~ For real estate investors who don't have time or money to waste!
July 4, 2003 "Happy 4th of July"
In this issue:
Getting Started: How do I make this deal work?
Advanced Strategies: Is the seller lying?
Facts to ponder: Where is that bubble?
Creative Deal Structuring: Making your offers look better
Success Stories: I stand to make up to $160,000!
Q & A: What is an option worth?
Upcoming Events - Creative Financing Boot Camp in Houston July 8th - 9th
Editors: Bernard 'Barney' Zick bernard@zick.com
Amy McIntee amy@emcii.com
Getting Started: (back to top)
How do I make this deal work?
A student wrote to me, telling me the following:
I have a situation where I'd like to help these individuals, but I'm very unsure of what steps I specifically need to take. Here's the deal: a ranch single-family home with rental apartment in (a large NE city). Appraised $260,000. Liens: 1st $234,000 ($2300/month payment) and a 2nd: $40,000 ($375/month payment).
The house is in the husband's name; he filed chapter 13 bankruptcy in February. They have a court date for April 24th and they plan to have bankruptcy dismissed since the wife is not willing to part with her Mercedes Benz (can you believe this?). In addition, they HAVE NOT paid anything towards their mortgage (1st & 2nd) in the last six months.
The wife wants me to put the house in my name because she/they do not want to move. I suggested selling the house to me along with some cash in their pockets.... she/they don't want to do this, but they still want my help. Do you have any other suggestions????
P.S. I have not spoken with the husband yet and their home phone has been disconnected. My only way of getting in contact with the wife is via her cell phone. She told me not to call her on the cell because she doesn't have anymore "minutes." I know this is business, but the wife's attitude "sucks."
Here is my reply:
If you want to take up welfare work, then this is a perfect place to start. But if you are looking for an easy real estate deal... walk away. You have two BIG problems...loans over value and filed bankruptcy. Yes, you could try to get the loan company to take less for both of them. But you have the chapter 13 problem that makes that almost impossible. Personally, I would wait until they drop out of 13 and have to file chapter 7, buy the second from the second mortgage holder for about $1000, (if there is still any equity) and then ask for the deed, then start negotiating with the first mortgage company for a discount (and not record the deed until you know the outcome).
Secondly, never get involved in buying a persons house and letting them stay in it when they have these sorts of problems. You are just asking for big trouble the least of which will be losing the house.
Secondly, you can not get your personal emotions mixed in with business. It just does not work. Or, there is social work...
Sorry I did not tell you what you wanted to hear, but my job is to make you a success.
BZ
Advanced Strategies: (back to top)
Is the seller lying?
A student located a 7-unit apartment building not far from his house. It is in what seems to be a good location. It is very central to downtown. A service providing comps gave a lot of information about the property. But the student wants to know "How do I tell if the information about income and expenses is accurate? Can I ask for tax returns? If so what forms? Is this a normal request?"
Here are the numbers on the Investment Property:
| 7 x 1 Bedroom 1 Bath units + 3 x garages | |
| Current income | $4,700.00 per month |
| Seller asking price | $675,000.00 |
| Current rents are well below market. | Market rents are $850.00 per month |
| The student said, to get the new first being offered, one would need to invest 30 % as a down payment. | |
| The financial stats based on the existing rental income and taxes are: | |
| Purchase price | $675,000.00 |
| 30 % Down payment | $202,500.00 |
| Loan Amount | $472,500.00 |
| Interest rate @ 7%, 30 year fixed | |
| Monthly payments | $3,144.00 |
| Current Income: | $4,700.00 |
| New Expenses: | |
| New monthly mortgage | $3,144.00 |
| Property Taxes | $563.00 |
| Insurance | $100.00 |
| Maintenance & Repairs | $470.00 |
| Total Expenses | ($4,277.00) |
| Pre tax Cash flow | $423.00 |
| Projected income on current market rents: | |
| Units, $850 x 7 | $5,950.00 |
| 3 Garages @ $75.00 | $225.00 |
| Total projected income | $6,175.00 |
| Projected cash flow: | |
| Mortgage | $3,144.00 |
| Property Taxes | $563.00 |
| Insurance | $100.00 |
| Maintenance & Repairs | $618.00 |
| Total Expenses | ($4,425.00) |
| Pre Tax Cash Flow | $1,750.00 |
I can tell you right away, the numbers do not tell the story. Most apartments have expenses in the range of 40 to 50 percent of income for older units like these. But the question was about verifying expenses. You start out by asking the seller for an income statement. You ask lots of questions. As part of your offer, you get copies of the income statements and the seller warrants that they are accurate. You can also ask for that part of their income tax return that relates to the property. But the best way is to do your own audit. You will get copies of the leases. Add them up. Your contract will make them guarantee that there are no side agreements, but as part of the closing you can send a letter to tenants stating what you have been told is true and if they have pre-paid rent or such, they will want to tell you to protect themselves. You can get a letter from the seller that allows you to contact the utilities to verify what they have been paying, etc. You complete an audit like a CPA would do. Read my book "How to Buy and Sell Apartments and Other Income Properties" and pay special attention to the pro-buyer purchase contract in the back.
