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Yesterday I looked at a condo deal. I was really looking
forward to buying in. The project was over 200 condo
units and the people involved are working to get control
of the project and turn it around. The former property
management company did little and people left, which
gave them less money, therefore they felt they could
afford to do less. You get the circle. Last I had heard
the new group had about 40 units under control with 48
other units that would vote with them.
My investors and I would be in for about $25,000 per
unit including fix up and holding, and they would be
worth on the low side, $50,000. On the high side,
$60,000, but that would be some time out. That is enough
to get me to drive downtown!
When I got there it was not as I expected. First, there
is a certain architectural style I am used to seeing in
condos in Texas. This project was designed as “modern”.
If you are a student of my thinking, you know I hate
modern. Why? Because modern is only that for the first
year it is built! It is dated after that. But that was a
minor problem. It was cleaner than I expected…then I
found out it is 80% vacant. It is not so hard to keep an
empty place clean.
The guy that is working the deal in Houston is a
veteran. He can do the deal. But he has no funding. The
guy that brought me to the deal is a very experienced
investor, but he is short on cash. I have cash and have
students that can finance the deal.
The deal killer was a lack of critical mass. Instead of
40 units being owned now by the group with them buying
more, they only own 12 units, around 5 percent of the
total. They wanted me to buy 20 that they had under
contract and could not close. As you know, I am a guy
with lots of philosophies. One is that of critical mass.
I first had an exposure to it when studying new cities
in the 70s. The concept of building a new city within a
city worked only if you could get critical mass. If your
changes and improvements were not massive compared with
the surroundings, given time, your improvement will be
eaten up and it will become high priced slums. I have
seen this work and not work.
In St Louis, years ago, they had a “gaslight” district.
It was small and now it is gone. In Kansas City they had
a “River Quay” that disappeared after a dozen years. The
Crown Center area in Kansas City ended up being about 80
acres and the slums around it are now, 30 years later,
being rehabbed and refined.
The same is true on smaller projects. If you fix 20
units out of 240 or 250, they will be burglarized,
tenants robbed, etc. Until you have either enough units
owned to change the entire complex, or enough money
sitting in your pocket to do that, you are at great
risk.
I might consider buying a few of these if I could really
get them cheap. It would be very speculative. I think I
can get a hand full of them for $10,000 - $12,000 down
with a loan balance of $10-8,000. There are monthly dues
of about $240 and the redo would be about $5,000 if you
wanted to rent it. If you have some “Las Vegas”
money and are interested, let me know.
It really hurts to come to the decision not to go in
“whole hog” right now. I want to see these guys make it
and with the right help they will. For now I might
buy a few and then more if things turn around.
We always talk with others about the deals we do. It is
important to remember that part of investing is
understanding when to pull back. I hope you learned
something from this example.
BZ |
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I get this
question a lot:
Q. Should I sign
the last page of this agreement where it says to
sign?
A. General rule.
Always have all the signers initial all the pages
too. It protects both parties. No one can slip a
different page into the stack after signing and no
one can say "I did not receive that page". It is
always good to number the pages if they are not
already numbered.
If there is
something controversial in the document, it is a
good idea to have that paragraph initialed too. An
example would be a legal and allowable waiver of
some rights or an unusual payment plan.
BZ
I recently had a
student contact me about a potential deal. This was
my reply:
Edward, Glad to see you found a
group of houses and duplexes to buy.
On the surface, it would seem a great idea. And
buying a group of houses and duplexes is a great way
of jump starting your investing. However, here is a
key question to ask your seller, “Will you guarantee
the net you projected as the net income a new buyer
will experience?” Mind you, I'd be shocked if they
said “yes.” If they did, we could have them carry
back a note that is not paid if the projections are
not met.
You need to realize normal expenses on houses and
duplexes are 40 percent of the income. Brand new
ones are less but I think these are older given the
prices. You are using much lower than 35 or 40%
numbers to project your income. Property taxes alone
are a killer. Did you figure them in there on the
new sales price? Don't ever accept’ a seller’s
numbers. Look up the taxes on the Internet. Find out
if the owner pays the utilities (another killer).
Get a notarized permission slip in the name of the
seller and the account numbers to let you get all
past utility bills. Also, your numbers had no
allowance for repairs. The older these are the
higher that will be. Check these things out!
If you use 40% expenses, you will have no cash flow.
Go back to this with a sharp pencil and see if you
really want to do it.
BZ
Down Under Comes Up to Buy
Q.
Bernard, I purchased your audio discs and manual
investment course "Fortunes in “Foreclosures” and I
am keen to get the ball rolling with investing in
the U.S.
I currently own
10 buy & hold properties in Australia that have
excellent capital growth but only marginal positive
cash flow. I plan to supplement this with high cash
flow properties. I have looked at Australia, New
Zealand and the UK but believe that the U.S. has the
best opportunities. My thoughts are to buy
foreclosed properties under market value, refinance
them to get my deposit money back out and hold them
for long term cash flow.
