Tuesday, June 9, 2009
Are you a real estate investor or a real estate speculator? What's the difference?!!?!How about a clear cut strategy, a set of goals, and a business plan on how to reach those goals?
When is a Strategy not a Strategy?
All too often when asked the question, “What’s your strategy with this property?” an investor will start talking about:
Repairs Paint FlooringUpdating
Landscaping HVACBathrooms Kitchens
These are short term tactics, not a strategy! These are the things that you need to do toget ready to execute your strategy! Here are some popular strategies:
- Fix-up and sell
- Long term financing and rent
- Lease option
- Long term financing with credit partner
- Pull out equity, create a cash reserve to cover negative cash flow, and then sell after one year to pay long-term capital gains tax
- Fix-up, move in for two years or more, and sell within five years to qualify for primary residence tax exemptions
Who Cares About "Tactics" vs. "Strategies?"
You should! All too often real estate "investors" are really "speculators," without a real game plan. A basic plan should be in writing and include some basics:
- Financial goals- long term, short term, annual, etc.
- Primary Investment Strategy
- See the list above for a start
- Backup plan if the primary strategy for a property is unsuccessful
- Ideal Property Profile
- Price range, including target discount below market
- Location, location, location
- Condition (new, touch-up, fix-up, major rehab, etc.)
- Key team members
- Title officer, appraiser, and inspector
- Real estate agent(s) & other property sources
- Long-term loan broker & short term loan sources
- Accountant, lawyer, and book keeper
- Contractors of all types
The Acid Test
How do you know that you have a business and are not just speculating? Well, can you sayyour business plan in 30 seconds or less if someone asks? For example,
"I invest in multi-family, residential housing in Webercounty for both cash flowand long-term capital gains.
I buy them in good condition for 90% or less of market value and then do everything I can to keep them occupiedand expenses down.
My goal is to have one new property every six monthsand I only sell properties if my business needs a cash infusion."
There is a BIG difference between Investors and Speculators. The biggest is that speculators loose money when the market changes, investors thrive!
Friday, June 5, 2009
- Real Estate Brokers
- Loan Officers (Traditional)
- Loan Officers (Short-term)
- Contractors of all types
- Title Officers
- Property Managers
- Real Estate Lawyers
- Financial Consultants
Here is the contact for a club thatt Clear Day Capital attends and supports:
Shawn Watkins (801) 678-1901 firstname.lastname@example.org
- Send an e-mail to Clear Day Capital. We are all experienced investors and we would love to help you work out a deal or introduce you to someone who knows how to make things happen!
- Stay in touch! We suggest e-mail and we use iContact. It’s fast, it’s easy, it’s inexpensive. Want a free trial? Click here: Free 30-day iContact Trial
Tuesday, June 2, 2009
Maximize Revenue, Not Just Rent
Last month’s newsletter was all about how to get the highest possible monthly rent But there is more to maximizing income from rental units than the monthly rent. This month we’ll look at late fees and “no deposit” leases for additional revenue and how to minimize vacancies to keep the checks coming in every month.
Late fees can be a very important increase to your revenue every month. Here are some ways to make sure late fees are charged and collected:
-Spell-out late fees in your lease, including when:
-Rent Past Due “Rent received after 5pm on the 1st day of the month is past due.”
-Late Fees Charged- “Late fees will be charged if rent is not received by 5 p.m. on the 3rd day of the month.”
-Clearly identify late fees. For example: “Tenants will be charged a $50 late fee for rents received after…”
- Collect late fees first, then the rent
- When a tenant pays, credit late fees first
- If late fee is not paid, then the balance of the rent is still due. Since rent is still due, you can take legal action to start the eviction process
-If a partial rent payment is made, rent is still due and late fees will be charged
-Once the rent is past due, send an invoice for the late fees
-The good news about late fees: They can be an important source of income. Some landlords feel that their best tenants are the ones that pay late every month, but always pay with their late fees. The late fees can add up to another month’s rent each year.
“No Deposit” Leases
“No Deposit” leases can generate incremental income. How? Offer two choices: lower rent with a deposit or higher rent. The higher rent should give you enough incremental income so that in about six months you have more income than the amount you would have received for the deposit.
