1. Paying little attention to capital expenditures

   Real estate investors often ignore capital expenditures while assessing their cash flow and mistakenly consider such expenses to be one-time expenditures. Capital expenditures may include replacing a furnace, air conditioning compressor, refrigerator, etc. It is important for the investor to calculate each and every expense regardless of how insignificant it might be. By doing so, the investor can assess his/her actual cash flow more accurately. Deals that may have looked good on the surface might turn out less attractive after careful consideration of all short and long term expenditures.

2. Not doing enough homework

   Like other professions, real estate investors need proper education and training. Many wannabe investors bypass many important elements and have trouble down the road. If you want to become a real estate investor, you should educate yourself well before taking on your first deal.

3. Not having cash reserves

   It is quite important for an investor to have enough cash in reserve for each property. Investing in a property that eats cash rather than generating cash flow may be the greatest mistake a real estate investor can make. It would result in negative cash flow that in turn, may reduce your capability to purchase more properties. Therefore, as a real estate investor, you should find ways to generate positive cash flow so that you can cover a mortgage, pay property taxes and perform monthly maintenance. Maintaining cash reserves also helps you create long term success in your real estate investments. Lack of cash may compel you to perform substandard repairs or rent to a non-qualified tenant.

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There are a number of people in today’s market that are looking to put their money to work in more ways than one. Sure you can invest in the stock market like every other person out there or just buy an annuity that will give you a steady stream of income. Or you can invest in the real estate market that is just filled with more properties than anyone has ever seen. Because of the persistent presence of bank foreclosures, the real estate market has many amazing deals. This type of investment is not for the faint of heart, since your money may be tied up for months to years. There are a few ways you can invest in real estate that will make you money. The most recognizable way that people have made money was buying homes to flip in the short term. The other option is to hold them as rental properties for a few years while it is rented out for a steady stream of income. If you are looking into flipping homes you need to have expert knowledge of the area to make sure you are buying it at a price that will make you money. You also must consider the money needed to update the home so that it will sell quickly. As a general rule the nicer the home looks compared to others on the market the faster it will sell. However the investor must be careful not to put too much money into the home where he has no chance of recouping that upgrade. For example putting in a pool will cost more than you will get when you go to sell it. It might look great but items such as pools will not return the investment required to put it in. The goal in these types of investments is to buy and sell as many houses as you can. You need to find the right people who will help you achieve this goal such as local contractors and Realtors. They will be the key to helping you find the property, fixing it at the best price and then putting it back on the market.

The other type of real estate investing that is going on these days is to buy and hold as a rental property. There are many condos and smaller homes on the market that make great rentals. These can be so cheap that in a few years your entire investment has been paid off by your tenant. You still have to do your research and know the area before you buy. Making sure that your condo is in a safe part of town with stable employment is very important. If the tenant loses a job the faster he or she finds a new one the better off everyone is. Also knowing the area rents give you an idea of what your monthly income will be from your investment. With this monthly cash flow coming in you can even take part of it and trade the currency markets. With the help of forex trading charts you can take that monthly rent and double it. This is not to say that you might want to spend it on a vacation for you and your wife, but a forex position is a good way to hedge against your real estate holdings.

You can also buy real estate because you feel as if renting is giving your money away. This is very true. While renting you are not building wealth and only paying the owner of the property to go on vacation and play on his boat. Once you become a home owner you have that feeling of accomplishment knowing that you own a home. You don’t have to worry about a security deposit or wondering if your landlord will ask you to replace the carpets. The entire home is yours and you are free to do whatever you want to it. After all owning your own home is considered the American dream, and in today’s market you can buy that dream for a lot less than in the past.

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As a general rule our investing business focuses on buying distressed real estate properties, rehabing them and renting them to good long term tenants. Over the past year we've been able to generate on average a 20% annual return for each single family house we've purchased using this model.

From time to time we need to generate capital to finance new acquisitions. Flipping retail homes is one way to raise relatively quick capital albeit it can take up to 6 months to get cashed out. Flipping is generally frowned upon by sophisticated investors and I for one generally agree. But there are times when waiting 5 to 10 years before cashing out of a rental property is just too long to wait to unlock your equity in an investment.

We found a good deal on a 4 bedroom 2.5 bath 2800 sq ft home in a strategic area of Michigan for about $57,000. We intend on investing another $35,000 into repairs and improvements. Comparable homes in the area are selling between $130,000 to $150,000 in under 6 months. This would give a net profit of between $38,000 to $58,000 before closing costs are factored in.

