Value versus Market Price Sunday, May 17 2009

I have been working for months with several investors now. Some are sellers and some are buyers. If I could get the two parties to agree on the price, it would be wonderful. However, i do what my clients wish and so at times I have to make an offer which I do not think equate to the value of the property.

Like any other thing, a material possession has an emotional value attached to it. It has little to do with market price which is dictated by the current supply and demand, which is in turn dependent on local, national and global economies. Too many factors to consider.

Investors, or really eveyone, should not be attached to the investment properties. There is a time to buy and a time to sell. As it says in the Bible, a time to sow and a time to reap.

The task of the adviser is to let the clients know the current conditions affecting such properties and therefore offer alternatives to the investors based on those market conditions.

As always, the ultimate decision rests on the client. We simply do our due diligence, present facts, perhaps offer a recommendation but that is it. To each his own. We respect each other’s free will and honor each other’s paths.

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The Importance of Working with a Mentor-Coach Wednesday, Jul 30 2008

If you went on safari in Africa, or on a mountain trek to the Himalayas, you would need a guide. In real estate, you would need to find a mentor. A mentor coach is someone who has done it and can share insights that are important for you to be successful. It can be expensive but it is well worth the money you will spend for it.   It will save you money, but more important, time. The mentor-coach can help you find the finest information at the shortest possible time.

Where I went to obtain a University degree, everyone’s tuition was paid for by the government except those kids whose parents owned whole islands or are highl ranking government officials. As we were the scholars of the citizens of the Philippines, we were reminded that if we were not going to work hard, on our own, then if we could please have the integrity to leave so that someone else who was more deserving could take our place. We owed our education to the people of the Philippines who paid taxes.  As classmates, we addressed each other formally as Mr. or Miss or Mrs. We were not allowed to miss school, and certainly we were not allowed to borrow notes from each other. If we missed school because we got ill, it meant we were not disciplined enough to take care of ourselves. We could approach our teachers if and only if we had exhausted all avenues and we were stuck. We attended lectures, we went back to our dormitory rooms and hit the books. 

I am and will always be grateful for the highest class of education I had. However, looking back, perhaps I would not do it the same. Yes, I would have studied as hard, but I would have certainly asked the help of the people with brilliant minds-my associates and peers.

When I started real estate investing, I did everything by myself. It was partly because of fear. If I did it and I failed, I certainly would not want to broadcast it. The other part was pride. I could do it on my own.  These two attitudes cost me and were I to do it all over again, I would have first found a one on one mentor. Experience though is a great teacher and sooner or later, one must experience some setback in order to push forward.

I suggest that beginning investors learn everything first from the readily available literature and get their feet wet.   Success builds on success and the more success you have, the more enthusiastic you become.

A mentor who is available to you is invaluable when you really do not know what to do and wish to be reassured.  The more confidence you build, the better you become at it.  That is what a coach who has experience can help build in you.  A good coach will not necessarily tell you what to do, but will share his or her experienc that relates to your particular need. He or she will always just prod you to get the answer for yourself. Ultimately you decide and are responsible for your own decisions.

A good investor learns and learns and learns. Each transaction is unique and is treated as such.

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The Real Cost of Purchasing Property Monday, Jul 28 2008

In chess, it is the king that you need to protect in order to win your game, therefore every move has to be calculated. In real estate, cash is your most valuable asset.  Every penny has to be accounted for because IT MATTERS.  So here are the costs associated with the purchase of property. Here is a list of the expenses that you will encounter when you buy, assuming that you already have the downpayment money.

Earnest money is the money you put into escrow before the closing to indicate to the buyer that you are serious in purchasing the property.  If you deposit it with an individual, you may ask that he holds it, however as soon as you give the check to another person, it is implicit that it is funded.  This amount varies from broker to broker and from state to state.

Inspection money.  You will need to have an inspection done in order to determine whether there are hidden defects in the structure of the building. This money is necessary because an inspection report will allow you to renegotiate the price of the property, and it will tell you how much needs to be done. You will then have to decide whether you are willing to do all of those.

Appraisal money.  The property has to appraise for the price that you are willing to pay for it, preferably within a few thousand dollars of the asking price.  There is no huge advantage in having the property appraise for a lot more than what you would pay for it, until after you own it. First, a value that is way higher than the selling price raises flags with lenders, unless of course they are the ones who are selling it.

Property insurance money. In Louisiana, you have to bring proof of insurance purchase and it will say it will take into effect when the property is already in your name, but you do have to purchase it prior to closing.

