Udo Ginczek's Blog

By Udo Ginczek | Real Estate Pro in Riverdale, MD

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Motivated Sellers in Foreclosure

Posted Under: Home Buying, Home Selling, Foreclosure | December 19, 2011 9:14 AM | 524 views | No comments

Thus far, we've been assuming that we will find motivated sellers who have their homes listed for sale. But what about sellers who haven't been able to sell their homes for one reason or another and are now in foreclosure? They are the most motivated of all to sell, and they, on occasion, may be able to present some terrific bargain opportunities to you. Have your agent look for foreclosure properties or short sale properties for you.

To your investing success,

Udo Ginczek

http://www.diversityrealty.com
REAL ESTATE INVESTMENTS...

Posted Under: Home Buying in Laurel, Home Selling in Laurel, Property Q&A in Laurel | December 19, 2011 7:55 AM | 609 views | No comments

I do REAL ESTATE INVESTMENTS in MARYLAND, DC, and NATIONWIDE... >Click here now to get more informations at Diversity Realty<
Check with Brokers... Find Motivated Sellers...

Posted Under: General Area, Home Buying, Home Selling | September 9, 2010 6:34 AM | 2,070 views | No comments

Check with Brokers

The real estate broker will move on these words. Any agent worth his or her salt knows that a motivated seller means a quick sale. The broker will alert every potential buyer, including you, that this seller wants out.

Consequently, your first source of motivated sellers is the real estate broker.

Won't Agents Buy All the Good Properties?

There's nothing you can do about this, so don't worry about it. However, most agents would rather get a commission than buy an investment house.
My experience the agents that will work for you making the kind of offers you need to be making often will need to take your advice on what and how to offer. A savvy seasoned agent probably isn't desperate for income and most likely doesn't want to be bothered writing many offers that may not get accepted.

TIP: If you get too many offers accepted, your probably paying too much!

The exception to this is flip-able property. If the agent feels he or she can buy the property and quickly resell for a big profit, they may do it. However, agents have special problems in flipping. If they buy themselves and then quickly resell for a profit, the seller may feel cheated. Agents are required to disclose they are agents and intend on purchasing for a profit, however, the seller may feel that the agent wasn't fulfilling his or her fiduciary relationship. And that seller can do nasty things such as calling the state regulatory board or even taking legal action. - Ouch!

If the agent is foolhardy enough to "double escrow" the property (in essence, concealing the resale from the original seller), the sale might even be illegal. And few agents would dare to risk the consequences of such action.

Therefore, while it is true that in a hot market agents will sometimes pick the cream of the crop, there's usually still plenty of good properties out there to go around.

TIP: Find a new agent who is more interested in a paycheck (i.e. a commission) than find a bargain property for his or herself

Check with Sellers

Remember, a good way to find out a seller's motivation is to point blank ask. In some cases, when you look at a house, the seller will be there. Just begin a conversation and ask why that seller wants to sell.

If the sellers hedge or hem and haw or give a reason that is not indicative of strong motivation, pass. On the other hand, motivated sellers are very likely to simply let you know that they are extremely eager to get a deal. They may say something like "Make me an offer" or "Let's talk. If you're interested, put it in writing. I'm very anxious to get out of here." The motivated seller will seldom try to hide his or her eagerness. Rather, they will do everything to let you know just how they feel.

Check with Neighbors

Ask around. Oftentimes neighbors are an excellent source of information. And neighbors may feel little loyalty to the existing owner who is selling and leaving the neighborhood.

Of course, this is not an invitation to be a snoop or to invade anyone's privacy. However, anyone who is interested in buying a property always talk to the neighbors first. (It's a lot easier on the nervous system to learn there is a bad neighbor next door before you buy, rather than after.)
As part of your conversation with the neighbor, you will certainly ask about the house, the neighborhood, and eventually the conversation will drift over to the seller. The neighbor may volunteer some critical information as to why the seller is getting out. While your striking up a conversation, ask the neighbor if they know of anyone else around who might want to sell or if they know of any vacant houses in the area. A vacant house often creates motivation, even if there isn't a "for sale" sign in the yard. Most of my really good deals never had a sign in the yard.

