experience in the business.

For small jobs, you can usually find someone in the “services provided” section of your local classifieds. Unskilled labor can usually be procured for $15 per hour or less, and skilled contractors are typically paid about double that. For larger jobs, you should get bids from three contractors. Spend time with all three of them and ask a lot of questions. If there are discrepancies between the contractors’ assessments, explain the differing perspectives to each of them - each contractor’s response will help you determine if they are incompetent or dishonest.

Finally, as an individual real estate investor, you should go with smaller companies if at all possible. Doing so will earn you discounts and develop loyalty. With each rehab that you witness, the more knowledge you will attain. In no time, you might even develop the confidence to pick up a hammer and use it yourself! - but proceed with caution. Remember, when it comes to real estate investing, it’s best to stick to your strengths!

Many investors were burned this year and last by the falling real estate market. Playing the previously profitable flip game that started in about 2002 (where they would buy at a moderate price, then quickly resell for a profit at a higher price), these flippers suddenly discovered they were in trouble. Real estate they had bought (often multiple properties) was now going down in price, not up. The flippers suddenly, and disasterously, found themselves unable to resell, refinance, or make the payments. As a result, many were forced into foreclosure and some lost their entire investments.

The plight of the flippers has been well documented and noticed, and has had an undermining effect on other would-be property investors. Today, much of the “smart” money is staying out of real estate, playing it safe, so to speak.

That’s unfortunate, because as the market falls in most areas, profit opportunities are arising. (The real estate market is not falling everywhere - in places such as Charlotte, NC, for example, prices are growing at close to 3 percent annually.)

However, the opportunities of today are not those of yesterday. Flipping is out. The flip-side or “holding” is in. Here’s the play:

As foreclosures increase (due largely to ARMs resetting at a higher payment than the borrower can afford, forcing them out, but also in part due to investors walking away from would-be flipped properties) and lenders take over homes, increasing numbers of properties are kept vacant. (Lenders hold the properties vacant so they can resell them, something few are accomplishing.) The latest statistics I’ve seen indicate that something close to 3 percent of the housing stock in the country is now vacant (a multi-decade high), mostly as a result of the foreclosures. Since we never have had a real surplus of housing, that means that there are lots of people out there looking for places to live. And that means the demand from tenants for rentals is strong and getting stronger.

As a result, in many areas vacancy rates are falling and rental rates are steadily increasing. In some parts of Los Angeles, for example, residential rental rates are increasing above 7 percent annually.

The combination of falling prices, low interest rates, and rising rental rates provides a strong opportunity for investors. For the first time in nearly a decade it’s becoming possible to buy “break-even” properties, even properties with some positive cash flow. Today, in many markets, it’s possible with a standard down payment of 20 percent, to buy a property whose cash flow will handle your PITI (principle, interest, taxes and insurance) as well as much of the maintenance and repair costs. To make a profit, all that you have to do is buy and hold until the market eventually turns around. Then just ride the wave to higher values.

Therein, however, lies the rub for some investors: will the market turn around?

I certainly believe it will. The history of American real estate is that it has always gone higher. Historically, in fact, the real estate cycle has averaged around 14 years – 7 up years followed by 7 down years followed by 7 up and so on. If you’ll grant that the current down market is about 2 years old, if history repeats itself, it should be about 5 years before things turn around. Of course, markets that fall quickly, as has real estate, tend to rebound quickly, too. So it could be much sooner.

An interesting sidelight here is that buying to hold doesn’t require that you wait for the market to bottom out. All you need to wait for is a break-even property. Once you have that, you can comfortably hold it indefinitely and ride out price declines. Barring a deep recession or a depression, which would undermine even the rental market, buying to hold is probably a good strategy, as noted, as long as the property generates sufficient income to cover expenses.

Opportunities seem to be particularly strong in single family homes (not necessarily condos) as well as multi-family housing. Apartment buildings, in particular, seem to be faring well with prices falling as cap rates went up. The advantage seems particularly strong in up to 4 unit buildings where Fannie Mae and Freddie Mac secondary financing may still be available. (For larger units, lenders are requiring more “skin” – equity investments of 25 percent or more.)