Closing costs. Closing costs are broken down to attorneys fees, title search, title insurance, recording fees and mailing fees. You will need a very good attorney which you would if you had alredy assembled your team.  Your HUD statement will detail all of the costs of closing. This is also where you will see the cost of your loan as far as your mortgage broker fees. Different mortgage brokers charge different fees, depending on the type of the loan.  Some lenders will also require that you insure the title for the property in order for them to lend you the money.  If there are any questions on your HUD statement, feel free to bring it up on the table during closing. Your attorney has an obligation to tell you everything that is there.

If you pay for the property in cash you will still have to pay for everything other than the mortgage broker’s fee. I recommend that you still purchase the title insurance.

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Appreciating Each Piece of Property Thursday, Jul 24 2008

I am fond of old houses.  They have character.  If the walls could talk, what wonderful stories they would tell.  I prefer to look at old houses with good foundation and basic structure, both as a piece of history and a work of art. They reflect the history of the street, the subdivision, the town.  They reflect the craftmanship available at the time and the materials that the workmen had at that time.

The new houses signify new beginnings and for that, they are special.  The new occupants can fill the walls with their stories.

Each building is different, no matter if they are cast from the same model and outwardly looks the same.  If we ever stop to ponder at the amount of work that was put into each building, we would appreciate each and everyone of them for themselves. Countless man hours, a perfect coordination of the people involved, timely delivery of the materials to each building in progress.  There has to be a great deal of planning and coordination, although I prefer to call it a harmonious process involving many people.  Each house, no matter how closely they resemble the next one, is a work of art.

Two of my cousins are architects. I had no idea of the amount of work that goes into each plan until I really began asking them about them.  Each drawing is to scale, each model takes a long time to build.  It is materializing a vision that was first formed from the mind of the person who commissioned the work or for the lucky architects who have a free hand in envisioning, designing and building it, it is a beautiful process which combines both skill and creative talent.

I always keep in mind that investors must not really fall in love with the property they are buying, but there is nothing preventing them from appreciating the properties as well.  That one is not attached to a particular piece of property does not run contrary to appreciating it.  One likes it well enough and appreciates it well enough to purchase it, and is perfectly willing to give it up to someone who values it.  It is simply flow.

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The Case for Real Estate Investing Saturday, Jul 19 2008

 In the Island of Hawaii, commonly called the “Big Island” because it is bigger than all of the other islands combined, land is being added all the time. As the volcano spews lava and rock, the island expands.  It takes many years for the newly formed land to be useful for planting. The combined lava and rocks have to be weathered to form the rich topsoil suitable for planting crops.  Elsewhere in the contiguous United States, there is a finite amount of land, which makes land by all means a valuable commodity.

     One can predict the future profitability of a real estate purchase within a span of a few years.  The fact remains that the land value will always tend to go up, barring cataclysmic global events.

     I remember my grandfather giving away a small piece of land to one of his tenants. It was not much, about 100 acres. It was located too far away from where he lived at the time and he did not want to travel that much anymore after World War II.  What he did not think of at the time was that it was bordering a huge lake, which, 50 years later became a tourist attraction in the region.  The land became a most desired location and the heirs of his former tenant were richly rewarded.  I always thought that whoever created the wealth has the authority to dispense it, but I do sometimes wish that I could visit those spas built in that land without having to pay. Just a wish, not a nagging yearning.

     No one can predict with absolute certainty where the greatest gain in the value of real estate will be.  In these tumultuous times in the financial markets, it is understandable to be a little scared.  The newspaper heralds the double digit declines in housing values, but keep in mind that each market is unique, each town is unique.  Everything goes in cycles like the seasons. If you are a long term investor you ride the waves, just like a surfer.

     The next question then is must one buy a developed real estate or an undeveloped land? The choice is always up to you and is dictated by your financial situation.  There is only one caution you need to be aware of and it is never to fall in love with your purchases. You must be ready to let it go when it is time.  Always keep in mind that we borrow it and then enjoy it for some time and then let it go for someone else to use and enjoy.

     The people will come and go, the buildings will get run down and replaced.  Nothing is permanent. Only the land remains.

     Who is Ted Turner?  Answer (A) The ex-husband of Jane Fonda (B) Founder of CNN (C) Donor of US $1B to the UN (D) Owner of the largest acreage in the US. 

     Answer? Take a guess.

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Owning Up to Your Decisions Thursday, Jul 17 2008

      The business world fascinates me, largely because everything I know about it stems from self study. I am a scientist by training the academic world was the only world I knew before.  Many would be investors will have had the same backgrounds and to those who are going to follow their career paths while investing part time, a little education is necessary.