Motivated Sellers in Foreclosure

Thus far, we've been assuming that we will find motivated sellers who have their homes listed for sale. But what about sellers who haven't been able to sell their homes for one reason or another and are now in foreclosure? They are the most motivated of all to sell, and they, on occasion, may be able to present some terrific bargain opportunities to you. Have your agent look for foreclosure properties or short sale properties for you.

To your investing success,

Udo Ginczek

http://www.diversityrealty.com
Look in Better Neighborhoods...

Posted Under: General Area | August 8, 2010 10:07 AM | 2,615 views | 5 comments

Avoid the crap AND the country clubs.
The better the neighborhood, the easier it will be to rent and eventually to sell (or trade) your property. Homes in good neighborhoods are always in demand, while those in bottom-end neighborhoods usually only deteriorate. On the other hand, don't try for the very best areas. They are often over-priced and you'll find it hard to find an investment property there that will rent for enough to cover your monthly costs.

Homes in the top neighborhoods, however, often make the best flip properties. If you buy low here, you often have the best chance to immediately resell for a big profit. Todd, one of my students loves these neighborhoods. He looks for biggest neglect in a great area and rehabs them for SIX FIGURE net profits. He usually will do 6 to eight high end rehabs a year.

What makes a good neighborhood? Look for attractive homes; and avoid areas where landscaping is neglected. Look for wide streets; avoid areas where abandoned cars litter streets. Look for conformity in housing; avoid areas where there is a hodgepodge of homes.

TIP: Check the schools.
The biggest indicator of a good neighborhood is that it has quality schools, as evidenced by high scores on standardized tests (always available at the main school district office, or online). Poor schools mean a poor neighborhood.

3. Look for Flippable Properties

The term "flipping" has come into the real estate vernacular along with the big boom in property values and a plethora of cable TV "reality" shows.
It essentially means that you quickly buy and then resell a property without holding on to it for long. If you can flip a property and can make cash on it, the reasoning goes, do it.

I agree, up to a point. The cash generated by flipping can go toward your own income to live on, as well as toward creating capital for the down payment or repairs on another property. Flipping, when possible, has always been a good way to generate cash from real estate. I did a ton of quick flips when I got started to dig myself out of bad debt and put some serious money in the bank in case I got laid off. As it turned out, I got so good at it, instead of worrying about the next round of layoffs, I decided I'd had enough of that stress and fired my boss. Seriously! I told him his services were no longer required.

The mistake that some people make, however, is to look only for flippable properties, or to try and flip properties that really aren't suitable. It makes little sense to flip a property to make $10,000 when if you hold it for a year, you can make $100,000. Also, out of 10 properties you look at, you'll be lucky to find one that's a good flip property. Yet, five of the others might be good for holding, renting, and then reselling.

4. Look for Strong Tenant Markets

It's a truism that there are always tenants. In any area, in any rental market, there will always be good rental areas and bad ones. But, the underlying fact is that in some locales, there are more tenants than in others. And in some locales (or sub-markets), the tenant population are willing and can afford to pay a higher rent than in others. Ideally, you want to buy in an area where there are lots of high-income tenants.

It's important, here, to think locally. The country may be doing bad economically, but your area may be doing better, or worse, than the nation as a whole. In order to get a tenant for your property, you must be able to draw on local workers. If there are few well-paying local jobs, you won't get many good tenants. In some parts of a city there may be many job losses, where on other parts of town there is a large influx of population. When people are moving in, it's likely a good place to own rentals.

