Bernard Zick'sAdvice for the Impatient InvestorFor real estate investors who don't have time or money to waste!November 2003 |
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Editors: Bernard "Barney" Zick bernard@zick.com, Karen Zick and Amy McIntee |
A Sane Moment:The minute you settle for less than you deserve, you get even less than you settled for. ~~~ Maureen Dowd, in the 'New York Times' |
Getting Started: What do you pay for a referral fee?Referral fees are totally negotiable. If all you do is "find" the deal, it is at one level. If you get the deal signed and assign the deal, it is a higher level. For "finding" it usually is $50 to $500, from my point of view. For me, if they want to be paid after I check it out but before I close, I pay the $50. If they wait until I buy, I pay the $500. If it is an assignment, I pay $1000 for small deals, $2000 for a normal deal. However, I have paid $25,000 for an apartment deal. Why? It was a good deal and they had several people in line to buy it. |
Advanced Strategies: 1031 ExchangeQ. If you sell a house under a lease option and are going to do a 1031 exchange, wouldn’t the accommodator have to be in from the very beginning and are they willing to hold a file open for a number of years while you collect the option consideration? In fact, don’t they have to collect the option consideration used as a down payment and you have to collect the rent?
Jack
A. No, because you have an open contract, not a bilateral one. A contract for sale only starts when the tenant sends a notice that they want to exercise their option. (Make sure to put in your option, if you are a seller that written notice of at least 30 days needs to be sent to you.) The sale date is when they pay for the house in full, not when they sign the lease. Option money could cause a problem only if you incorrectly call it “Down Payment” in your option contract. This is a major “no-no” no matter what. Some experts will tell you to change the contract to say the option money does not apply to purchase at time of exercise. They say it would put you in a better place to get a 1031. I don’t see this as being necessary. Seems like a tax question which you should pass by your local tax expert, but now you have my opinion.
BZ |
Financing: Flipping is becoming more difficult, but not impossible.Something to think about. A few lenders are now requiring seasoning on flipped deals. When the new buyer comes in for a loan, they look at the title history and see how long the current seller has owned the property. If they want, they can ask a lot of questions and they will want copies of many documents before they grant the loan. I recently sold a house I had almost no profit in (to a new Platinum student) and I still had to show repair bills, etc. One answer is to take an option and have the seller direct deed to the new buyer. Hold a signed deed in escrow from the old owner with no buyer filled in as part of the option. It would have to be a motivated seller to do that but you are SUPPOSED to be working with motivated sellers anyway, right? Here is another way. Sign a contract to buy to be closed in 90 days, and in it say the seller will make the next three payments until you close. You will put $10,000 up to secure the fact you will buy in 90 days. You state clearly that you are going to buy, fix the property and then sell it to the new owner. You, the buyer, put your name “and or assigns” in as the name of the buyer. In the agreement, you have an addendum that says, you are “closing on this house in 90 days from signing this contract, assuming that a new buyer can be found to purchase the house and close on their purchase at the same time.” During the 90 days the seller will make the three monthly payments due on the property. The $10,000 will be put in escrow by the buyer and be given to the seller in the event of default on this purchase. However, you explain to the seller that during the 90 days, the buyer can have the title or escrow company pay out of the $10,000 held in escrow for bills to repair the house. A list of those “approved repairs” will be attached. If the buyer does not buy, the $10,000 cash deposited in escrow will be given to the seller, or that portion of the $10,000 that remains after paying bills. If the buyer does buy, then any remaining money will be applied to the purchase if you owe them money, or the money is returned to you if you are buying without cash to the seller. Additionally, if the buyer cannot find a new buyer who will close on the purchase within 90 days, (and at the same time as you close), to avoid default on this agreement, the buyer may make up to three monthly payments on the house and get a 30 day extension of closing date for each payment made. The buyer must close within a total of 180 days from date of this agreement or the buyer will lose the fix up money spent, the balance of the $10,000 and all payments made on the house. If the buyer does close at any time during the contract period, the deed will go from the seller to you, the buyer, or if you have one, directly to your new buyer. If there is a new buyer, then, the difference in price between this contract’s purchase price and the new buyer’s purchase price will be paid to the original buyer to release the Deed of Trust (or mortgage) that will be filed against the property to secure this transaction. No, I am not a lawyer but if you want, you can take this verbiage to a lawyer and get it drawn up nice and fancy. As I see it, it gives you 90 days without payments to fix up the place and get it sold and if it does not get sold that fast, you get another 90 days, but you have to make the payments. In my case, if it was not purchased by someone else, I’d just either put a hard money loan on it until I find a buyer, or put a new first on it and keep it as a rental. For me, putting a new first on it might be hard. This takes us back to where we started this conversation. If I bought it cheap, it might be hard to put a new first on it for all the money I have in it due to this new thing about lenders asking how long you’ve had it and what did you pay for it. But it is a plan! |
Q&A with BZ: Flipping NotesQ. Diana who runs GAREIA said you might be able to help me because you are good at answering questions regarding the note or "paper" business. I am interested in finding notes, flipping to institutions, if that is the way to get started, fine, otherwise I would like to hold notes for my own investments.