     The business world, of which real estate investing is much more varied, fluid, dynamic and kaleidoscopic.  In the earlier part of this theme I posted the steps to be taken by anyone who would invest in real estate. It is for everyone.

     Even the most sophisticated investor, will at one point in time, question whether they made the right decision in the purchase of the property.  As long as you own up to your decisions and not blame anyone else for something that did not go quite well, you will do fine.  You accept that you made the best decision that you can at the time that you made them.

     It is said that as music is the language of the soul, mathematics is the language of the gods.  Numbers are what you see on paper. They are generated by precise formulas. Numbers are impersonal. If you use the same formula for calculating something, then your calculator or program will always give you the same answer ad infinitum. 

     I have walked away from deals that look good on paper. On those, I lost my deposit money, and I chalked it up to learning.  When everything else looks good and you are ready to sign on the dotted line, you still have to feel inside that this deal is for you.  It is as simple as that.  How do you know?  You just do. Every once in a while, you will see that one of the deals that you walked away from was actually a good deal.  The first tendency is to regret, but this serves no purpose at all.  There will always be good deals. That is why you have a team.  For every success and for every perceived loss, you learn something. You have to ask yourself what you learned from it and use that knowledge for your future purchases. In this case there is no difference between buying a stock and real estate. You win some, you lose some. As long as you win more than you lose, and that is where your instinct has to play a part, you will always be on track to long term wealth building.

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Why You Need a Realtor® Wednesday, Jul 16 2008

There are so many programs available in the market which espouses buying directly from owners who are selling their properties.  It is not adviseable to do this if you want to be a professional investor.  Depending on where you live in the country, the realtor fees are either paid all by the seller or split between the seller and the buyer.

     First, we have to acknowledge that realtors get paid by commission. It is their job and they are entitled to it.  Money is used as a means to pay for goods and services rendered and your realtor has an implicit obligation to render you the best service possible.  A good realtor will look after your interests, and this means more than giving you a ballpark estimate on where your offer should come in based on the previous sales in the area you are looking to buy. It also means that he or she will make sure that there are no loose ends in your transaction.  Actually, this process is so fascinating in it’s intricacies.

     Your Realtor® is a professional. He or she knows the market and can make recommendations to you, but keep in mind that one who looks after your interest will only recommend something that is in line with your expectations. Also, keep in mind that you always have the final decision.

     Because the realtors work very closely with each other, you will find that he or she may call you before a property is listed on the Multiple Listing Services. Since they are always in contact with each other, the listing agents often call their other associates on properties that will be listed within a day or so.  Consider this your preview of the coming attraction. You could be the first person to view the property once it is listed.

     If the property is for sale by owner, your realtor makes it easier for you to see the property by setting up the appointment for you and being with you when you visit it.  Selling, by anyone, is always an emotional process.  The presence of a realtor creates an impartial ground between you and the seller.

     Once you have decided to buy the property, your realtor is responsible for negotiating the price with the listing agent. Keep in mind that your realtor may suggest but you ultimately decide on whethery to buy or not. Once the contract is signed, your realtor makes sure that the process goes smoothly until the time of closing.

     One final point. A good realtor will not be mad at you if after all that she or he has done you decide you do not want to proceed to closing at all.  You are after all the client. He or she may not get the commission for that deal, but keeping you as a client who, in the future, with his or her help, can and will buy more properties is more important.  A long term relationship is better than one deal that did not go through.

     Your realtor is key to your success as an investor, but just like a doctor, you have to be very comfortable working with him or her. He or she is, after all, one of your partners in building your portfolio.

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Creating Your Real Estate Investment Team Tuesday, Jul 15 2008

Once you have decided that you want to be an investor in real estate and you are in it for the long haul, you need to assemble your team of experts.

Depending on how conscientious you were in the past about guarding your credit, this process can take up to one year. You will need to interview the members of your team because you will be working with them continuously.

Here are the steps that you have to do.

1. Visit your local banker and speak with the person who deals with all loans. If the bank is small enough, this person will handle all loan inquiries in that particular branch.

2. Assemble your papers. This means bank statements, pay stubs, cds, titles to properties you already own.

3. Find the addresses of  the three major credit bureaus. Ask for your most recent credit report (you may or may not have to pay for this service).

4. Begin interviewing mortgage brokers. You do not need to send in paperwork to all the mortgage brokers that you know, as every time they access your credit report there is a corresponding decrease in your credit score.

5. Work with a real estate agent who has done the same thing you are going to do. Someone who sold you your million dollar home may or may not have had experience in investing, very simply because they have different focus and have defined niches.