Buying to hold is not a new idea. It’s been the long-term road to riches for millions of Americans since the Great Depression. Yes, it’s slower than flipping. But, it’s also steadier.

Unless you are independently wealthy, have an extremely high annual income, or plan on hitting the Powerball lottery, sooner or later, you’ll have to learn how to generate cash profits from your Real Estate investment ventures. The old joke “How do you make a million dollars in Real Estate? “Start with 2 million!” has become real for more people than care to be counted.

Just owning Real Estate Property is no guarantee of wealth. There are a whole bunch of things you have to do right to receive your just reward. Not the least of which is staying financially healthy, while waiting on your big pay day.

Let’s face it. Wealth Building, as it relates to Real Estate Investment Property, is a long term proposition. It’s the “Buy and Hold” strategy. You might fool yourself into thinking an investment property is producing a tidy little profit for you each month, but the real profit is down the road.

But what about today? What can you do to increase your cash profits today? Wouldn’t it be great to be able to generate cash profits today, not months or years in the future? Sure it would. And the absolute fastest way I know to stuff your pockets with cash is…

Wholesaling

Wholesaling is the “Buy Low, Sell Low” strategy. Here’s how it works in a nutshell. You survey the Real Estate Investors / Buyers in your marketplace. You find out their property buying criteria. What kind of investment property are they looking to buy? What investment properties are they buying? And under what price and terms?

Next, you go out into the marketplace and secure the product they want to buy at a price that allows you to profit. Then sell it to them. Like I said, nutshell. It’s not any harder than that.

Howza Bout A Real Life Example

Just last week a Realtor called me about a house she had listed. (It could have been a male Realtor, but it wasn’t.) Anyway, she wanted me to take a look and make an offer. This is exactly what I want. Somebody calling me soliciting an offer.

So what do I do? What would you do? Go out and look at the house as soon as possible? Like right now? Sure. So I did!

The house had been completely redone. It had a new kitchen, new hot water heater, new heating system, freshly painted inside and out. It was cute but small. Two bedrooms and one bath. About 900 to 1,000 square feet in a good rental area, but a poor resale neighborhood. Very little retail demand.

The property had been reduced to $25,000. Not a bad price, but not good enough. I made a formal written offer for $15,000 Cash. The Seller countered at $19,600. I balked.

We go back and forth and back and forth. I come up to $17,500. The Seller holds steady. O.K, O.K, let me interject something here.

The house was vacant, listed with a MLS Realtor (the one who called me). So it had a lock box on the door. I could go look at the property any time I wanted. And that’s exactly what I did. Except, every time I went, I just happened to take another investor along.

I’d ask them what they would be willing to pay for the house (cash). One said $20,500. Another said $22,000. And yet another said $21,500. Not a bad market analysis. By the way, this house should rent for $400-$450.

Since I needed some spending money for a cruise of the Eastern Caribbean, I decided to make this deal work. The negotiations continued. I agreed to split the difference and we settled on $18,600.

We closed this deal 2 days ago. I didn’t have to use any of my own money. My buyer / investor came to the closing with the cash. He bought for $21,500. I passed my share of the closing costs on to my buyer and took home $2,900. By the way, I’m leaving on the cruise next Saturday.

Change The Numbers If You Like

These numbers and prices may not make sense where you live. Change them to reflect your marketplace.

This particular investment property would probably appraise for $30,000-$35,000 here in the deep south. It might be a $150,000 where you live. But you get the basic idea.

As to the net profit. This deal was skinny. Real skinny. I would have liked to have made more. But the real choice was $2,900 or nothing. What would you have done?

Total time from contract to close was 7 days. This could have been done either faster or slower, depending on need. Obviously, if the Seller wanted to close faster, that would have affected the negotiations, wouldn’t it?

Let’s Talk Rules Of The Road

Wholesaling is a great business. But you need to be aware of what really makes it work, not some pie in the sky theory.

The number one rule is… you must determine what buyers will buy. What are they starving for? Constantly stay in touch with your market.

Rule number two can be difficult for many people. Don’t be greedy. You have to be willing to leave enough profit in the deal for the other guy. If you don’t, you’re cutting your own throat. Your goal should be to develop a pool of buyers who can make a decision and close fast. Becoming a source of profitable deals is the only way to do this!