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Investing in fixed secured real estate notes can yield fruitful returns often higher than mutual funds while providing security of investment only found with bonds and CD's. Conservative investors looking for stable long-term investments such as bonds, CD's or money-markets currently only receive APR rates between 2% and 4%. The inflationary period looming due to government spending, budget deficits and money printing will continue to drive these investments into the ground. A high price to pay for security of investment.

What Is A Fixed Secured Note Backed By Real Estate?

A first position high yield collateralized note much like a lean held by a mortgage lender on a piece of real estate that can be called due if the terms of the agreement are not met between lender and borrower. In this case, the note holder (i.e. private lender) would simply take control of the real estate if the terms of the loan are not met. The borrower (i.e. real estate investor) will buy a piece of real estate with the money provided by the note holder. The two parties agree on a set of terms of the note. The property is purchased and the term starts. A fixed secured note can also provide investors such as retirees tax free income by using a self-directed IRA for the source of the note. For more information on self-directed IRA's visit: http://www.trustetc.com

Terms

The terms of a fixed secured note are generally 3 to 5 years, 6% to 10% APR interest only with monthly payments. There is typically a balloon payment of the original principle payed to the note holder at the end of the term just like a CD.

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Over the past 12 months my partners and I have been buying single family home foreclosures. Homes are selling for deep discounts and providing high cash-flow rates once rented. Our strategy is not to buy and flip, but to buy, rehab then rent to provide cash-flow and capital appreciation. On the surface this may seem as easy as drinking coffee because of the high number of foreclosures available. But don't be fooled with high quantity and low prices. Buying foreclosure properties is not as easy as it may seem. Buying houses for cash has been our strategy which is one way to up your chances of success. Refer to my previous article "Buying Real Estate With All-Cash" In todays article I'll outline another strategy that when paired with all-cash works for us.

Buying homes at deep discounts for cash relieves vacancy pressure as there is no unerlying mortgage. You may still have a lean on the property held by a private lender but hopefully you have worked out the terms so that you have 60-90 days until your first interest payment. Racing out to find a tenant before your first payment is no longer a pressing issue. You can be more choosy when screening tenants. You can hold closer to your asking rent price and not decrease it just to get the property occupied. You can save money by performing more of the rehab yourself. These are just a few of the benefits.

As easy as it might seem to buy real estate at low prices, a problem has arrisen that must be addressed if we are to successfully close deals with banks. I have found, as with many of my collegues that seller real estate agents have all the control when it comes to you submitting your offer, deciphering which offers to submit, how much information they tell you ahead of time, and lets face it some blatently do nothing. As a buyer in the past I have typically used a buying real estate agent to help me track down candidate properties, perform showings and leg work. As a result I did not close many deals dispite offering near or above asking price. The reason...

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In an up and down market there are those investors that will dig up opportunities regardless of the state of the economy. In the current climate banks are holding on to their cash with a wait and see attitude. Savvy investors are finding that buying with "All-cash" works as a viable strategy for acquiring residential and commercial bank owned properties. Investors with a wait and see attitude for institutional lending and financing are missing a great opportunity to buy while everything is on sale. Rock bottom prices in the residential and commercial markets in part have been driven down by the scarce availability of credit.

A Hostile Lending Environment

Currently, savings and loan banks, an alternative to commercial lending institutions and private lenders, will typically finance up to 65-70% percent of property values. Buyers in some cases are required to bring 30-35% to the closing table to even be considered. The Commercial Mortgage-Backed Securities (CMBS) market which has traditionally produced many lenders eager to compete for loans has been stalled since the 4'th quarter of 2007. For example: In the first 3 quarters of 2008 only $12 to $13 billion worth of commercial loans were securitized. Already, 2009 is on its way to having the lowest production of securitized commercial loans in 10 years as stated by Commercial Real Estate Direct. Some banks, in order to finace a new project, are requiring developers to pre-lease roughly 70 percent of office/retail units and housing. Shorter amortization periods and higher interest rates added to the mix creates the perfect storm for an even more hostile lending environment.

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Commercial real estate can lead to just about any lifestyle you can dream up, but if you're not careful how you play your cards, you can find yourself living through some expensive lessons. Fortunately, even in today's housing crunch, crossing the line from multiple homeowner to one who invests in commercial real estate isn't all that difficult, as long as you plan out a realistic strategy and game plan.

 Some people start out by buying a rental property, others rent out their own home, and move on from there. After acquiring a few homes this way, they branch out with a duplex or a small apartment. If this continues eventually the bank is going to put on the brakes by telling you that your portfolio is beyond their lending protocol for multiple residential properties.