I have decided
to "stand back" and take a higher level assessment
of the situation before digging into a particular
area. This is the sequence that I will work through.
1. Find data on
population growth and median house prices (to give
an indication of value and potential growth)
2. Find a
specialist on structures (to establish what best
suits my needs - LLC, C Corp., Trust, etc.)
3. Find lenders
(to establish what I can borrow)
4. Find an
investor in the area selected (short cut to local
issues and avoid reinventing the wheel)
Do you have any
suggestions or contacts I can talk to for sourcing
data, structures or lenders? I would be very happy
for you to pass on my details to the appropriate
contact. Thank you again for your excellent study
materials.
Best regards,
Mike. C.
Melbourne, Australia
A.
I have had investors from AU invest with me. In
fact, I have lectured “down under” several times
over the last six years. So you are not talking to a
complete stranger. I’ve been to your town on three
different trips.
The biggest problem is that in the U.S., if you buy
for $200,000 and it is worth $300,000, you can
re-finance right away but the lenders will only loan
you based on the purchase price for a year, not the
value. After a year, you can use the value for the
loan. So the odds of getting your cash back to
re-use in short order is slim. There are some
mortgage companies, I represent a few, that will go
with value not purchase price. But they are only
working local markets (Texas). I’m looking for
national ones but so far no luck.
Logic would say you could stay home, and have
someone like me represent you at the sale. However,
no one likes to lend at the court house sale. It
usually is our hard earned cash that is doing the
buying. At the court house you do clear up the title
with the sale, but you can not get title insurance
instantly. So big lenders won’t let you use their
money at the sale. (Private ones might but it is
expensive.)
That leaves you with pre-foreclosures which you
almost have to be in the U.S. to do. Lastly, I have
helped a few of your countrymen by putting them into
a partial interest of a land trust for $10,000. This
way they OWN in the U.S. and get business tax write
off for a trip here. But in doing that, I found out
the only easy deal is using a Land Trust or buying
“subject to.”
If you try to get a new loan and you are not a U.S.
Citizen, there is a whole second layer of paper work
you will need to do. Basically, there is a
procedure, but lenders want you to get the papers
before they will look at an application.
BZ |
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Q. Hi Barney, I
attended the boot camp you put on in Austin, TX on
August 13-14. During the class someone asked the
wording to the insurance and mortgage company when
the property is put into an LLC. My "shorthand" did
not get everything you said and much is not
readable. I have looked though the manuals and forms
I bought thinking I would find this information, but
to no avail. Would you please tell me what I should
write to these folks to get the LLC included.
Thank you so much, studying in Austin, Deanna
A. I get a lot of
questions about LLCs. One of the questions is, “Can
I buy a property into my LLC and get the loan?” In
general, you can get a loan in your name but not in
the name of the LLC. If you draw up the contract as
the LLC being the buyer but tell the lender you will
sign personally on the loan and deed it to the LLC
at the close, some lenders will go along with that.
The exception to that rule is the short term bank
loan. They will give you the loan in the name of the
LLC with a personal guarantee.
The “subject to” purchase is another question.
If you buy a property "subject to" “The existing”
loan, which basically means you ignore the due on
sale clause, you need to do several things to keep
from getting in deep trouble. Remember, if you take
"subject to", there is always the chance that the
lender will call the loan. That not only affects you
and jeopardizes the equity you have, it also affects
the person who owned the property before and is
currently on the loan. Yes, it is true that there
are thousands of subject to loans done every month.
Very, very few get noticed by lenders and often they
don't care. But as rates go up, they may start
looking at loans when rates get higher than the
rates in recent years.
Also, there have been some states where too many
people have taken subject to and not worried about
the welfare of the seller and in those states, the
Attorney Generals are watching this issue.
If you do a subject to purchase, make sure the
seller knows that they are still contingently
liable, and have them sign a statement to that
effect. Have them notify the lender that your LLC is
now the contact point for all property management
issues so all communication should be sent to you.
As far as the deed is concerned, deeding a house to
an LLC is a simple matter. The real question is do
you have permission to do it from the lender and if
you don't, are you going to do it anyway. It is a
business decision and as with all business decisions
there are benefits and risks.
I hope this answers your questions,
BZ
Q. Barney, I
attended your options seminar in Austin and really
enjoyed it. You spoke briefly about buying property
through one's IRA. My wife and I each have a Roth
IRA and a SEP IRA, and my wife also has a roll-over
IRA from a previous company. I'm transferring all of
our IRAs from Charles Schwab to Entrust so that I
can begin investing in real estate in them. My
question is, would it be wise to convert the SEP
IRAs and the roll-over IRA to the Roth? I know that
there will be tax implications that will reduce
their value, but I'm thinking that the tax free
growth will more than make up for the initial
losses. What is your opinion?
