It’s scary but it happens. Well, I am proof that when it does, cleaning up after the mess takes longer and costs more than you always think it will. They give you power and confidence. This was indicative of bigger problems that could be incredibly costly and we felt the risk was too great, so we sent a letter to the seller stating that we were rescinding our purchase offer in accordance with the terms of the agreement. This equated to a $3,822 per month savings. In this business, you have to be tough. File Size : 66.22 MB They give you the ability to evaluate property investments like the pros do. Poor property management is one very large contributor to a property’s under-performance and reduced valuation. Is that good or bad? ft. Now is the easy part. When I know 70 percent of everything there is to know about a property, that’s enough to make a decision. But for now you can see why it is a good idea to have your team in place early. • When will the title report be delivered and what is in it? Finding the other income sources can take some time. They are designed to be negotiated and the original document you send over is the starting point. This shortfall goes straight to the bottom line, and remember the bottom line determines the ultimate value of the property. File Size : 38.92 MB Once the sale is closed, you’re stuck with any and all hidden problems. There are also maintenance people who complete minor repairs of buildings and grounds. The last thing you’d want to do is move forward and pray for a miracle. Investing in a Real Estate Investment Trust (REIT) is a popular way to “diversify” into real estate. • What if I bid out my landscaping and maintenance and repairs? 3. In fact, I go into every property deal with the full assumption that I won’t close the sale. Connect with 1,000,000+ real estate investors! Find more similar flip PDFs like The ABCs of Real Estate Investing - Ken McElroy ( PDFDrive.com ). Usually on the front there is a photo of the building and on the back are a lot of numbers that depict the property’s operations performance. It’s your last chance to make sure you have uncovered every hidden flaw, are aware of every possible problem, and are realistically projecting the opportunities. To do that you’ll want your property at 100 percent occupancy, even if it means some of your rents are slightly below market. This language in a purchase and sale agreement states that you as the buyer are entitled to any and all documents related to the property. First, let’s compare the seller pro forma income number with the prior year actual income number. I have a friend who had a small property in San Diego. Format : PDF, Docs Look hard at the management plan you created during due diligence. Unfortunately at the time, the San Diego apartment market was really hot and he could not find another deal that was worthy of reinvesting his money. If this is the case with the property you are buying, you will need to re-create the records from the facts you do know. Over time we were able to lease these first-floor apartments for $75 per month higher than the second-floor apartments. In the sections that follow, I’ll list and describe most of the most typical expenses you will encounter with your new property. Rich Dad's Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not! The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss (Rich Dad's Advisors (Paperback)) Step 1: Verify Property Income Even if the seller discloses the current income on a rental property either through a pro forma document or verbally, verify it. The domino effect here is that unhappy residents create vacancies and vacancies create cash flow problems. The hundreds of residents and their families living at the property were up in arms. You are managing the property for sale and that means you want to demonstrate the property’s highest potential income. Follow Ken online at: www.thesleepinggiant.com www.kenmcelroy.com/ www.facebook.com/kenmcelroyfans www.twitter.com/@kenmcelroy www.bzkpress.com For more information on MC Companies, please visit www.mccompanies.com, References and Resources For additional information, the following websites are suggested: Books and Information for Investors and Entrepreneurs www.BZKPress.com Real Estate www.Ken.Mcelroy.com www.mccompanies.com Asset Protection and LLC Formation www.sutlaw.com www.corporatedirect.com Tax Planning www.provisionwealth.com Sales Strategies www.salesdogs.com The Rich Dad Company www.RichDad.com, Other Books by Ken McElroy The ABCs of Real Estate Investing The Secrets of Finding Hidden Profits Most Investors Miss The ABCs of Property Management What You Need to Know to Maximize Your Money Now The Advanced Guide to Real Estate Investing How to Identify the Hottest Markets and Secure the Best Deals The Sleeping Giant The Awakening of the Self-Employed Entrepreneur, Best-Selling Books in the Rich Dad Advisors Series by Blair Singer SalesDogs You Don’t Have to Be an Attack Dog to Explode Your Income Team Code of Honor The Secrets of Champions in Business and in Life by Garrett Sutton, Esq. Kim Kiyosaki just told me recently that she was buying a property from a seller whose books showed that for over four years the laundry company had not paid anything to the sellers. Will it create more vacancy? Find more similar flip PDFs like The ABCs of Real Estate Investing - Ken McElroy ( PDFDrive.com ). Rather, buyers must understand there will always be a vacancy component in the analysis, which could be as low as 2 percent and I have seen it as, high as 20 percent. If you are doing it yourself, either you or someone you hire will take on the task. We found that our competition had transportation service and had a much higher occupancy because the van service attracted seniors who didn’t want to drive. People were using them. This property came back around to us three months later when the first buyer couldn’t get financing and we later put the property into escrow. This disclaimer makes it pretty clear that a smart investor must verify each and every number in this brochure. Let’s not have any surprises! Our policy is to never allow partial payments, we do not waive any late fees, and we do not accept checks from anyone who pays late more than one time. But the benefit of good operations goes one further. When you work with a large management company there should be economies of scale that mean savings to you. But if you chose the latter, your