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

Why Only Investing Is A Suckers Bet

caution-sign

Last week, I introduced my concept of the six circles of wealth, and discussed the first circle, cash flow. The second circle is investing. Simply defined, an investment is an asset whose value can grow or shrink. Some of the most common investments are:

  • Stocks and bonds.
  • Mutual funds from many different asset classes, including stocks and bonds.
  • Gold and other precious metals.
  • Real estate.
  • Commodities, such as oil, frozen orange juice and wheat.
  • Annuities.

Some are less commonly used:

  • Businesses.
  • Private placements (money is pooled and invested in properties, venture capital, inventions or other assets).
  • Limited partnerships (money is pooled to invest in something a general partner usually has expertise in).
  • Notes and income streams (this includes payments on a note, private contract or annuity).
  • Tax deeds and tax liens (a form of real estate with different rules).

Passive Investments

In passive investments, you have no say in what is done with your money once you invest it. You are relying on other people’s expertise. Examples from above would be:

  • Stocks held for long term (stock trading is more of a business venture).
  • Mutual funds.
  • Gold
  • Annuities.
  • Private placements (assuming you are just a cash investor and not the principle).
  • Limited partnerships

Active Investments

Active investments require more of your time and expertise to make them successful. As a rule, the more effort and specialized knowledge required to make an investment successful, the bigger its potential returns. Examples from the above:

  • Real estate will require you to study values, rents, acquisition techniques, liquidation strategies and other factors. To be a successful real estate investor, you must think build a team of professionals.
  • Business investing will require you to understand the business and the industry and to have a team of professionals and maybe even joint venture partners. There is potential for huge returns and a loss of your entire investment.
  • As the general partner in a limited partnership investment, you are the one with the expertise and time. Many times you will not invest money (although every arrangement is different). You will need a power team and the ability to raise private capital.
  • Discounted notes and income streams will require knowledge of collateral, cash flow, figuring rates of return on discounts and the ability to find private notes for sale.
  • Tax deeds and liens cover parcels (mostly unimproved land) that are auctioned off for back taxes. Great deals are possible, but you need to know the rules (every state and most counties in the state are different), the values, possibilities for land and guarantees offered by the local government.

Maybe splitting your investments between hands-off and hands-on programs makes the most sense. You might need to spend some time educating yourself to make hands-on investments succeed. Simply book time in your schedule to read, listen to CD’s, and attend workshops that will help your eventual goal of solid hands on investing returns.

More Than Just Investing

Many people might think I have left out certificates of deposit, savings accounts and life policies as investments. These are important parts of your wealth plan, but since they are guaranteed, risk-free products — you can’t lose money in them — they fall into other circles.

I also don’t include options on stocks or commodities in the investing circle. Most of the time, options are very short-term cash-flow plays. They require the stock or commodity you’ve bought options on to move a certain way fast if they’re going to pay off (up for call options, and down for put plays). They’re more a quick cash-flow generator rather than a longer-term investment strategy.

Far too many people make the mistake of just focusing on their investment circle while letting other circles fall into disrepair. Picture the six circles of wealth operating in a balanced way. When one circle gets too heavy or out of control, all the other circles suffer. When you understand this (and so few people ever do) you can take steps to balance out the circles and create a financial fortress.

John Jamieson is the best-selling author of “The Perpetual Wealth System.” Follow him on Twitter and Facebook.

Wealth Without Stocks! Why haven’t I heard of this before?

The indoctrination of the stock market is most powerful

Turn on your television, your phone, your computer, and any other device you care to name and you will almost certainly be greeted by the day’s stock averages such as the Dow Jones, NASDAQ, and S&P 500, among others. You will be instantly updated as to the direction of the market. There are entire television channels that are on 24 hours a day and 7 days a week that do nothing but report on the stock market; such as CNBC. How boring to have to follow those for hours every day.

When that kind of media blitz has been happening now for generations it is small wonder why people are unaware that they can, in fact, create much wealth even without stocks or mutual funds. This philosophy is NOT about being anti-stock market; there is certainly a place in every wealth plan for stocks or funds somewhere along an individual’s stages of wealth. The problem is that the vast majority of people have no idea of the many other ways that are available to grow and protect wealth. When me or my teammates and staff work with our clients from all over the country they are always fascinated when we start to discuss many of the alternative options to grow and protect wealth.

bags of money
Most of the topics we will cover in future posts are not only virtually unknown to most of the world but when used properly they can be extremely powerful. I am so excited to put all these wealth vehicles in one place that I can’t wait to begin to put this powerful information in your hands. We are going to cover debt reduction strategies, creative real estate strategies, private pension and self-directed IRA strategies, just to name a few.

We talked earlier a little bit about why the stock market is such a major force in almost every investor’s life but there is also the fact that you don’t need any knowledge to put your money into the market. Most Americans simply select what kind of investor they are; which will include aggressive, moderate, and conservative (Translation is how much money you can afford to lose). Just like that, they are signed up for their employers 401k, which will be their main retirement savings and investing plan for the rest of their lives. More than 80% admit to really having no clue what they signed up for to any great degree and certainly no knowledge of how their money was being invested. They just get their investing amount taken out of every check and let it ride!

The good news with that philosophy is that you don’t need any extra knowledge; the bad news is that you are making one of the biggest financial decisions in your life blind. You are investing (not saving, in most cases) money and just blowing all of your income. Although this is far from perfect, it is better than not doing anything at all. It’s fast, easy, and painless to get started funding your future. So you don’t have to be a financial expert to begin to accumulate wealth. That system is hands off from you and will allow you to focus on other things that are important in your life. The money is given to Wall Street (most of the time) and invested through mutual funds into many different kinds of stocks. However, that system also comes with enormous costs in the form of market losses and huge opportunity costs that we will talk about more in an upcoming articles.

The wealth without stocks philosophy is not that simple (it is pretty easy but not that simple) and will require you to obtain some niche knowledge to take advantage of the markets that are available to you in your quest to build wealth. If you are reading this than I am going to assume that you are the kind of person who is willing to shut off the television to further their own education for even one hour per night. You are willing to sacrifice time on Facebook® and every other social media time suck that are available to us. If that is a true statement than you will have the opportunity to grow and protect wealth at an accelerated rate that should far outpace your colleagues who have bought into the old financial plan described earlier. I want to congratulate you for being one of the few that actually will take the time to design their finances and secure an abundant future.

You are about to be launched into a secretive world (in comparison to the stock market and mutual fund world) that will make simple sense to you. Think of these articles like your own personal wealth buffet and you are free to choose whatever is to your liking and leave the other strategies on the table untouched. However, what will happen for many of you is that you will implement one of two of the strategies and then come back to the well of knowledge to see what else might be a fit for your goals. Just because it is not a fit for you today doesn’t mean it won’t be a fit for you tomorrow.

Just be open-minded and ready to learn!

All the best to you,
John Jamieson