6. Your real estate agent should have a list of everyone that can help you manage and or keep up your investment.  This list will include appraisers, inspectors, plumbers, electricians, cleaning ladies, carpenters, painters, landscape or yard maintenance person. If you decide to have someone manage the property for you, interview not 3 but 5. This is  a crucial choice. It can save you a lot of frustration, not to mention lost income.

7. You will need an attorney that will do the legal work for you and it has to be a real estate attorney.

8. Once you  have assembled your team, set up a meeting with your finance team (banker/mortgage broker/accountant) and tell them what you intend to do.

9. Set up a meeting with your real estate agent, the one who is going to find you the properties. Be specific in your criteria when defining what you want to invest with (is it location? type of construction? undeveloped land? a new construction? is it a single family home? is it a multifamily home?). Those are the questions that only you can answer.

10. Know the area you want to invest in like the palm of your hand. Where are the grocery stores? Where is the nearest bus stop? Is there a laundromat close by? How are the buildings in that area? Do the owners maintain them? The most important criteria: Will you live there?

You have assembled a team of experts and your task is almost done. That is just the preparation for your buying process. You have to be doing all of this in addition to your family/social obligations and your career. Give yourself some time.

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Simple Truths about Real Estate Investing Tuesday, Jul 15 2008

       There are several things that one has to keep in mind when investing in real estate. The very first is that real estate is largely illiquid. One can not go to the bank and just hand over the title to a piece of property and get cash for it.  In some instances a cash-flush buyer can buy it without having to go to a bank or mortgage company but the transfer of title still takes time.

      The second thing to keep in mind is that property requires maintenance. One family I know has a good piece of residential property with a tennis court, a swimming pool and a good sized landscaped yard in addition.  The cost of maintenance:$6,000.00 per month. This includes the landscaper, the pool person, the maid service and the maintenance of the court.  Granted this property is in California but it gives a pretty good picture of the process of maintaining property.

     If you own rental properties maintenance can include yard service, electricity/water/sewer/garbage collection and any variation of it, and in addition, you will need a carpenter, a plumber, a painter, a fellow who maintains the airconditioners, and someone who will see that the tenants keep to the rules.

     Before you buy property for investment, you have to ask yourself the following questions:

     1. How long do I intend to keep this purchase?

     2. Who will maintain the property?

     3. Do I have the necessary cash reserve to pay for an unexpected major expense such as a new airconditioner?

     4. How much money am I willing to put into the new property that I am buying?

     5. What is the return of my investment in comparison to a liquid asset such as a cd, a stock or very simply a savings account?

    When you have considered all of these questions, and fell you have the knack for it, you are ready to buy. Get your calculator ready.

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For Investing, It is Always A Good Time Monday, Jul 14 2008

      The presence of a desire for anything is an indication that inherent in that person is the capacity to achieve or have whatever it is that one desires. It is in defining what we want and then staying focused on that desire that the rubber meets the road.  Our minds are so accustomed to changing all the time. Observe your thought when you go into a restaurant and are presented with a menu. Did you notice that it is not so easy to choose what you want to eat?

     If you have always wanted to be an investor, then read on.

      The greatest investor of our time varies with whom you speak with. For some, it is George Soros, for others, it is Donald Trump, still for others it is Warren Buffet.  Warren Buffet is the most beloved of all, and people pay lots of money to have lunch with him. He is endearing because of his simplicity, his humility and above all else, straightfowardness. He did not invent anything. He simply studied the stock market and used his knowledge to pick and choose. This approach towards investing in real estate is also the best way to do it. No hurry. Study, study, study and then choose, then buy, then protect your investment.

     One can look at real estate investing in a way similar to that of a commodity. We will always need a roof over our heads and food on the table and some money for our other necessities. Depending on the lifestyle that you are accustomed to, the definition of necessity varies.

       Investing is only a part of our life when our necessities have been met. It is, however, possible to change what is necessary in our lives in order to set aside something for investment purposes. It is also helpful to have a guide that can help you in order to save you years of study.

     Someone who has  experience  can save you countless hours of studying and can also help you determine your long term financial goals and work toward it.

     When is a good time to invest? Anytime is a good time to invest.  First of all, you are investing the money that you would otherwise spend. 

     I love the stories of Robert Kiyosaki, author of Rich Dad, Poor Dad. While others question the authenticity of the stories that he wrote, he is still a great story teller and can serve as an inspiration to lots of people.

     If you are interested in learning more about investing in real estate, please give me a call or e-mail me. I will be happy to answer any of your questions.

     email me at msorensson@vaneatonromero.com or leave me a voicemail at 337 267 4030.

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