one bad choice can have far-reaching effects. It is in your best interest to buy it at the actual income. Unfortunately, the Tucson property had been severely neglected and the seller, which was the bank, was not interested in making the needed repairs. Ft. ofUniti Type 650 *$575 750 3900 *$500 $2,850 $0.73 6 1/1 675 1500 $0.77 5400 $1,150 $0.74 2 2/1 $4,000 8 Averages *Current rents average $480 for the two-bedroom units and $422 for the one-bedroom units. Create free account to access unlimited books, fast download and ads free! But my company has evicted people for all sorts of reasons and it is well within our rights to do so. rich dad s advisors® the abc s of real estate investing. Your budgets will get increasingly accurate the more you do. It’s time to execute your plan to improve the property and maximize its cash flow. They talk. With the basics discussed and outlined, it’s time for practice! Net Operating Income Seller Prior Year Our Projected Pro Forma Actuals Income Total $45,120 $41,800 $39,451 (Less) Expense Total $15,573 $15,683 $17,083 Net Operating Income $26,117 $22,368 $29,547. Now that I have a solid understanding of personal finance and economics, I wanted to go to the next level and understand a bit more about real estate investing. Are they cracking and full of potholes? • Existing ownership issues like zoning violations or encroachment onto another pro.perty Service Agreement Review Purpose : To determine the service commitments of the current owner and look for ways to improve them should they survive a transfer of ownership. That’s great. Format : PDF, ePub To do this, we get out our calculator and run the expense totals. Don’t laugh; it happened to a friend of mine on Maui. . So we parted ways and moved on to the next deal. Unless you have a plan, which of course, you do. Good property managers understand the real-world parameters within which they must work to achieve this goal, but if you are managing the property yourself, you’ll want to be aware of what the market is doing in your immediate area. Not only must a property manager have all these systems in place, he or she must follow them. A single person is a bad sign. These are critical and I recommend they be in every purchase and sale agreement. • Stay calm about problems you find. Not everyone is as nice as they appear on the outside. The due diligence document is my report card to evaluate how well I estimated the numbers during the Five Step Property Evaluation. Many of these expectations are regulated state by state so be aware of your state laws and do not accept any service below government standards. Download : 544 The Interior Inspection Purpose : To help you learn about the physical property, get a sense of the quality of the residents, and help you understand the exposure to your future cash flow should you purchase the property. ADJUSTED EXPENSES At this point, we have the numbers we need to complete our analysis. You’ll want to have a confidentiality agreement ready for the prospect to sign before you disclose anything to him or her. This site is like a library, Use search box in the widget to get ebook that you want. property valuation, I have a strong belief that whatever I find is fixable. There are certainly exceptions to this but we do not dispatch maintenance after hours for residents locked out of their apartments because they lost their key (and they do call). If you are managing your property yourself, you may want to consult with your attorney before embarking on this process. Property managers you hire will take care of all monthly bills as well as all other bills that occur less frequently. CUSTOMER SERVICE A big part of managing a property is being available for your residents. That language is as follows: • Purchase price: What is the total price? This is where your finance team member or broker could step in, but I did it myself in a matter of seconds. Curious, I asked him what he meant because he clearly had many more years of experience as a professional property manager and investor. Rather, you typically have about thirty days. Taking care of your residents means responding to their calls quickly. That’s what I call finding the golden egg! Download : 479 With media appearances on television and radio, Ken also host Entrepreneur Magazine’s Real Estate Radio program, where he helps listeners navigate the financial and legal arenas of real estate. If you don’t, they are basically saying with this one statement: It’s your own fault. The real estate industry is growing at a phenomenal rate and is the second largest employer in India after agriculture. It just may take the seller a little longer to arrive at that conclusion. The Due Diligence Checklist As I mentioned, I’ve gotten really good at due diligence. I’d rather take the time before I’ve closed on the sale to develop a few “what if”• scenarios than to live through some “if only” scenarios: “If only I had taken the time to develop an operating budget. And the valuation is your initial offer. We really feel we’ve got it all. You’ll have a lot more impact on the variable expenses, so you’ll want to focus on those first. That sounds pessimistic perhaps, and anyone who knows me, knows I am an optimist through and through. Sometimes there is a very big difference between the two. Regular mail is way too slow. This is what I do every day with my property management company. This tells me that this property has some deferred maintenance and it’s probably more than the $1,200 figure. The quicker you can tie up the property the better chance you have of closing the deal at your price. Surprisingly, every man's common dream of owning a house directly connects to the real estate industry. When you are your own property manager, especially of small properties, it’s easy to be lax with your paperwork. It’s the time when you make detailed assessments of actual costs for property improvements, ongoing maintenance, and operations. Keep in mind, at this point in the process your goal is to get an idea of the ongoing services and repairs as well as upgrades the building may need. The goal is to minimize them as much as possible. This is the time to put rough numbers on paper and analyze if the cost of the needed repairs will still allow you to be profitable. Eeeek! Ft. Here is the essence of smart investing for beginners.. Watch and learn how to invest! Because the reality of the business is that you are managing a lot less