BZ
Facts to Ponder: (back to top)
Where is that bubble?
The press love to print inflammatory headlineslike "When will the Real Estate Bubble Burst?" According to the National Association ofRealtors (NAR), overall home prices should rise 5.1 percent in 2003.
More interesting is the fact that 391 metro areas of the U.S. had double-digit annual increases in median existing-home prices and only eight areas posted a small decline. The national median existing-home price was $161,500 during the first quarter, up 7.0 percent from the first quarter of 2002 when the median price was $151,000.
"The annual rate of national price appreciation has slowed from 8.4 percent in the fourth quarter, but it remains above historic norms," according to David Lereah, NAR's chief economist. He predicts price increases should slow, but notes that the rate of increasing prices will slow, not that prices will decline.
Strongest price increases were in Philly at 25.7%. The range was from $80,700 in Waterloo-Cedar Falls, Iowa, to $509,000 in the Bay area of SFO. The Anaheim-Santa Ana and Boston areas were close behind. Houston is running about $30,000 under the national average and is a great place to invest... send us your money and we will send you a deed!
Yes, the NAR will always take an optimistic view. And each area is different. But the only big bubble I see is in the paychecks of the reporters that rule on economics when they have a degree in Liberal Politics.
If you want all the details, go to the National Association of Realtors site at www.realtor.org/publicaffairsweb.nsf/Pages/MayEHS03?OpenDocument.
Success Stories: (back to top)
A friend found a deal and could rehab it by himself, but he knew that I could get top dollar based on my first deal, a house I did as part of the homework at your boot camp! The property was a vacant church which we purchased for $100,000 on a note that has no payment and is due at the time of sale. Not only that, the note can be paid to them based on terms of sale; e.g. if sold for $400K owner finance @ 10%/30yr, can pay $100K/10%/30yr). I helped structure this deal based also on what I learned from you. We advertised it for sale at $440,000 or for lease at $4,000 per month. Terms: will accept purchase, owner finance, lease/option, lease. Our only investment is the repairs of about $20,000 that were split 50/50 with my partner. I started working with a day care group to find a buyer or tenant. We are about to close a deal now. I stand to make up to $160,000 due to the education I received from Barney Zick's Boot Camp, plus the tens of thousands of dollars on my other deals I have done this year.
TB
Q. What is an option worth?
A. Value is a funny thing.
What is the value of my option? Are you talking the fair value of
an option when it is time to get a divorce, or when you want to
show your banker how rich you are? It does make a difference.
Technically, the value of an existing option is the difference
between what you can buy the property for using your option and
what it is worth today. If you want that to be a big number,
then it is the gross appraised value less the option contract
price. If it is to be a smaller number, it is the price for
the property subtracted from how much you will be able to sell the
property for net in a quick sale. You will notice that there could
be a big difference in these two numbers. True. But, then, this is
not the only place where such a difference exists.
You can say a property is worth the appraised amount, or worth what
other similar properties have been selling for (comps), or what it
would sell for in 30 days or worse yet, what it would sell for at
foreclosure. This is not "creative accounting" like Enron
practiced. It is just being specific and realistic.
