RJ Palano Review – Taking The Plunge into Real Estate Investment

I was always fascinated of owning my own home. Well worked hard throughout my life, saved up and yes today confidently and with god’s grace I say that yes I have my house. But yes nothing comes easy, tension, sleepless nights and the constant scare that hope everything works out well is always in your mind. I so wished I could have this one person whom I could trust blindly and feel secure.

rj palano review

Real estate dealings involve huge amounts of cash so you are skeptical that it should not lead you in a problem. So if you think you are keen to handle such kinds of pressures then being a real estate investor could be a great career for you.

As said by RJ Palano – a leading real estate investor, there is nothing right or wrong in the business, all you need to be is innovative and keep good connections. One needs to have good knowledge about the laws of the place as the real estate change from place to place so the documentation needs to be in perfect order. Another aspect is, one needs to have loads of patience. We have to be prepared that sometimes the deal might take loads of time, in fact several months and yet at the end of the day it might not even happen. All one needs to keep oneself self motivated and always on the move and work on closing the deal if not this then definitely some other one. One unsuccessful deal should not be the cause for another unsuccessful one.

One needs to be a great talker and a people’s person. One should have the convincing power where you should be able to persuade your clients to go ahead with the deal and make them believe that the deal is the best thing for them. You should be a good talker and should be talking sense where people should be willing to trust you. One must attend seminars and have discussions on the real estate market trends and get an idea of the market around you. Consulting Books and articles by eminent authors like Bob Grant, Donald Bren, RJ Palano and many others can be a further guide when one is in the real estate investment business.

At the end of the day Sky is the limit, you are your own owner, manager and boss. All one needs is the winning streak and the zeal to excel. Follow the simple rules and see the results coming to you.

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Economic Growth in Atlanta, GA

(February 2012)

The South East quadrant of the United States is the 4th largest economy in the world and Atlanta is the Hub.
Driving Economic Growth Factors in Atlanta
• Bioscience and Health IT
• Global Commerce
• Supply Chain
• Technology
Growth Video http://vimeo.com/31861432
The Metro Atlanta Chamber has a twofold role in the area of Global Commerce. Our Global Business Growth team supports local Atlanta companies doing business internationally while our Foreign Direct Investment team helps international companies that want to open an office or facility in metro Atlanta.
We provide confidential and free services to foreign companies seeking market entry into the U.S. We equally work closely with site consultants and project managers for inbound companies.
Atlanta is a global leader in supply-chain management
Metro Atlanta is the business and distribution center of the Southeast – with the nation’s fifth-largest concentration of supply chain employment and 103,000+ jobs.
Supply chain giants here include: Delta Air Lines, Manhattan Associates, Norfolk Southern, UPS, the Supply Chain and Logistics Institute at Georgia Tech.
Learn about the Sixth Annual Atlanta Supply Chain Forum and Awards Luncheon

Global Access for Global Supply Chains
Atlanta’s global access, innovation, and talent create an unparalleled logistics network for companies that demand efficient, predictable and consistent global supply chain operations to accelerate growth.

Air
Home to the world’s most traveled airport, Hartsfield-Jackson Atlanta International,with more than 2,600 daily takeoffs and landings. Ranked 12th in U.S. air cargo traffic.
Ground
One of five U.S. cities served by three major interstate highways. More than 80 percent of the United States’ commercial and consumer markets can be reached within two truckload delivery days. Ranked 6th in ground freight movement in U.S.
Rail
Access to the most extensive rail system in the Southeast with 4,900 miles in Georgia. State is ranked 6th in rail intermodal O & D traffic.
Sea
Only 250 miles to the Port of Savannah, fastest growing and fourth-largest container port in the U.S.
Corporate Supply Chain Center
Headquarters to Delta Air Lines, Manhattan Associates, and UPS. Ranked fifth nationally in transportation and logistics employment. Twenty-four of the top 25 third-party corporate logistics firms (3PL) operate here.
Intellectual Capital
Home to Georgia Institute of Technology’s Supply Chain & Logistics Institute and School of Industrial and Systems Engineering, a globally recognized leader in research and eduction.
Center for Supply Chain Management Software
Seventy percent of the top 20 supply chain management software providers have operations in Atlanta. Twenty-five percent are headquartered here (Manhattan Associates, Infor, Logility, Aldata Solutions, and CDC Software).

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Why Do We Buy in Atlanta?