And then there’s rule number three. You can’t do business with everyone. If you have trouble remembering this one, have it tattooed on your writing hand. Don’t waste your valuable time on people who won’t do business with you. It’s sad but true, there are people out there who don’t want you to make a profit no matter how good the deal is for them. Move on. There are plenty of people who will appreciate the benefits of doing business with you.

How Much Do You Want To Make?

Wholesaling real estate property works! You’ll be amazed at how fast you can make money in this business. How much can you make? Well, that depends.

If you’re new to this concept, begin with a modest goal of generating one real estate investment deal a month with a minimum $2,000 profit. Start listening and paying attention to the buyers in your market and your profits can easily escalate to $10,000 a month or more. Not too shabby for a little add-on business.

So, what are you waiting for? Give it a try. I think you’ll agree, this is the absolute fastest way to stuff your pockets with cash. And who knows, you might even decide to spring for one of those umbrella drinks as you cruise the Eastern Caribbean. Just don’t forget to send one over to me. I’m the happy guy in the dark sunglasses.

We have become very concerned by the number of readers writing to us asking how to determine which are the wholesalers(*) that can be trusted. Why are we concerned? Because when we dig a little deeper, we realize that they are buying properties based solely on the recommendation of the wholesaler. They’re guessing which ones to trust, and which houses to buy. That’s a dangerous way to do business.

Are we saying that most wholesalers will take advantage of you? Of course not. We believe in wholesaling. We wholesale many deals ourselves every year. Frankly, the majority of wholesalers are honest, and try to provide data that is as accurate as possible. The problem is twofold: first, wholesalers are sales people and present deals in the best light possible. The buyers still need to do their due diligence to make sure the deal works for them. Second, wholesalers can only provide what the average renovator may incur as expenses. Your individual, specific expenses in any given deal may be higher or may be lower. It also depends on what exit strategy you’re planning. That’s why two investors can analyze the same deal, and one decide that it works great, and the other decide there’s no profit. Both views may be correct since everyone’s individual costs vary.

When you purchase any property, you have to calculate your own specific costs to determine if it is a good deal for you. It could be a great deal for many investors, but not for you. Only you can make that determination. Conversely, other people may have to pass on a deal that you, because you may have better resources available, will jump on the opportunity. You also have to evaluate the After Repaired Value yourself. We still hear buyers talking about getting an appraisal to determine the value. An appraisal is a tool for the lender – not for the investor. Appraisals are an art, not a science. We could bring three appraisers to a property, and get three different values.

Therefore, it’s up to you to do your homework and figure out the right value. The question is: “What will this house sell for when the rehab is complete?” You obviously do not want to use as a comp the one home that sold significantly higher than all of the others. But by the same token, don’t use the lowest values either – you’ll never buy a house. We use the highest price cluster of similar homes we find in the area as our comps. This is the most realistic version of what you can expect in the marketplace. We do not under-value the property making it impossible to buy deals; nor do we over-value the property potentially resulting in no profit.

Use the information the wholesaler provides you as a guide to determine which deals to pursue, but then do your own due diligence. Determine your own specific costs, and determine your own property values. Don’t guess whose numbers are correct. In the long run, you’ll be much more successful as an investor.

(*) Wholesalers are investors who market extensively to attract motivated sellers, get the property under contract, then sell the deal to other investors who will fix up the property and re-sell to owner-occupants.

Being able to generate quick cash on a consistent basis is exactly what gets you to full-time real estate investor status, or can take your current real estate business to the next level. Being able to wholesale properties boils down to being able to get those properties sold QUICKLY!!!

From the time you put a contract on a property the clock is ticking and you must be able to get it sold quickly. I constantly see the one ingredient that many investors are lacking which is keeping them from thousands of dollars and that is:

A Strong Buyer’s List!!

In wholesaling properties for quick cash, having the best deal in the world will do you absolutely no good unless you have a qualified buyer that can close quickly. Think of it in terms as your deal being the “check” and your buyers being the “bank” where you cash it.