BZ
Articles of Interest: (back to top)
Get Rich Quick
By Bernard Hale Zick (Copyright, with right of publishing to
MSI.)
Question: I got into this business with the hope of making
up for lost time. I need a cash flow and to build net worth
quickly. My first deal got me five houses at ten per cent
below market but they barely break even. Am I on the right
track?
Answer: So, all you want to do is get rich quick and
stay that way, right? The answer is simple.
(continued on the attached link...)
Creative Deal Structuring: (back to top)
Making your offers look better
A student recently asked me the following:
I am trying to use the strategy you taught us to preserve area comps and resale value by offering at or close to market value and then backing everything out of it. However, I'm not very clear on how this should be done. Could you please tell me exactly what costs and expenses you back out of the offer, especially when the property is in good shape and needs very little work? I have already made a couple of offers attempting to use this strategy and I'm concerned that I've done it all wrong. I really appreciate your help!! Thank You!
T K-B
I replied by outlining two different offers:
Investor "A" offers $88,000 for a pre-foreclosure. He will take title and have lots of costs before he makes a profit. The offer will look low to the seller since the seller thinks of the property as being worth $125,000 -$130,000 (even though it would take fixing up the property to be worth that…the seller does not really take that into account when thinking about what their property is worth).
Investor "B" presents a contract with an offer price of $100,000. The Down Payment will show as $22,000; however, in the body of the contract, you will put that $22,000 to use! In the contract you say "Of the $22,000 being put down, the following allocations will apply: a. $10,000 of the down payment will be held in escrow and paid to XYZ construction company for the list of repairs needed on the house, attached as "B"; b. $5,790 of the down payment will be paid, at closing, for back payments including taxes and insurance; c. $6,000 of the down payment will be paid to Bernard Zick, Zick Investment Properties, as a buyers broker commission.
The seller who reads investor B's offer, sees it as having several benefits. First, they see a higher number that makes them feel better. Second, the seller sees, bit-by-bit, that they will not be getting the $100,000, but at the same time, they have to acknowledge the deductions are for valid reasons. Third, and maybe most important, the seller can say to neighbors and others that they have to explain to "Yes, I got behind, but I sold the property in the low six figures." Investor "B" helps the seller save face. Additionally, it will be a lot easier for the buyer to later on get re-financing when asked by a lender, "What did you pay for the property?". Investor "B" can say $100,000 where the contract for Investor "A" would say $88,000!
BZ
The Creative Financing Boot Camp is July 8th & 9th in Houston. Two days of nothing down and low payment strategies, 'how to' advice, negotiating tips, and much more! Limited space is still available. Only $95.00 (a $1995.00 value) to current 'Barney' Zick Gold Level students! (You are a current student if you purchased one of our major educational sets in the last 12 months. If you're unsure of your status, don't worry…we have all the records. The price for this event will range from $95 on up depending on your history with us.) Call 800-677-3253 to save your seat. Details at www.zick.com.
