Investing in Killer Real Estate Deals

All Profit Comes From 5% of the Sellers

To get killer deals on real estate you must understand one simple fact:

At any given time across America there are really two real estate markets. The first is the regular or retail marketplace. This is usually about 95% of the market and this world is inhabited mainly by Realtors™, builders, banks, mortgage brokers, home owners, home inspectors, mortgage originators, and any other group of people that focuses on helping “normal buyers and sellers” buy and sell properties.

There is also a secret sub culture of the real estate market. This second market is usually around 5% to 10% of where the total marketplace falls. This world is inhabited by investors, REO brokers and agents (bank foreclosure brokers and agents), private money lenders, hard money lenders, foreclosures, probate properties, highly motivated sellers, contractors, subprime buyers, and anyone else that’s geared toward the investor buyer/seller and subprime buyer.

The profit for the savvy investor is dealing only with the 5 to 10% of the marketplace that will allow you to make the profits you require for your business. So many beginning investors will waste the bulk of their time dealing in the 95% world and wonder why they don’t buy any properties or the properties that they buy are subpar deals.

Make a decision right now to only deal in the 5 to 10% world and your life and business will be far more enjoyable and profitable. You need to become an expert in dealing with the 5% world and all its players. There are great deals all around you but you must be the prospector and focus only on the gold and not the dust.

In my over two decades in real estate I have been through every kind of market imaginable from red hot multiple offers in hours kind of market to a free falling value market where it seemed you could not give properties away. I have found that unsuccessful investors will always find reasons why they are not doing well or finding good deals. See if any of these sound familiar:

“The market is too hot here to find any good deals”

“This market is so bad that nobody is buying”

“You can’t do those kinds of deals in this market”

None of these are true and I don’t care what cycle your target real estate market is currently experiencing. During red hot markets I bought properties and got great deals. During dead dog slow collapsing markets both I and my clients have bought killer properties at rock bottom pricing. During a red hot market you really need to stay tuned to the 5 to 10% of the market. When you buy in these markets most of the houses are never “officially on the market” but rather the properties were found by you or your ant farm using the marketing strategies above. They also might have been on the open market and did not sell. They had some kind of problem that the agent and owner did not know how to solve.   If the property hits the MLS and is a super bargain it will always be hard not to overpay for the property. The rule of thumb is the more people that know the property is for sale the more money you can expect to pay to acquire the property.

That’s the bad news; the good news is because that kind of market is so hot you don’t always need as big a discount to make the deal work. The hotter the market is when you go to resell the quicker sell you will have and less holding costs you will need to pay. When you are dealing with very slow markets, many times you can pick and choose the deals you want to buy right off the MLS and find solid deals that make sense.   You must customize your buying and selling machine based on the market conditions.

The third type of property is “pretty homes” and those are homes that require a whole different approach than the ugly and semi ugly homes. These will be covered in a future article.

Analyze Deals Quickly

The next step once you have found a deal you think might be a good deal is to run your fast turn numbers.
Here is a simple formula to use every time.

  • After Repaired Value (what you believe it will sell for after repairs are made, based on comps)
  • Repairs to be made (more on figuring these in a future article)
  • Holding costs (utilities, taxes, insurance, lawn, snow) (budget 5 months minimum)
  • Interest on funds (interest paid to outside lenders or your own bank (remember being the bank?)
  • Buying closing costs such as points on money, insurance, title company fees etc (check with local investors and title companies to get an idea)
  • Selling costs such as real estate commissions, transfer taxes, title insurance (check with local investors and title companies to get an idea)
  • Cost over runs and oops factor
  • Your minimum acceptable profit

    Maximum offer allowed by you

    You can visit us at www.wealthwithoutstocks.com

“Investment Grade” Life Insurance and What You Need to Know

I was staunchly opposed to whole life insurance because that’s what I was taught by national “gurus” 25 years ago. I wholeheartedly believed (as
many people still do) that if you need life insurance, you should buy a term policy, then take the difference in premiums between whole life and term and invest it in mutual funds.

So when a good friend of mine sat me down several years ago and tried to show me a whole life insurance plan, I nearly refused to listen. Many of you reading this will feel the same way, and nothing I say will change your minds. That’s fine — you’re entitled to your opinion just as I was entitled to mine.