As a consequence, it's important to do a tenant analysis before leaping ahead and buying rental property. There are a variety of ways to accomplish this: First, if you're buying into low-income housing, look for blue-collar tenants. That means industrial plants will be nearby. On the other hand, if you're buying an upscale property, look for white-collar workers.
Check in the area for office buildings, commercial buildings, financial institutions, and the like.

Second, think like a tenant. If you're a tenant, who's going to employ you? Look around the area. Who are the big employers? Find the place that the tenant wants to live and that's where you'll have your strongest tenant market.

Third, check the local newspapers and for rent websites under "Homes for Rent." You'll quickly see which areas have rentals. Call to see what the prices are (if they aren't listed). Then recheck the same paper over several weeks. If you find areas which have the same homes advertised for weeks on end, avoid those. If there are areas where homes rarely crop up and then the ad appears only for a single weekend, go there. That's where the tenants want to live! Areas which rent quickly indicate a good rental market. Areas with lots of vacancies do not.

To Your Investing Success,

Udo Ginczek
http://www.netbuc.com
Profiting from Buying Real Estate...

Posted Under: General Area | July 25, 2010 2:31 PM | 2,540 views | 5 comments

One of the oldest rules in real estate is that you make your money when you buy, not when you sell. Buy right and you'll always be able to rent the property out and eventually resell for good money. Buy wrong, and the property will be an alligator (it will eat you alive with payments) and give you trouble selling. In the next few e-mails you will find the most important rules for making money when you buy a property.

1. Buy Single Family Housing

Houses are the best. The reason is simple: they are easy to buy (financing is readily available). They are easy to rent (most people prefer them to any other type of housing). They are comparatively easy to maintain. And when it comes time to resell, you have the highest amount of buyers able to get the highest amount of financing so you get the highest profits.

Don't listen to so-called professional investors who knock the single-family home as an investment. You may have heard those who can afford to buy 100-unit apartment buildings disparage the house. They might say, "If I have a 100-unit building and I have one vacancy, it's only 1 percent of my income that I'm losing. But if you have a single-family house and have one vacancy, you lose 100 percent of your income. There's no way to justify that!"

Phooey! If you have one unit and find one tenant, you have 100 percent occupancy. If you have a 100-unit apartment, you have to find 100 tenants to get full occupancy.

Either way, it's just a war of words. What counts are results.

Condos: As a general rule, beware of condos as an investment. The temptation to buy may prove nearly irresistible, since they are typically offered at lower prices than houses. Historically, however, condos perform poorly. In a down market they fall first in value and go lower. In an up market, they are the last to rebound and their price increases tend to be the slowest. Further, condos will often rent for only 70 to 80 percent of the rate of a comparably sized single-family home. It may seem very appealing to buy a lower-cost condo, but you'll find them harder to rent and harder to sell. (Waterfront and resort communities may have different rules)

TIP: Don't overlook the "hidden costs" of condominium ownership, mainly home owner's association (HOA) fees. These can often add hundreds of dollars a month to your payments AND you have no control over when and how much they can go up.

Duplexes, Triplexes, Flats, Etc.: These often make good investments especially if they are located in an area of mainly single-family homes. You can sometimes buy them relatively cheaply (when compared to single-family homes) and rent them for most, if not all, of your payment. Upon resale, they tend to hold up well. Best of all, unlike condos, they tend to have no HOA fees. The downside is - you have fewer buyers when it's time to resell AND you will likely sell to an investor. How many investors pay retail?

TIP: Beware of trying to combine home and investment here. Many people buy a duplex or triplex thinking to rent out one or two units to help offset costs while living in the remaining unit. The thought is that you have both a home and an investment property. The reality is that you end up with the worst of both possible worlds. You don't really have a home because your tenant is right next door. (He or she will be over every other minute with complaints.) In addition you don't really have a good rental because you're not able to offer a single-family detached home that can command top dollar.