If you've grown too big for your britches but want to continue expanding your mini-empire you'll have to learn the "how-to's" of commercial real estate. Possibly you acquired one commercial property and everything went off without a hitch. But the next one didn't. Suddenly you find you "hit the wall" - you're in property owners no man's land.

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 One important aspect of due diligence is to know your documents but specifically understanding the details of the lease, insurance policy, and title policy.  The lease, out of all of these is of utmost importance because it remains the roadmap for future events concerning the property.  Part of the issue with the lease is language.  There is a lot of strange stuff, interesting jargon presented in the terms of a lease.  Really I wonder when legal ease will be common enough for an ordinary person to understand.  Such examples of strange amendments to a generic lease include: First options on purchase, the right to take over adjacent space, tenant ownership of plumbing fixtures (really!), agreements for new carpet every year. Really anything is possible.

One would think that there is a cookie cutter answer to the common lease agreement.  It seems very few properties have what is commonly termed as a "standardized lease template" mainly because over the lifetime of the property management, the owner is faced with signing new leases and making concessions for each individual tenant.  Some tenants will be more nit picky than others.  Some tenant may agree to paint the living room or include other repairs that will amount to a profit for the owner in the long run but mainly benefits the existing tenant.  A lot of the time, much goes unnoticed by property managers and it is at the owner's discretion to know the lease backward and forwards.



Every word of the lease is crucial.  It is important that everything remain clear for both the owner and the tenant.  It is a good idea to have an outside party review the lease and compare notes.  If there are questions, please ask them and be straightforward about any concerns.  This process is usually so important that I do not let anyone else handle it.

It is in my best interest that I understand every detail of every lease.  Otherwise I am just setting myself up for failure with these tenants and sometimes even the owners.  Sometimes the owners don't even know the specifics of each lease.  That is why you need to ask questions and understand each situation.  It is the nature of the job that sometimes people tell me too much and I must remain objective. Still this creates a level of honesty I have come to respect of my clients.

Well as it happens with more and more questions come up things that the client remembers about the leases and something I may not have been aware of from the get go.  So I cannot stress enough how important to ask lots of questions in the process.  The way I see it is, this is a chance to find out about information that may not have already been discussed.

Remember to get a payment history from tenants.  This does not lead to many surprises.  For instance, if there is a problem tenant, someone who is consistently late with the rent, then I want to beware of that issue upfront.  If it is chronic problem, I may see the need to discount the cash flow, which in turn leads to a lower price offer. 

There is also the situation where the owner or property manager does not have a system to tracking the cash flow, or documentation of the rental payments, or even a way of verifying with their bank, this proves to become a much more risky situation for me and everyone involved.  Here too, the risk translates to a lower bargaining price.  It has been my experience that in these cases, the paperwork magically appears.

One can always tell a lot of vital information from the insurance policy, especially in the case of a building with some age.  Mind you, a lot of times insurance inspectors know all the tricks of the trade and if you are able to get a hold of the last risk assessment you will be ahead in the long run. You can request this from your client usually the insured is the owner but a copy is a must.  If it is at all possible, get a claims history as well.  This can be a grey area because lot of times, you will have to jolt the owner's memory and this can become issue if they changed carriers every year.  Here there is no real worry, people change insurance providers all the time shopping the best rate is so common but be cautious if they have failed to pay a policy.  What is best in this situation is to make sure the owner can get an affidavit discussing the truth of the claims represented as being complete to the extent of his knowledge.  This can be important for future possible litigation because many sellers want the warranties to survive closing. 

 When in doubt look to the existing title policy.  This will inform you the obvious information regarding easements, rights of way, etc.  Be on the lookout for any special exceptions to title. It is best to have a General Warranty deed if you can get one.  A smart seller will offer a Special Warranty deed as incentive, which will only guarantee title for the time they owned the property.

To further the argument, it is also important to keep in mind the amount of resources and the type of property when completing a due diligence process because some steps may not be warranted.  Really when it comes down to it, there is no other proper substitute for due diligence, but this does not stop people from not understanding its importance. No property is perfect and unfortunately there is no way of preventing this without further investigation. In the long run it protects all parties.  Depending on one's needs, it is fair to say that each transaction will decide what level of due diligence is needed.  There are companies out there that all they do is specializing in this practice.

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The phrase "product research" strikes fear in the heart of real estate buyers and investors everywhere, especially ring with horror in boom times like now when we are in the thick of foreclosures.

 The popular misconception of doing property research is that hours upon hours needed to be spent at the local recorder's office, sifting through countless pages of real estate documents, which do not have much entertainment value.  However, despite the tedious affair of collecting this important information, it is of vital importance to do so, especially for determining Comparable Sales and the Lien & Loan History. 

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