In fact having a strong buyer’s list will allow you to Even wholesale some “marginal” deals. Buyers work off different profit margins and you just won’t know what the market will bear unless you have a strong buyer’s list and a quality communication system to get that information out to your buyers.

So that’s the question then on how to develop a very strong buyer’s list. Let me share with you some key resources to have a quality and sustained buyer’s list so when you have this resource to support an effective marketing program, it will result in check after check with your name on it.

1) SECTION “8” RENTER’S LIST
Section 8 is a great way to get some very quality buyers. Go down to your Section 8 office seeking the list of properties for rent. From there it is very simple to call the owners on the phone number listed and inquire, “can I please give you a call when I get a truly great deal?”. Then just add them to your buyer’s list and get ALL their information. Section 8 landlords are a tremendous source of quality buyers for especially junker houses.

2) PROPERTY MANAGEMENT COMPANIES
This is a technique that only works IF you show up in person. See, if you’ll simply walk through the door at a property management company and ask if you can bring them a truly great deal for one of their customers if they want to buy another property. If it’s a bona-fide great deal and they communicate the deal with one of their existing customers then its win-win-win. You get the quality buyer you need, the customer gets the property they want, and the property management company gets another rental property to manage.

3) CLASSIFIED ADVERTISEMENTS
I’ve taken out a number of classified advertisements to get potential buyers to call like…

* Rehab specials, 555-1212
* Blue-light handyman specials, 555-1212

You may not have ANY houses in inventory and it’s still all right to run these advertisements. Just simply say, “I don’t have any houses in inventory right now but can I call you on my next great deal?”. They will say “yes” by all means and then be sure to get ALL their contact information.

4) INVESTOR CLUBS
I mean what else can you say? You ought to be soliciting contact information
from all those you can that attend those meetings. Many will be the exact type of buyers you will be seeking.

So, there you have it. To develop a quality buyer’s list its just not rocket science but if you will really put some time and emphasis in this part of your real estate business it will pay you huge dividends in life and that being in the form of checks with YOUR name on them!!

“Flipping” is the buzzword of the year in real estate - flipping books, flipping articles in the newspaper, and even flipping shows on TV! What is flipping, how does it work and how you can profit? Flipping simply means buying a property and reselling it quickly, as opposed to holding on to a property long term as a rental. Flipping comes in several varieties, most of which are legal and profitable, some of which are not.

Flip Strategy #1: Buy, Fix and Flip

Let’s start with the most common form - the good, old “fix ‘n flip”. This process involves buying a property that needs work, fixing it up, then selling on the “retail” market, that is, to a person who will live in the property. This method is tried and true, and works very well. You can easily make $15 - $50k on one deal, depending on your market and how good you are at finding bargains. The danger in fix and flips is either paying too much or underestimating repairs. Be very conservative in your fix-up costs and length of time it may take to resell. Also, make sure you include in your analysis the cost of paying a real estate agent to sell the property.

Flip Strategy #2: Buy, Refinance & Lease/Option

Rather than sell the fixed up property for all cash, sell for terms. Once you have completed the rehab, refinance the property at its new appraised value. If you did the math correctly, you should have little or no money in the deal. Sell the property on a lease with option to buy. The rent payment from your tenant/buyer should cover your mortgage payment (if not, consider an interest-only or adjustable rate loan that is fixed for 3 years). When your tenant exercises his option to purchase, you reap a larger profit, since you don’t have to pay a broker’s fee. If the tenant exercises his option after 12 months, you benefit from a lower capital gains tax rate.

Flip Strategy #3: Buy & Flip “As Is”

Don’t like to do fix-up work? Consider selling the property “as is” as a light fixer upper. If the local real estate market is hot, you should be able to sell the property in poor condition just a little below market. This is especially the case with houses in “transitioning” neighborhoods. Make sure, of course, that you acquire the property sufficiently cheap enough that you can sell it below market quickly and still profit.

Flip Strategy #4: Wholesale

Strategy #1, the fix and flip, is very popular, which means there are a lot of investors looking for rehabs. You can buy the property cheap and sell it for just a few thousand dollars more to another investor without doing any work. You won’t make nearly as much as the rehabber, but you will realize your profit quickly.