First and most important, can one earn a living from the business, or is it generally a supplemental income business? What is a reasonable expectation for income working full time - $50k? $100k? More? Less?
What are the best techniques to find MOTIVATED mortgage sellers?
Who are the best institutions to sell or flip them to? Do they buy them one at a time or do I have to bundle them in large dollar amounts?
Any specific help or other general suggestions would be much appreciated.
Thank you for your assistance,
Ned Redman Atlanta, GA
A. It is very difficult to make a living flipping notes, even full time, starting from scratch. In the 2nd or 3rd year, maybe. It takes time to learn it, establish relations with buying firms and individual buyers get the word out that you are in the business, etc. It works well as part of a full range of real estate investing or brokerage, and is super as a part of your self-directed IRA program.
Few institutions still exist that buy notes from individuals. Several large ones have gone out of business and many have been bought out or closed. I have a friend in Dallas that was doing tens of millions years ago and now does a few million a year. He has gone from a staff of 30 to working by himself. Why?
Rates are low now and very few notes are created when rates are low. Also, when rates are low fewer people want to sell notes. They keep them for the higher than saving yields. The best use of the information is to do real estate purchases as a part of your overall activities and the best idea is to purchase notes in your Self Directed IRA. (If you don’t have one, write Quincy Long at qlong@entrusttexas.com. Tell Quincy, the attorney that runs the shop, that I sent you. That way he will give you personal attention and tell you how to set one up.)
Here is one idea. Get a buddy to cooperate with. You buy a fixer and sell it on owner carried paper. He or she does the same. You buy her note in your IRA and vice versa. You both buy at a deep discount. This way you are getting a high yield in your tax protected IRA and you get to write off the interest you are paying on your income tax return. If you have not thought of this, this one idea alone is worth reading this newsletter!
Finding motivated sellers IS the challenge. Right now, the best way to do note deals is to tell investors that if they sell and carry back a note, you will buy it at a discount. The second best way is to train a very productive real estate agent to do the same with their sellers. The last source is to check out the courthouse records and write people that have carried back notes recently.
I have a course on Notes, or Paper, called Paper Millionaire on my web site, www.zick.com, if you want to know more about notes. Next month we will have our new CD Boot Camp on Creative Financing done and we will give you a pre-publication price on that in our next e-newsletter in 15 days.
Hope this helps.