|
Date(s) |
Location |
Name of Event |
Additional Information |
|
Tues.-Wed., July 8 & 9, 2003 |
Houston , TX |
Creative Financing Boot Camp |
Holiday Inn Houston - Intercontinental Airport, 15222 John F. Kennedy Blvd., Houston, TX , 77032, 281-449-2311 |
|
Sat. -Sun., Aug. 9 & 10, 2003 |
Phoenix , AZ |
Options Boot Camp |
Holiday Inn Select, 4300 E. Washington St., Phoenix, AZ 85034, 602-273-7778 |
|
Sat., Aug. 16, 2003 |
Portland , OR |
Getting Started & Real Estate Options Seminar |
Sheraton Portland Airport Hotel 8235 NE Airport Way Portland , OR 97220 203-281-2500 |
|
Sat., Aug. 16, 2003 |
San Francisco, CA (Foster City) |
"Help Day" with Randy Sotka |
Crowne Plaza Foster City, 1221 Chess Drive, Foster City, CA 94404, 650-570-5700 |
|
Sat., Sept. 6, 2003 |
Orlando , FL |
Central Florida Real Estate Investors Association |
The Rosen Centre |
|
Tues., Wed. & Thurs., Sept. 9, 10 & 11, 2003 |
Broward County, FL |
R.E.A.L. (Real Estate Association of Learning) RE Investor Association Meetings |
To Be Determined |
|
Sat., Sept. 13, 2003 |
Broward County, FL |
Getting Started & Real Estate Options Seminar |
To Be Determined |
|
Tues., Nov. 4, 2003 |
San Antonio, TX |
SARIEA (San Antonio Real Estate Investors Association) Re Investor Association Meeting |
Omni Hotel, 9821 Colonnade Blvd., San Antonio, TX 78230, 210-691-8888 |
|
Sat., Nov. 8, 2003 |
San Antonio, TX |
Getting Started & Real Estate Options Seminar |
To Be Determined |
|
Sat. -Sun., Nov. 15 & 16, 2003 |
Chicago , IL |
Creative Financing Boot Camp |
Holiday Inn Glen Ellyn, 1250 Roosevelt, Glen Ellyn, IL 60137, 630-629-6000 |
|
Thurs., Nov. 20, 2003 |
Northern Virginia |
NoVA CashFlow, Inc. RE Investor Association Meeting |
Doubletree Hotel, 7801 Leesburg Pike, Falls Church, VA, 22043-2497 703-893-1340 |
|
In 2003 |
To Be Determined |
Foreclosure Fortunes Boot Camp |
To Be Determined |
|
In 2003 |
Washington D.C. |
To Be Determined |
To Be Determined |
Coming Up Next...
Join us in HOUSTON July 8th & 9th for our Creative Financing Boot Camp!!!
Our intensive Creative Financing Boot Camp will teach you secret strategies that could potentially be worth 100 times your cost to attend the event! The class assignment will be getting a contract signed on Saturday night of the two-day boot camp. REIT, Corp. may even advance you the money to do the right deal! This is a must-attend course for those beginning their investing careers and for pros that need to be reminded of the great techniques they forgot and need to use.Reserve your seat today! Obtain pricing information and/or pre-enroll by sending email to reitbootcamp@kingwoodcable.net.
The Fine Print...… (back to top)
We will do one newsletter like this one (Advice for the Impatient Investor) and one called the REIT Report (containing Real Estate Education Industry News and a lot of personal opinions), approximately once a month. (However, keep in mind, our newsletters are free so don't get upset if we skip one occasionally!)
Advice for the Impatient Investor has been published for thirteen years (but not in a row). The next issue should be out about August 1st. The REIT Report will go out on or about July 15th.
Folks smarter than us told us to say: We take no responsibility for the accuracy of the postings. All contents of the postings are the responsibility of the posting party. The foregoing material is strictly for informational purposes only and does not provide legal, financial, accounting or investing advice or services. Use of any of the foregoing information does not create a client relationship. You should not act on the information provided without seeking legal, accounting and tax counsel of your choice.
We reserve the right to terminate the subscription of anyone at any time.
Copyright note: Submission of an email message or art work affirms that you are authorized to and have given Bernard Zick, et al, non-exclusive permission to reprint the content of your message in all forms, electronic or otherwise, in all languages throughout the world.
Copyright 2003 by Real Estate Investors Training Corporation.
ISSN # 0272-8559
All Rights Reserved, no reprints to other email lists or websites without Bernard Zick's permission. You have permission and are encouraged to forward this e-newsletter in its entirety to a friend!
Check out our website: http://www.zick.com
To MANAGE YOUR SUBSCRIPTION, please send e-mail to: newsletter@zick.com
Please type, 'change account information' in the subject line if you have an address change or if you no longer are interested in receiving this e-newsletter, type 'no thanks' in the subject line of your e-mail. Our lists are NEVER sold.
Article submissions and questions are welcome and should be sent to amy@emcii.com .
Mail to:
P.O. Box 6339
Kingwood , TX 77325-6399
Phone: 281-358-0409
Fax: 281-358-6591
Email: amy@emcii.com
Website: www.zick.com