Flip Strategy #5: Pre-Construction

In very hot real estate markets, prices are appreciating as much as 2% per month. If you time things right, you can put a contract on a pre-construction house or condominium, then flip it to someone else when the development is complete. If it takes 12 months for the development to be complete, and the condo price is $500,000, you could make $100,000 or more in one year! Of course, the opposite is also true - you could end up losing money if the local economy tanks and you end up with a worthless condo that you can’t sell for more than you paid. Use this approach very carefully.

Flip Strategy #6: Scouting

The Scout is an information gatherer, so not technically a property flipper. He is the “bird dog” who finds potential deals and sells the information to other investors. Many people get started as a Scout for other investors because it does not take any cash or prior knowledge to look for distressed properties. The Scout finds a property for sale, gathers the necessary information, and then provides this information to investors for a fee. The fee will vary depending on the price of the property and the profit potential. The Scout can expect to make five hundred to one thousand dollars each time he provides information that leads to a purchase by another investor.

Flip Strategy #7: Illegal Flipping

OK, I am not advocating this approach, because it is illegal. Illegal property-flipping schemes work as follows: unscrupulous investors buy cheap, run-down properties in mostly low-income neighborhoods. They do shoddy renovations to the properties and sell them to unsophisticated buyers at inflated prices. In most cases, the investor, appraiser and mortgage broker conspire by submitting fraudulent loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot afford the loan. Since many of these loans are federally insured, the government authorities have investigated this practice and arrested many of the parties involved. As a result, the public perceives is flipping to be illegal.

The fact is, “flipping” - as I described in the beginning of this article - is not illegal. Loan fraud in the process of flipping is what is illegal, so don’t confuse the two. The other six ways to flip are very legal, very ethical and very profitable!

This method is well suited to very short term quick-turn deals. As seller financing goes, it is a very simple technique. The investor offers a small amount of the cash to close the deal, with the remaining amount due a few months later, with no interest and only one lump sum payment. You can but a lot of houses with this one technique.

The investor repairs the house and sells it retail, which means the new buyer obtains a new loan, either FHA, VA, or conventional. The investor then pays off the previously negotiated seller financing. All you need to do is convince the seller to take a little money now and the rest in six months or so.

Example…
$50,000
Asking Price

$5,000
Repairs

$75,000
Property Value After Repairs

The Deal…
$45,000
Purchase Price

$5,000
Down Payment

$40,000
No Interest, No Payments, Due in Six Months

Most people will not try to buy a house like this because they think they need a lot of cash to do it. But it really took only $5,000 to do the deal, and you save hundreds in interest.

If you can’t sell it within six months, just renegotiate the payment. However, you don’t need to wait six months since the note can be renegotiated at any time in the future, even if it’s only five days after the closing. The only agreement is between the buyer and the seller. Whenever you have two private people involved, there is always room to negotiate.

Working With an Agent

Seller financing is what makes this deal possible, but you can also work through a real estate agent. You might have to put a little more down so the agent can receive his/her commission. If you do a lot of deals with the same agent, your agent may even agree to defer receiving the commission until you resell the property.

With this type of offer, you can use the agent’s MLS book to look for deals and make offers. Look for properties that are in need of repair. I used a real estate agent to make this kind of offer on the first 22 houses I bought when I was just starting out.

The key advantage to this approach is that it permits you to make more of the all cash offers that sellers always want. Even if they don’t get it all at closing, they get it shortly thereafter.

Example 1: I was called about a house with an asking price of $30,000. After repairs of $3,000, it appeared the house would be worth about $48,000. I handled this one with split funding. I gave some cash at closing and some cash later to satisfy the seller’s needs. That gave me some time to sell the house.

My Offer…
$20,000
Purchase Price

$ 2,000
Down Payment

$18,000
No Interest, No Payments, Due in Six Months

I also made a second offer of $15,000 all cash at closing at the same time because I knew I could net that amount if I had to borrow it from a private lender. This is how the offer was made:

“Mr. Seller, I’ll give you $20,000 with $2,000 down and $18,000 within six months, or I’ll give you $15,000 cash at the closing table. Which do you prefer?”

In this case, he took the higher split funded offer. It is usually better to make both offers at the same time and let the seller decide which one works best. In our two offers, either one will work for us.