Small Apartment Buildings: These are a mixed bag for the investor. Mainly it's a matter of management. You will find that you have far more tenant movement here. If you have four houses, chances are you might change only one or two tenants during a year. With a four-unit apartment building, you might change as many as four or more tenants during that same time frame! Managing an apartment building is double or triple the work of managing the same number of single-familyhousing units.

TIP: Until you've handled a few rental houses, hold up on tackling even a small apartment building. Property management is a skill that takes time to develop.

On the other hand, profits upon selling can be enormous. The value of apartment buildings is directly related to their rental income. The higher the rental income, the greater the value. The surest way to make money in real estate is to buy an apartment building, jack up the rents, and then resell. Typically for each dollar you increase your annual rental income you could get between six and twelve dollars in profit on the sale. If you have four units and raise the rent twenty-five dollars on each, that means an extra $100 a month or $1,200 a year. Multiply this times a multiple of, for example, 10, and you've got an instant profit of $12,000--all on a modest $25 a month rent increase! (Beware, however, of rent control areas where it is impossible to increase rental rates.)

My .02. I really loathe small units. They sound great all the way up to the point of management. On smaller unit buildings, if you don't manage yourself, you'll, often, not make any positive cash flow in the early years - it will go to the property manager and a padded expense account. You have all the nightmares of tenants without the leverage of a larger unit property. Once you get into a 50 unit or more the benefits of multi family start to make sense. At least from my perspective. For one, now you can hire a better quality manager (who will like more units) so now you don't have to manage tenants and the cash flow will pay for professional management and have plenty left over to line your bank account at the end of the month.

More in the next session...

To your investing success,

Udo Ginczek

http://www.netbuc.com
The Secret of Flipping Real Estate Contracts

Posted Under: General Area | June 10, 2010 10:28 AM | 1,395 views | No comments

There's an inherent problem in using an assignment to flip a property. Unfortunately, I've yet to see midnight gurus (some of those who promote it on late night television and elsewhere) explain this. So here goes.

Almost all sellers have a kind of personal relationship with their buyer. They want to know who's buying their property. (This is even the case with banks, which almost always insist on knowing exactly with whom they're dealing.) When you assign the purchase agreement, you break that bond. Most buyer and sellers, nevertheless, are willing to go along provided the deal concludes in a reasonable fashion. After all, they're still getting a purchase or a sale out of it.

However, when they discover that you're reselling the property at a substantial profit, some are very unhappy. After all, they conclude, what are you adding to the deal? They feel that your profit should go into their pocket.

As a result, you could have an angry seller (or buyer) on your hands who at the least refuses to sign off on the deal unless he or she gets more money, or at the worst, takes you to court. Thus, to oil the waters, many investors who flip in this manner just don't tell the buyer or seller. What they don't know won't hurt them.

Therein lies the rub. There shouldn't be anything illegal or even unethical in flipping property, as long as all parties involved are made aware of what's happening. However, when one party doesn't know what's going on, there are all kinds of opportunity for things to go wrong.

If they're being frank, any good investor will tell you that flipping works best in secret. If the seller doesn't realize you're making a $30,000 profit on the sale, he or she isn't likely to complain. But, in the same breath that good investor will tell you to bite the bullet and let the seller know. It will save you all sorts of trouble later on.

Remember, it shouldn't make any difference what you do with property after you and the seller agree on price and terms. If you can flip it to another buyer for a better price, so be it.

Will the Buyer Get Mad at Me?

Probably not, if you handle it wisely by letting the buyer know what you're paying for the property (and getting confirmation on a signed statement from the buyer). On the other hand, if you conceal the information, the buyer may discover it later on and think you were trying to pull a fast one, and go after you.

TIP: Don't get greedy. Surprisingly, as long as you're selling a good deal, most buyers won't care in the least that you're flipping or how much you're making on the deal. As long as they're assured they aren't paying too much, chances are they'll be happy.

Tip: Work with Buyers you know. Some lowlife investors may try to go around your back and deal directly with the seller and cut you out of the deal. I teach my Platinum Mentoring students how to circumvent this problem before it happens, no matter who you are dealing with.