BZ |
A Special Offer: Get the Options Course on CDs! (As you requested!)We have frequently been asked to make our World Class options course, “Hidden Profits through Real Estate Options” on CDs. (The entire set retails for $995.) We have re-mastered them and they are now available. There are two ways you can get them: IF YOU PURCHASED HIDDEN PROFITS IN RECENT YEARS…You can get the complete set of CDs to replace your tapes, in wonderful new albums that will look great in your library, for only $195 plus shipping and tax. Don’t cheat...we have very accurate records going back four years! If you are not in our records we will ask you to prove your purchase. Why? It would do you an injustice to only give you the CDs when there is also so much in the book and the agreement set. See our second offer below if you don’t already own the full set.To get this update, just go to Order the CDs Now!IF YOU WANT TO PURCHASE HIDDEN PROFITS NOW WITH CDS…We have new album covers to go with the newly rewritten book (2003) but some of the existing inventory is still in stock. We really want all the binders to look the same, so for the next 15 days, you can get all the materials, the agreements, the agreement disc, the text, the CDs, for only $595 (plus tax and shipping, which will likely be about $20 - $25.)This is the lowest price we have ever sold the Hidden Profits full set, and this is with the 2003 text and the new CDs. (Of course, tapes are still available if you want them, just ask.)To get this great deal, go to Order the Entire Set Now!. |
Upcoming Events:Here is our full Real Estate Investors Training (REIT) schedule for the rest of the year. You can enroll for a Seminar or Boot Camp or ask questions by sending email to reitbootcamp@kingwoodcable.net. Or, call the office at 800-677-3253.
Tuesday, Nov, 4th – San Antonio REIA meeting "How to Get Started and Stay Motivated" Omni Hotel, 9821 Colonade Blvd. Call us at 800-677-3253 for details!
San Diego: Thursday, Nov. 13th – San Diego REIA meeting In association with the San Diego Creative Investors Association, Barney will address lease options at this event. The meeting location is the Scottish Rite Center at 1895 Camino del Rio South in San Diego. Call us at 800-677-3253 for details!
Saturday, Nov. 15th – One Day Seminar “Getting Started & Creative Financing" in San Diego, CA http://www.zick.com/sem_Opt.shtml You will learn to develop your real estate investor business plan and learn dozens of quick solutions to what others would say are unsolvable problems. This will be a fun and no-holds-barred class since Barney used to live in San Diego. This is our holiday gift to Barney's Students (defined as anyone who owns any of Barney's materials). Students can come for $10 per person but you have to enroll by November 7th! This class will sell out as others have. If you don’t yet own Barney’s materials, as an e-newsletter subscriber you still get a discount! You can attend for only $49 per person, not the public price of $295. Email reitbootcamp@kingwoodcable.net to register today or call our office at 800-677-3253 with your credit card information!
Wednesday, November 19th - Tele-class about “How to do Your First Owner Carried Financing Deal” This is a first for us…and for subscribers only! We may never do it for next to free again. No, we don’t know the price yet; we are still negotiating with the tele-conference provider. If we can do it for free we will. No, we don’t know the time yet. So, PLEASE read our next e-newsletter due out on November 15th, or go to our web site, www.zick.com by November 10th for details. Or, send an email to editor@kingwoodcable.net and put in the subject line "tele-class" and we will send details to you via email.
Washington D.C. suburbs: Thursday, Nov. 20th – Capital Area REIA meeting Lease Options is the topic for discussion with the Capital Area REIA. This event will be held at the Marriott Hotel, 8028 Leesburg Pike in Vienna, VA. Call us at 800-677-3253 for details!
Saturday, Dec. 6th – Capital Area REIA One Day Seminar “Getting Started & Wealth Building with Real Estate Options" in Vienna, VA. This is a REIA sponsored event and their rules will apply. Come to the meeting for details or call us. The location for this event is also the Marriott Hotel, 8028 Leesburg Pike in Vienna, VA.
Saturday & Sunday, Dec. 13th &14th – Two Day Boot Camp “Creative Financing” Boot Camp in Chicago, IL. This event will be held at the Holiday Inn Glen Ellyn, 1250 Roosevelt Road/630-629-6000. http://www.zick.com/sem_CFBC.shtml
FYI -- We are hard at work planning Boot Camps for 2004. Look for us in Northern and Southern California, Florida (Orlando or Ft. Lauderdale), Phoenix and more. We add events to our calendar frequently, so be sure to check www.zick.com often!
May 2004 – Platinum meeting in Maui Plan on being Platinum by then!! More details soon…
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The Fine Print...
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 December 1st. The next REIT Report will go out on or about November 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: 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 6399 Kingwood, TX 77325-6399 Phone: 281-358-0409 Fax: 281-358-6591 Email: amy@emcii.com Website: www.zick.com |