Example 2: I was once called about a property that was owned free and clear. The purchase price was $20,000. I gave $4,000 down and $16,000 due in 120 days (no interest, no payments).

After $3,000 in repairs, the property would appraise for $42,000. I didn’t want to do the work so I sold the property “wholesale” for $27,000. I was able to sell the house before I even bought it.

The buyer put $6,000 down. I took $4,000 of that and gave it to the original seller. So $2,000 went into my pocket at closing. The new buyer still owed me $21,000 and I still owed the seller $16,000. When the new buyer paid me, I paid the original seller and made another $5,000 net on the property.

Split funding the payment by giving some cash at closing and the rest later is one of the secrets to quick cash profits in real estate. Many sellers will wait 6 to 12 months for their money if you ask. You’ll never know until you try…

Wholesaling properties for quick cash is something that anyone can do, even the beginning investor. In this article, I would like to give a brief introduction to the world of wholesaling, going over the nine basic steps that are involved in flipping a property.

Step 1) Make your offer.

Whether you pursue FSBO’s (For Sale By Owner’s) or properties listed on the MLS (Multiple Listing Service), you’re never going to be able to flip a property unless you first make an offer. In making your offer, you need to keep your customer, the rehabber, in mind. It should be based upon a conservative estimate of the market value of the property after repairs less a profit margin for the rehabber, money for closing costs (both for buying the property and for reselling it to the retail buyer), money for holding costs, money for repairs and last but not least, a profit margin for you, the wholesaler. Typically, I deduct the greater of 30% or $25,000 for profit, closing and holding costs, money for repairs and about $5,000 for my wholesale profit.

Step 2) Once offer is accepted, sign contract to purchase property.

Once your offer is accepted, you will meet with the seller (if it’s a FSBO) or your real estate agent to sign the contract and give them an earnest money deposit.

Step 3) Start title work.

After signing the contract, contact your settlement attorney (title company, escrow company, etc.) to start the title work on the property. They will order a title search and schedule a settlement date. There are two reasons to start the title work ASAP. First, you want to be ready to settle when you are supposed to settle. Second, in the event that you find a buyer who claims to be ready to buy, you want them to be able to settle right away.

Step 4) Begin marketing to find a buyer.

There are two main avenues that I use to market my properties. First, I’ll call the people on my buyer’s list to see who might be interested. As I’m doing this, I will place an ad in the Investment Properties section of the Sunday paper for the upcoming weekend. Here’s an example of an ad that I’ve used in the past: Fixer Upper*123 Main St., $80k comps, only $40k (xxx)xxx-xxxx

Step 5) Come to an agreement with a prospective buyer.

At some point, someone will show interest in your property. Whether you have one potential buyer or multiple potential buyers will depend upon the deal. Each one is different. The more buyers you have, the less flexible you need to be in reaching a final sales price.

Step 6) Qualify the prospective buyer.

Make sure the prospective buyer either has the cash or a line of credit (ask for proof of funds if they say they do) or will be able to borrow the money from a private (hard money) lender to purchase your property.

Step 7) Sign a contract with your buyer and collect a deposit.

After verifying your buyer’s source of funds, meet with them, execute a sales contract or an assignment agreement with them, and collect a deposit. The sales contract serves as the receipt for their deposit. Either handwrite or include typewritten verbiage somewhere on your contract a statement such as the following, “Received $(insert dollar amount) as an earnest money deposit on (insert date)” and initial it once you receive their deposit. You might also include their check number or write “CASH” if they give you cash.

Step Submit executed documents to the title company.

Submit both items-the executed contract with the original seller and the executed sales contract/assignment agreement with your buyer-to your attorney (title company, escrow company, closing agent, etc.) and schedule a settlement date.

Step 9) Go to settlement.

Go to settlement, pick up your check, and celebrate!

Real Life Experience

When I first started in the business, I believed everyone who signed a contract to buy a home from me. I believed everything they told me and took their word. Often, I got burned; however, it didn’t take too many slaps in the face before I realized that I needed to take control of the entire process. At that point, I decided to control every deal by lining up contractors, lining up the lenders, starting the title work myself through my attorney, and mandating that my buyers use my attorney. Before taking control, I estimate that about 25% of my deals didn’t settle with my first buyer. Since taking control, that percentage has been reduced to about 5% of my deals.