Thanks,
David
A.
You really need
to run the numbers. Find out the tax and see what
rate you would need to earn to get back to where you
would have been if you had not made the change. I
did that once and it was three years.
1. Project where you would be in three, five and
seven years given your current rate of return.
2. Figure the net you would have to work with after
taxes after the transfer.
3. On a financial calculator, use the answer for 1
as the FV or future value and the answer for 2 as
the PV or present value, put in three for the years
and hit "i" for the interest rate.
4. Do the same for five years and seven years.
Determine if you can beat that with real estate.
Hope this helps.
BZ
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San Francisco:
Luxury Home Prices Set Records
Source: San Jose Mercury News
(08/31/04); McAllister, Sue
In the San Francisco Bay Area, the
average luxury-home price surged 16.4 percent to an
all-time high of $2.54 million during second
quarter, compared with the same period in 2003.
Experts attribute the substantial
gain in the "prestige home index," published by
First Republic Bank, to the economic rebound, demand
from international buyers, low interest rates, and
buyer competition.
The average price for luxury
homes-defined as those with three to six bedrooms
and more than three bathrooms spread throughout
3,000 to 6,000 square feet-rose to record heights in
Los Angeles and San Diego as well, hitting $1.72
million and $1.73 million, respectively.
However, the end of the trend is in
sight as the high-end inventory begins to expand.
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Our
TeleHelp calls are back by popular demand! Join us for
two calls a month to help you build your real estate
investing business. One call will be a TeleHelp Seminar
with an interview with an especially successful student
and the other will be a TeleHelp Session with an open
question and answer forum with additional tips and
tactics. All of this is available for a nominal monthly
fee.
Register Now!
Not
to worry…our free TeleHelp calls will continue on the
first Monday of each month, but they will now focus on
recruiting questions for our mortgage origination
business. During this complimentary call we will tell
you about the Freedom Equity opportunity, tell you the
pay scale, tell you how to sign up, and tell you how we
are going to follow up with monthly calls, training,
support in signing up new people and much, much more.
The initial complimentary call of this type will be on
October 4th.
Register here.
Barney has reserved the
fourth Monday of each month for a closed door call for
participants in our Mortgage Loan Program. If you plan
to join us in marketing All Fund Mortgage, please go to
Karen's Website
(www.zickhomeloans.com) and initiate the sign up
process. Use Karen Zick as the recruiter name; her
recruiter number is 20663MP. Once you have completed the
forms, call Karen's office at 281-360-9598 to set up a
time to talk. She will even give you the phone number
and the PIN number for this exclusive TeleHelp Session
even if you haven't been completely approved yet.
During this call we will help you with details and we
will share marketing secrets with you. It is only for
the people that have signed up with Karen Zick to market
All Fund Mortgage service through our marketing group,
Freedom Equity Group. You will also be informed of free
training dates, convention dates, and vendors and
suppliers that can support your efforts.
The next Freedom Equity Group TeleHelp call will be on
October 25th. This is an "invitation only" call and you
must be one of our approved or pending Mortgage Loan
Originators to participate. |
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Want
Ad:
Student has a $28,000 first mortgage secured by a house
appraised at $55,000 in Houston. It will pay 10%
interest to you or your IRA, all due and payable in six
months with interest. I am helping them with this
project and I will guarantee it.
BZ
P.S.
We have one for $50,000 and other 10% notes available up
to $100,000 face value. Just ask. Put NOTE in the
subject line of your email to
bernard@zick.com.
Next Mortgage Business Builder Boot Camp
Houston, TX
Fri., Sat. & Sun.,
October 22nd, 23rd & 24th, 2004
Details below…
Upcoming Events
BRAND NEW:
Mortgage Business Builder Boot Camps
October 22nd, 23rd & 24th, 2004 in Houston
Houston Marriott Westchase
2900 Briarpark
Houston, TX 77042
713-978-7400
and
December 3rd, 4th & 5th, 2004 in San
Diego
Courtyard by Marriott
717 South Hwy 101
Solana Beach, CA 92075
858-792-8200
Click here
to register for a Mortgage Business Builder Boot Camp.
For more info. go to
www.zickhomeloans.com
and select "Contact Us" or call our office at
800-677-3253.
~~~~~~~~~~~~~~~~~~~
Real Estate Mini-Seminars
No Mini-Seminars are scheduled at
this time. Go to
www.zick.com
to view a list of scheduled events
between newsletters.
Barney will be in Baltimore speaking at the monthly
meeting for the Baltimore REIA on Tuesday, October 19th,
2004.
Contact Baltimore
REIA for more information.
Questions?
Send us an email
or call 800-677-3253.