Thankfully, my friend told me about “Investment Grade” life insurance. I soon realized that the gurus in my early years and the gurus of today were correct — based on the information they’d been given. The problem was their information was incomplete.

Whenever I hear a financial consultant (or anyone, for that matter) talk about less expensive premiums for term, I know they really don’t understand how this animal of properly designed “Investment Grade” whole life insurance really works.

With a properly designed whole life insurance policy, you get:

1. Principal protection guarantees of your money. Your cash value isn’t subject to market losses, as it is with mutual funds and other programs. When the stock market tanks again (and it’s never a question of if but when), you won’t lose a dime.

2. Guaranteed growth of your money every year. This will be interest-rate-driven based on the economy, but your account will move forward every year regardless of what the market does. This is compound tax-free growth and not the “average rate of return” you get with mutual funds. To be fair, in our current low-interest-rate environment, the growth rates are only in the 2 percent to 4 percent range but as you study further you start to realize the real wealth is not in the growth rate even when rates go higher.

Many financial advisers will tell you that your money would do better in a good mutual fund. But remember: When someone shows you an “average rate of return,” they can start taking that average from any time that benefits their example. This is not compounded growth but rather a factor of timing as to when you enter and exit the market. The stock market has wild swings; if that is acceptable to you, you should have much of your money in stocks. If not, maybe it’s time to consider a different way to think about investing. (Remember the period from March 2000 to October 2002, when the Nasdaq lost 78 percent of its value? It’s been 16 years since the dot-com bubble started to pop, and the tech-heavy index still hasn’t quite recovered to that level. If you like guarantees and stability then you have no business putting most of your money in the stock market.)

3. Dividends paid to policy owners are not taxable. Dividends aren’t guaranteed, but many reputable life insurance companies have been in business for more than 100 years and they’ve paid out dividends every year. The amount of that dividend will depend on several factors, but it boils down to how much profit the insurance carrier made. When properly paid to the policy owner, those dividends are not taxable.

4. A high starting cash value amount, based on what you contribute to the policy. Whole life policies that aren’t properly designed will have very little cash value in the early years.

But a properly structured life insurance policy will have high cash value percentages, even in its first year, and they increase every year. This becomes an important fact when you realize that access to your cash will help you grow wealth systematically regardless of market conditions

5. Access to your cash value at any age, at any time, for any reason — without taxes or penalty. This is a huge benefit of whole life policies compared to 401(k)s and IRAs, which impose multiple obstacles if you want to access your cash before retirement, and penalize you if the funds you borrow from them are not paid back by a certain time and at a certain interest rate. No such obstacles exist with a whole-life policy. So leave your cash in the policy if you wish, or borrow it back out and use it, the choice is yours.

6. The ability to use your account’s cash value to recapture lost depreciation on major purchases and interest and fees paid to banks. If you treat this pool of money inside the life policy like your own personal bank, you can loan it out to yourself and others to create wealth. (More on this in future articles, but suffice it to say for now that banking has been around in some fashion for thousands of years. Any business model that lasts that long is worth understanding and using to your advantage.)

7. Guaranteed insurance. Once the policy is in place, your insurance is guaranteed for the rest of your life. Many people assume they’ll be able to buy new insurance at any point in their life. But nothing is further from the truth — especially for those who’ve been diagnosed with chronic or terminal diseases. If you become seriously ill, don’t expect to be able to buy a new policy.

With many whole-life policies, you can add an “accelerated death benefit rider” for little to no cost, which will give you access to a large portion of your death benefit during your lifetime if you have a terminal or chronic illness. I just had a colleague with a client who was diagnosed with Lou Gehrig’s disease, or ALS, and was sent a check from his insurer for more than 70 percent of the eventual death benefit. He’ll be able to enjoy his remaining time without worrying how he will pay his bills.

8. The ability to combine your life policy with the worlds of real estate, private lending and auto financing to accelerate your wealth, both inside and outside of the policy. Just remember that any funds inside the policy are tax-free for life.

9. Protection from long term care and chronic care expenses. Well written policies with the proper companies could provide the ability access a portion of your eventual death benefit during your lifetime to help pay for assisted living or long term care expenses. This will insulate and protect your other wealth so you don’t spend a lifetime building wealth only to give it all back before you pass away leaving nothing for your family.