“Reading this article, word for word, could catapult you
into a business worth thousands of dollars to you each
and every year for the rest of your life…”

Dear Friend,

Hold onto your hats because what I have to say could literally change your life.

My name is Scott Britton. Maybe you know me or have heard of me. I’m a real estate investor. At least that’s what I used to call myself. Now, I prefer to be called a real estate entrepreneur.

You see, it doesn’t take long to realize that investing in real estate can make you a wealthy person. We all know that. However, what’s not so clear is how to make a living investing in real estate.

Real Estate is like a three legged stool.

One leg of the stool represents wealth building. That is, buying and holding real estate for the long term.

The second leg represents cash flow, the rental income that a property can produce.

And the third leg represents cash. Good old lump sum cash! The money that you receive when you buy and sell real estate.

In the over all scheme of things, you need all three legs on the stool for your real estate program to be self-sufficient. So… what’s the problem?

The problem is this. Real estate investors get so hung up on wealth building and cash flow that they inevitably forget to concentrate on generating lump sums of cash. Cash that you need to pay the bills, put a roof over your head, put food on your table and support your lifestyle…

Truth be known, none of us (and that includes me) should be involved with wealth building or rental real estate until we learn how to consistently earn enough cash to provide for our lifestyles and have enough left over to invest.

CASH IN DAYS

There is only one way to make lump sums of cash in real estate. Buying and Selling. Sounds simple doesn’t it? It is when you understand the game. Let me explain…

You’ve all heard the old saying “Buy Low, Sell High”. That saying has been thrown around for years as a way to make money in just about any business. We’ve all heard it so much we hardly pay it any attention. That’s about to change.

There are two ways to make lump sums of cash buying and selling real estate. I call them Wholesaling and Retailing. Retailing is the old “Buy Low, Sell High” game. Retailing yields the most profit potential per transaction but also requires the most time and money (and the most work, too!).

The other is Wholesaling. This method could easily be referred to as “Buy Low, Sell Low”. Wholesaling doesn’t have as much profit potential as retailing, but requires less time and money. Some people refer to this method as “Flipping” because these deals can be done so fast!

$2,000 - $5,000 - $10,000 FAST

In my opinion, every Real Estate Entrepreneur should have a buy/sell program going all the time. Retailing is not that hard to learn, but to me it’s a lot of work! Don’t get me wrong, I usually have one or two retail projects going all the time, but what I really like is … Wholesaling!

Wholesaling can bring you lumps sums of cash fast. In days, not months. (And sometimes in hours). Need cash fast? Learn the ins and outs of wholesaling. Once you get a taste of this kind of action you’ll slap yourself in the head and say “Why haven’t I been doing this all along?”

Here’s what it takes to get started wholesaling. Find out what people want and then help them get it! Sounds simple enough. Let me put it another way. Don’t try to sell refrigerators to the Eskimos. Go for the easy ones. The gimmes. Help them get what they already want.

For wholesaling to work for you, you need to establish “relationships”. Talk to people, find out what they are interested in buying. I like to refer to this as inventorying. I don’t even know if that’s a real word, but it describes the process.

Let me give you an example. I have a good friend. Let’s call him Wally (I’ll talk more about him later). He’s in the business of buying and renting houses. He’s ambitious. He’s smart. He’s focused. He’s aggressive. (And now he owes me five bucks for saying something nice about him.)

Anyway… he’s in the marketplace actively buying real estate every single day. He wants to buy real estate deals. He makes money buying real estate deals. So why not…

SELL WALLY SOME REAL ESTATE DEALS

In order to sell Wally something, find out what Wally wants. What areas of town does he prefer? Under what price and terms? What does he consider a good deal? Can he pay “All Cash? Close quickly? What’s he going to be doing with the property after he buys? What has he bought in the past? Establish a relationship with him. Inventory his needs and wants.

You see, I don’t want to own all of the same stuff Wally does. And he doesn’t buy all of the same stuff that I do. We’re all a little bit different. (You can say that again…) We’re all a little bit different. (There, I said it.)