Go to
Barney's Website for more information about
educational events and materials.
Go to
Karen's Website to
apply for a 1-4 family loan or join us as a mortgage
loan originator.
Go to
Zick Investment Properties
to sell us a property or get a web site to sell your
properties.
IMPORTANT POLICY STATEMENT ABOUT ALL FUND
MORTGAGE/FREEDOM EQUITY GROUP PARTICIPATION
It has taken awhile for us to get our
plan together. And, of course, there may still be
changes! But it is time for us to put as much as we can
on the table so, if you are serious, you can get to
work!
We have started our Mortgage Business Builder Boot
Camps. The first one was in Chicago in September.
Cost
The cost of the training is $1995. You can pay it all at
once. However, I believe in our program and know if you
work our program you will make lots of money. So here is
the deal. I’ll bet two-thirds of that on your success…
- If you are signed up under us, you can attend for $695
up front and we will take $500 out of each of your first
three loans to complete the follow up training.
- If you are not signed up under us, but under someone
else, you can pay $1995 at registration and attend the
event.
- If you are not signed up at all, you must pay $1995 to
attend, up front.
So the bottom line is, get signed up under us for the
installment program.
By the way, all sponsors that I know of with Freedom
Equity Group / All Fund charge something out of the
first three loans to pay for training. So if you think
that you are better off signing up for someone that does
not offer training, you most likely will still get
charged out of the first three loans.
Several of the sponsors I know take ALL the commission
you make on your first three loans. If I was signed up
with that sponsor, I would do three very small loans at
first and “sand bag” any bigger loans for the next
group! This way, you can make as much as you want on the
first three loans and you only have to pay out the first
$500!
Our hope is that you will catch fire in this business
and by the time you do the first three loans you have
made all your educational investment back. So, bottom
line, if you work the program there is no cost; it pays!
Husbands, wives and children
If you want to bring one of these, great! If they are
signed up and a part of the business, they pay just like
you do. And, we will do the training loans with them
too.
If they are just assisting you with the business, they
can attend for $295 to cover our room costs, coffee
breaks, etc.
If your child is between 14 and 18 years old, really
interested, and can pay attention (don’t you dare drag
them there!), they can attend for $50. Children over 18
can pay the $295. Where else can you attend a three day
event and learn a business for so little?
The book you will receive will be for studying after the
event. We will have a fill-in outline that everyone will
receive. There will be one book for each full-paying
participant.
More than your money back!
If you are signed up under us, you can return to attend
the training for free. All you have to do is bring
someone you signed up under you!
Think about it. You get to come for free, they pay us
$695, but YOU collect the $500 per loan on training THEM
on their first three loans.
For us, we get our costs covered. It costs us at a
MINIMUM $695 per person to put on a three day event. We
don’t really make money unless you or your associate you
sign up make money with placing loans.
They get profits from placing loans, giving them their
educational investment back. You get trained associates,
we build our shop. It is a win-win deal all around.
Guess what? Your associates can do the same. They can
come back for free bringing as many people as they want
AS LONG AS THOSE PEOPLE ARE SIGNED UP under them! You
get the picture.
Will the ground floor be empty?
You are getting in on the ground floor, so you may be
asking yourself…will the ground floor be empty of
content? Since we are new at doing these trainings, will
we be learning how to train on your dime?
Absolutely not. First of all, Barney will be at the
first three trainings talking about Sales and Marketing.
He spent 15 years teaching these topics to businesses
from New York Stock Exchange firms down to a two-man
firm in England. This is a secret part of his career not
known to most real estate investors. His results have
been staggering. One firm, a national blood testing
company, said that after his training, sales rose 15%
over their previously best month ever. The English
direct mail company, that made over a million a year,
got the biggest boost ever from Barney’s ideas, and that
is after five years of searching for the best consulting
in England and putting their ideas to play. Barney
increased their profit margin!
Secondly, we have one of the best company trainers
coming out to teach the two technical days. You will
learn how to present our best loan to prospects, how to
present the opportunity to recruits and how to do the
loan paper work. It will be an information packed event.
Best way to sign up…
Do it via our web site and we will follow-up or do it by
calling our office 800-677-3253.
But, do it today!
The Fine Print...
We
will do one newsletter like this one (Advice for the
Impatient Investor) and one called the REIT Real
Estate and Mortgage 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 fourteen years
(but not in a row). The next issue should be out about
November 1st. The next REIT Report will go
out on or about October 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 © 2004 by Real Estate Investors
Training Corporation.
ISSN # 0272-8559
All Rights Reserved, no reprints to other
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permission.
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Address:
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Remember: You may be my student, you may
be my best friend and I MAY love you…but, I am not a
lawyer. I am not YOUR real estate broker. You are not
my client. This e-mail is not intended as legal, real
estate or accounting advice. |
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