10. Death benefit. In addition to all the benefits you can make use of while you’re still here, at heart, this investment is still a life insurance policy, so when you eventually die, there will be a sum of money left behind to your beneficiaries — tax-free.

There’s a reason family dynasties, banks, and big corporations have been using life insurance for generations to grow and protect their wealth. Even when subject to estate limits, these death payouts go a long way toward promoting the tax-free, inter-generational transfer of wealth.

Of course, insurance company policies and riders will vary by state due to state regulations and depending on the actual insurance carrier. But you won’t find another type of account or investment that has all these benefits in one investment — not 401(k)s, IRAs, mutual funds, stocks, bonds, precious metals, real estate, nor any other account.

To engage with me further on this kind of policy, please email me directly at john@wealthwithoutstocks.com and visit our site at www.wealthwithoutstocks.com for many free videos, articles, archived interviews and more!

Lock in your recent profits now

Since the election of Donald Trump the stock market has had an incredible run up.  Regardless of your political views the facts are the facts and your money and wealth don’t really care who is president.  Our job is to play the cards as they are dealt regardless of who is in charge at the White House.

The old saying is in play, “what goes up is sure to come down” unless we take steps to lock in our gains and protect against future loss.  If you are in mutual funds you have no doubt experienced the ups and downs of the market.  Many people think that’s just the way it is, and to some extent they are correct.  However, there is no law that says you have to play by those rules with your money.

There are strategies that allow you to participate in most of any market gains but none of the market losses.   You can accomplish this through a strategy called indexing.  One of the most popular ways to practice indexing is through the product of a fixed indexed annuity.  This is one of three major classes of annuities (with thousands of products between hundreds of companies available) with the other two classes being a fixed annuity and a variable annuity.

A fixed annuity will guarantee your money against any downside and promise to pay you more than you will be able to get at a bank.  Now many fixed annuities are paying 2.75% to 3.25% depending on the actual terms and carrier offering the annuity.  The upside is you know you will never lose money and that your money will grow every year regardless of what the stock market does.  The downside is that during large run ups, like we are currently experiencing, your account will not experience the big run ups but rather a much smaller gain.  There are also early withdrawal fees for pulling money out of the annuity early (this will be true for every class of annuity so be sure that you understand how much and how long those penalties exist).  Fixed annuities can be a great play for very conservative investors who want protections but need more return than a savings account or CD’s at the bank.

A variable annuity will track the stock market and its ups and downs.  Many will have floors and ceilings as far as how much you can lose or how much you can make.   Being as these are generally heavily traded accounts the fees associated to variable annuities are usually greatest of the three classes of annuities.  The variable annuities are for more aggressive investors who believe the carrier can do better with their money than they can personally and are aware of the fees and penalties for early withdrawal.

A fixed indexed annuity will be a kind of hybrid between the other two classes.  Your principal balance will be protected against any downside loss and your upside will be determined by tracking of an index. (Many indexes are available but most are tied to the stock market performance in some way)  When the indexes go up your account will be credited accordingly and many accounts have caps for how much you can make in a year and others don’t have caps on profits.  If they don’t have a cap on profits they will generally have a “spread” which determines how much of total index gain you receive minus the spread.  A simple example is the index has a 10% run up but there is a 2% spread on the product.  This means your account is credited 8% of gain that year.  Your index level is now locked in and the next year “resets” as far as gain or loss.  If the index comes down 10% the next year your money will not go down at all but will also not go forward at all either.  In short, when markets go up you participate at some level in the ups but never in the downs of the market.

With many of these annuities you can also add a lifetime income rider on top of the base contract.  These riders will usually guarantee that your eventual income you start drawing out of the account (kind of like your own private pension) will be guaranteed no matter how long you live regardless of what happens to the cash in the account.  So if you live to be a ripe old age you will receive the agreed upon income amount until your death.  If you pass away and there is still money in the account verify that your particular product has a death benefit that would assure any remaining monies go to your loved ones.  The income rider will come with an annual fee but will usually guarantee your income rider value will rise every year even if your cash does not increase.  In short, your eventual income increases every year regardless if your cash does or not that year.

For the right investor these can be attractive places to put money as long as you understand the rules going in and use them to your advantage.  If you would like a free chapter from my book on this very topic and or to watch a video presentation about this program, just visit www.perpetualpensions.com and download these two great resources for free.

Note, not all products and features are the same and will vary state to state.