And even if we weren’t different, it would still be O.K. because sometimes I need to raise cash. And so does Wally. And sometimes I find more good deals that I can physically, emotionally, or financially handle. And so does Wally. Sometimes I just don’t have time. And sometimes he doesn’t either. Any of this ever happen to you? Sure it has.

Admit it. Under some set of conditions, you become a Buyer. And under some other set of conditions we all become Sellers. It’s just human nature.

Does Wally care that I make a profit if I can help him get what he wants? No! He doesn’t. In fact, he wants me to make a profit. Why? Because he wants me to continue to help him. Does Wally have to like and trust me? Absolutely! If he doesn’t, nothing will ever happen. It’s called building relationships. It’s the key to quick cash profits wholesaling real estate.

O.K., want to learn more? Good!

VIRTUAL MONOPOLY

First of all a warning… If you don’t listen to anything else I say, you gotta listen to this! Not everybody is capable of learning to Wholesale Real Estate. I’m not kidding. Even perfectly smart, seemingly mature investors don’t seem to get it. You can tell ‘em and tell ‘em and tell ‘em, until your blue in the face and they still won’t get it. Don’t you fall into this trap.

Here’s the problem. Most investors can’t or don’t locate enough good deals. When they find a good deal, they wouldn’t sell it for Retail, let alone Wholesale. I suppose they think that they’ll never be able to find enough good deals to satisfy their cravings. Or, they think they can actually handle all of the good deals that come their way. And you want to know something else…

I used to think that way too!

Two things happened that had a major impact on my thinking. First of all, I found that once you learn the right way to prospect for the really good deals, it becomes impossible to buy them all. When you really learn how to crank up your buying machine (which, by the way, you should have cranked up all of the time) your thinking will eventually change too.

Secondly, I had the opportunity to watch and learn from other Investors, many of whom went bankrupt (some more than once!) Their mode of operation was this…

They would buy every deal they could find. Their purchase criteria was simple. If the bank would lend them more money on the property than they had agreed to pay, it became an automatic good deal.

You see, they considered that extra money that they put into their pocket as profit. And since they made an instant profit (at least in their minds) on every deal that they purchased, they only purchased and never sold. (The Trustee in Bankruptcy sold whatever hadn’t already been sold at Foreclosure Sale)

Although they helped to teach me, they never learned my
#1 undeniable truth of Real Estate Investing… “Borrowed money is not profit”

Borrowed money is a liability. Plain and simple. Don’t build your lifestyle on borrowed money. It doesn’t make for a good foundation.

The safest way to make a profit is to “BUY YOUR PROFIT”. When you buy and pay for your profit, you know it’s yours. And once you learn to buy your profit, you will be building your financial future on a firm foundation.

Just to make sure I haven’t confused you, here is how you “BUY YOUR PROFIT”. When you pay a dollar for an item and turn around and sell it for $1.50, you have just bought yourself a fifty cent profit. You “BUY YOUR PROFIT” by paying for it with something that is worth more than your cost.

There is no liability associated with a true profit. Think about that for a second. Aren’t we all really trying to increase our assets and reduce our liabilities and thereby increasing our net worth (and hopefully our lifestyles as well).

That’s what Wholesaling can do for you!

Learn to crank up you buying machine. Inventory other investor’s wants and needs. And at the same time sell them on the benefits of you becoming a bird dog for them. (Suppose I could bring you a deal as good as, or better than, you usually buy… is their any reason why you wouldn’t want to buy it?)

Don’t be greedy when Wholesaling. Sell your deals to the highest and best bidder, but remember… you must leave plenty of profit potential in the deal for it to remain attractive to other investors.

And above all else, learn who you can and can’t do business with. The truth of the matter is, you can’t do business with everyone. Don’t beat yourself up over that fact. Accept it, and go on down the road. There are plenty of people that you can do business with.

Well, that’s just the tip of the iceberg on Wholesaling Real Estate, but I hope you get the general idea. Go out and give it a try. I think that you’ll find that it’s chock-full of benefits for everyone involved. And who knows, you might even make some new financial friends along the way. (as well as a few thousand extra greenbacks!)