than you are problem solving, especially in the beginning when you just take over a property. If they come in higher, then you’ll want to know why. Surprisingly, every man's common dream of owning a house directly connects to the real estate industry. Whether you are buying your first property or your 100th, this book provides new-found tools, strategies and condence to help you achieve your investment goals. Seller, we want to reduce our asking price by $700,000, take it or leave it. They in turn will reward you with a high level of service and the returns you are looking for. As soon as the purchase and sale agreement is signed, the property is no longer available to any other competitive bidders. There are lots of accounting duties associated with property management. Sample letters of intent are available on my Web site (www.kenmcelroy.com under “Resources”) and will give you an idea of what these documents look like. And they give you peace of mind that you are not getting into something that may not pan out. Commitments are tough for me anyway. Here’s a rule of thumb: As properties age, repair and maintenance costs go up. In this section, you’ll see how to assess the expenses. Apartment location: The seniors at this community didn’t like to climb stairs, so the upstairs apartments were usually the ones that were vacant. To me 60 percent is too little, and if I wait until I know 90 percent, someone has either already beaten me to the punch or I fall into the trap of never having enough information to make a decision. • Do the same with purchase and sale agreements. Use this number as your actual potential income in your budget. If you have tried every which way to make the bottom line a positive number or, let’s face it, a number that you’re happy with and the deal still isn’t working, you may want to consult with your team. I like sleeping at night too much. And this one variable will tell you without going any further whether this property is worth any more of your time. $22,368 ÷ 0874 percent = $255,926 The offer should be no more than $256,000. Income  Seller Pro Forma Gross Scheduled Rent $48,000 Less: Vacancy 7% $(3,360) Net Rental Income Plus Other Income $44,640 Total Income $480 $45,120 Take a look below at what happens to our total income when we insert the real rents in the projected column. Evictions can happen for a number of reasons, including nonpayment of rent. Read : 160, Author : Ken McElroy So think of this chapter as either what to look for in a property management company or what to expect of yourself as your own property manager. Doing the homework helps create sure things. • Down payment: How much do you need down? Often if we don’t have a presence in a market it doesn’t make sense for our management company to do the work required for just one property. The income falls well short of even covering your loan, let alone anything else. File Size : 72.59 MB INSURANCE This is an important line item expense and it’s a critical one. The purchase price here is actually the purchase price trends for a comparable building in your market. The property itself should be showing you the money. That’s what a management plan should do. Keep in mind the rent value is the only thing we have changed in this analysis. Property income is the first and perhaps the most important factor when it comes to buying investment property. This is because the value of the property will be based upon not necessarily the current income, but the future potential income of the property. After all, you should not be trying for the win-lose scenario. We do this and secure bids annually. As difficult as it is under normal circumstances, however, I never avoid the inevitable when it comes to evicting people. You are going to want a limited liability entity like an LLC for asset protection. I can relate to them because these are the owners who are the focus of my property acquisitions. This person lied on their application by checking “no” to the question that asks if they had ever been convicted of a felony. There can be plenty of back-and-forth between the buyer’s and the seller’s attorneys. This is not a drill. Make the right choices all along the way, and the road can be smooth. CHAPTER NINE ACTION STEPS • Review the detailed Due Diligence Checklist and make copies of it so you can use it as a guide as you are inspecting properties. Work closely with your attorney and your broker to make sure you receive the items promised in the agreement on time. Will it generate more income through late fees, nonsufficient funds fees, parking fees, water and sewer fees? Download : 865 In almost every instance, they lived in rental housing and many of them had fraudulent Social Security numbers, and some even had criminal backgrounds. The typical pro forma lists these values as well. Flipping as you recall, is the act of buying property and selling it rapidly at a profit. 2. Cash on Cash = Profit ÷ Down Payment Congratulations! Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the property. Here’s how you verify the income from the numbers on a typical property pro forma in a sales brochure. You can imagine my shock when I received the letter issued by the local police department to the neighborhood that a sex offender was living at the property. Don’t worry so much about the vehicle whether it’s a letter of intent or a standard purchase and sale agreement from the National Association of Realtors be more aware of the deal points within it. Am I keeping in touch with the vacancy rates and concessions in the area by communicating with my team and surveying competitors regularly? This can and will get you into trouble eventually. It takes me about thirty minutes to do the Five Step Property Valuation process once I have all the information I need. They recommended I get a job and do real estate on the side until my real estate endeavors were paying me more than my job. The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss (Rich Dad's Advisors (Paperback)) [McElroy, Ken] on Amazon.com. I walk away from most deals at this critical point. This must be a relationship of mutual respect and clear accountability. This is how easy it is to verify income and how easy it is to catch these kinds of inconsistencies in the numbers. You can find the book here. But if you are a passive investor with no properties in process, you may have to scramble and be left with a bad investment or a large tax liability.