A lot of well qualified tenants can pay the extra rent each month but have a really hard time coming up with a deposit and will go for the more profitable option. Here are some examples:
-$675 monthly rent with a $340 deposit or $735 rent and no deposit
-$1,200 monthly rent with a $600 deposit or $1,295 rent and no deposit
-$325 bi-weekly rent with a $325 deposit or $360 bi-weekly rent and no deposit
In each example you would collect twice as much extra rent as you would have as a deposit within 1 year. And guess what? You don’t have to give back the monthly rent when the tenant moves out. There will be no debates on how much of the deposit should be refunded and if repairs are needed you have a lot more money to make them with.
Some of you will say, “What, NO DEPOSIT? What if the tenant trashes the place?!!?” Think about this:
- Tenants who trash a property usually do a lot more damage than a half month’s rent. How far does $400 - $600 go to re-carpet and re-paint even a small unit?
- Even good tenants often say “Here’s my notice. Use my deposit for the last month’s rent.” Of course they have a legal obligation to pay the last month’s rent, but what is the cost of dragging them to court to collect?
Of all the topics on how to maximize revenue, this may be the most important. Why? Because if you try to get an extra $50 rent on a unit, but it creates an additional one (1) month vacancy, you just wiped out a year’s extra income on a $600/month rental. Do the math:
Extra $50 Rent x 12 months = $600 per year
1 Month Less Rent = $600
How do you keep your units full and then re-fill them quickly when someone moves out? Volumes have been written about how to minimize vacancies, here are a few key ideas:
Keep Your Tenants: Turnover will kill you.
Pre-rent the Unit: Start advertising immediately when you receive notice. Not ready to show? Get a list of people to call when it is ready.
Develop a Waiting List: Always advertise your units. When you don't have a unit, keep track of who they are and what they want. Call them when you have what you want.
Pay For Referrals: As soon as you know of an upcoming vacancy send out an e-mail blast to let friends, family, and especially current tenants to let them know about your unit. Offer them cash to find your next tenant!
Fast Rent Ready: Goal: New tenant move in the day after your old tenant leaves. The current tenant leaves the property rent-ready. That won’t always happen so you need an action plan for clean-up and fix-up. Even major fix ups, such as junk removal, new paint, and new carpet can be done in a week if planned properly.
Want to give your real estate investing a boost in 2009? Thinking that the best way to make it happen is learning a new investment technique or getting better pricing out of Home Depot? Well, that may help but here is another idea: Find like-minded people who share common goals that you can help, and in turn are likely to help you! In other words, Network!
Take an inventory of who you know and who else you still need to meet!
- Property Sources- so you can find more properties in less time
- Realtors who specialize in working with investors
- Banks that have REO
- Investors who wholesale properties
- Internet web sites that list investment RE
- Financing Sources: so you have the right financing when you need it
- Friends and relatives with capital to lend- long term or short term
- A long-term mortgage broker that specializes in working with real estate investors
- A bridge-loan broker to provide funds fast for quick turn-around opportunities
- Commercial loan specialists for your larger projects- one for short term loans and one for long term loans
- Property Improvement and Analysis Help: So you can turn a property as quickly as possible
- Roofers, framers, drywall, electricians, plumbers, etc.
- Landscapers, sprinkler specialists, and concrete people
- Appraisers and selling agents
- Send an e-mail to Clear Day Capital. Tell us who you are trying to meet and we’d be glad to introduce you
- Join the Utah Apartment Association and attend their meetings and ask other members about their network (click the above link to learn more)
- Real Estate Investment Clubs. The are many around and you can meet people at all of them.
How do you stay in touch? This can be the hard part! Why? Because you’ll build a list of hundreds of people! How do you keep in touch with them? Here are some suggestions:
- E-mail: We use iContact. It’s fast, it’s easy, it’s inexpensive. Want a free trial? Click here: Free 30-day iContact Trial
- Invest in your education. Click hear and buy a copy of Jeffery Gitomer’s Little Black Book of Connections for lots of great ideas of how to make and keep networks.
Networking… help and be helped. The key to successful networking is to first ask what you can do for the other person. Sometimes the answer is obvious. For example, you can buy a house from a real estate agent who specializes in working with investors. In other cases, it may have nothing to do with real estate! For example, you give an investor an lead on a reliable auto mechanic and that is your connection.
Sometimes there is no good connection… that’s OK! Move on to the next person that needs help and can help you!
Can Clear Day Capital help you make a connection? E-mail us at email@example.com and let us know who you want to meet. We’ll do everything that we can to create the opportunity for you!