What's the Right Way?

The right way to handle a flip is to be sure that all parties know what you're doing (and get it in writing in case someone should later have an attack of memory failure). Quite often when they learn of it, they'll admire you for it. After all, remember that you're providing a sale for a seller who wants to get out. And you're providing a deal on a house for a buyer who wants to get in. Why shouldn't you be entitled to a profit for that? It's a win, win, win situation! (First-timers should get an experienced mentor to help with an assignment. Once someone holds your hand through your first deal, you'll be off to the races on the next one.)

To your investing success,

Udo Ginczek

http://www.netbuc.com
Assignment Of Purchase Really Works

Posted Under: General Area | May 9, 2010 5:33 PM | 2,207 views | No comments

Does an Assignment Really Work?

Certainly it does. However, you need to include at least one escape clause in the purchase and sale contract in case you can't find a buyer in the short amount of time that you have, or in case that buyer for some reason can't complete the purchase.

Escape clause? What's that?

It's very commonly used in most real estate sales transactions. It's a clause that says the sale/purchase is "subject to" or "contingent upon" something. If that something happens, you can gracefully (without financial harm) back out of the deal. In modern transactions there are three widely accepted escape clauses that most sellers will agree to without blinking (and that won't weaken the transaction). These are considered below.

1.    Finance contingency--You have written into the contract that the deal is contingent upon your getting financing. No financing, no deal and you're out without penalty. This usually runs for 30 days, but you must reasonably look for financing.

2.    Disclosure contingency--You must approve the seller's disclosures. If you don't approve them, there's no deal. But the time limit here is usually very short.

3.    Professional inspection--You must approve a professional inspector's report. If you don't approve it, there's no deal. Usually you have 14 days to get the report and then either approve or disapprove it.

The problem with these contingencies is that they probably don't offer you enough protection if you're doing an assignment. For example, in order to get the deal at a rock bottom price, you may have to offer the seller cash. In a cash sale, you don't have the protection of a finance contingency.

You might rely on the disclosure and professional inspection contingency, but those usually run out after 14 days max. At that time you either agree to move forward without their protection, or back out of the deal. If you agree to move forward, and something adverse happens (for example, your buyer flakes out), you're stuck for the house!

What About Other Contingencies?

As a result, most investors who are flipping using an assignment want to add other contingencies. These are easy to add, but not easy to get accepted.

You can make the sale contingent on anything: your uncle dying and giving you an inheritance, your great aunt coming from Australia to approve the deal, sun spots, anything at all. However, any contingency you add that's not reasonable is likely to be considered frivolous by the seller and a reason not to sell to you. Thus, the more escape clauses to protect yourself that you include, the less likely you are to get the seller to sign. And the fewer escape clauses you include, the greater your risk in case you can't get a buyer to close the deal.

Isn't There Some Way To Limit My Liability Here?

There may be a way to limit your liability in case you can't make the deal. Most modern purchase agreements include a "liquidated damages" clause. If you sign this (and the seller does, too), then the total amount of damages that you are likely to have to pay in the event you don't (or can't) make the deal, is limited to your deposit. If you only put up a $1,000 deposit, you don't have a great deal at risk. There are ways around this too, though.

Some readers, I'm sure, are asking why are all these cautions necessary for an assignment.

The reason is that assigned purchase agreements can be iffy. There's a lot that can go astray between signing them and actually concluding a sale between seller and new buyer. If the sale can't be concluded, the seller is, of course, likely to get angry. And you want some good cover when that happens.

At our local monthly mentoring meetings we discuss things like a 'catch all' escape clause that is easy to get past a seller, ways to avoid giving a check for earnest money deposits, and much, much more to protect yourself and to ensure you get paid. If you haven't checked out one of our meetings, you should stop by and see what your competition is learning!

To your investing success,

Udo Ginczek

http://www.diversityhomes.com