(2010)

Atlanta is one of the fastest growing, stable metropolitan centers in America…

  • Forbes Magazine ranked Atlanta as the #1 rental market
  • CNNMoney.com says Atlanta is the 4th best city in America to invest in
  • Forbes Magazine ranks Atlanta as the 4th most affordable U.S. market

U.S. Economic Rankings

  • 3rd in job growth
  • 3rd for most Fortune500 company headquarters
  • Home to the world’s busiest airport: Jackson/Hartsfield International
  • 2nd as America’s best cities to relocate
  • 1st in U.S. as least costly large city for business

Rehabbed Like New!
Where will the market settle? Answer: at a minimum, we will see home prices eventually correct to match the cost for a developer to build a new home. It is inevitable. All of our homes are offered “like new,” rehabbed with high-end finishes to bring you strong tenants, in highly desirable neighborhoods. Purchase a home at drastically discounted prices and realize healthy annual returns on your money while the market rebounds. Your investment comes with tenant placement, managed by national property managers for stress-free ownership or you can self manage. Sit back, collect rents, and watch the value of your real estate grow!

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Investing with your IRA – FAQ’s

IRA Frequently Asked Questions (2012)

Is a Self-Directed IRA any different than a regular IRA?

Yes. With a Self-Directed IRA you are able to direct your own investments. Unfortunately, many custodians place restrictions on what you are allowed to invest in, but an IRA that is truly self-directed allows you to invest without restrictions.

Is there any difference between a Self-Directed IRA and a Self-Directed IRA LLC?

A Self-Directed IRA LLC is truly self-directed and you are in total control of the account. With a Self-Directed IRA LLC you are responsible for managing the checkbook, don’t have to ask permission to make purchases, and may write checks for your IRA.

Are there advantages to using a Self-Directed IRA LLC when investing in real estate?

Yes. You have total control over the finances of the IRA and this gives you far more freedom to make decisions quickly. A self-directed custodian requires you to get permission for just about everything you do. This can be a problem with a time sensitive investment like real estate, where a few minutes can make or break the deal. With a Self-Directed IRA LLC you have the checkbook and the ability to make the investment immediately, without someone else’s permission. An IRA with an LLC is also subject to lower and fewer fees than one without it. The LLC also gives you the ability to advertise for renters, pay real estate bills, deposit rent checks, etc. This freedom helps you keep money in your IRA and make your retirement that much more comfortable. Additionally, your IRA is protected from lawsuits and there are tremendous asset protection reasons to use an LLC.

How much are the custodial fees on your Self-Directed IRA’s?

The fees are different by each custodian in administration. Some are asset based, others transaction based and others are a hybrid of both.

What type of retirement accounts can be moved into Self-Directed IRA’s?

Qualified Annuities, Profit Sharing Plans, Money Purchase Plans, Government Eligible Deferred Compensation Plans, Keoghs Traditional IRA’s, SEP IRAs, Roth IRAs, 401(K)s, 403(B)s, Coverdell Education Savings (ESA) a.k.a. Educational IRAs. Most retirement accounts can be moved into a Self-Directed IRA.

Are there any downsides to a Self-Directed IRA?

Yes. Inactivity. There is no reason to have a Self-Directed IRA if you don’t use it. The ability to get involved in a high yielding, creative transaction is what a Self-Directed IRA is all about.

What investments can I make with an IRA LLC?

Anything you can invest in with a regular LLC, with the exception of collectibles and insurance contracts.

Is real estate a good investment for my IRA?

Yes. Real estate offers a tangible value with excellent returns. As investors become aware of this, many are gradually moving some or all of their retirement capital into the real estate market.

Can I use my IRA to purchase property I already own?

No. This is considered a prohibited transaction.

Is investing my IRA in real estate against the law?

IRA law does not prohibit investment in real estate.

What is the most effective way to buy Real Estate using my IRA?

There is no question the Self-Directed IRA LLC is a good choice for investing in real estate. This option gives you the most control over the IRA’s finances. However, using Equity Participation Notes, Options and the beneficial shares in a Land Trust are also simple strategies that are easily implemented.

What happens to the rental income if I buy an income generating rental property?

The investment will retain it’s tax deferred or tax-free status. Any income generated by the IRA owned property, goes right back into the IRA.

Why does my current broker claim that I can’t buy real estate using my IRA?

The most likely reason is that your broker won’t allow real estate investment through their custodian. Either that, or your broker is not aware that it is possible. In either case, investing in real estate is allowed, your broker just doesn’t do it.

Can I use my Self-Directed IRA LLC to obtain a mortgage?

You can, but the loan would have to be a non-recourse loan. This means, the only recourse the bank would have against the loan would be the property itself. The loan would also be subject to unrelated debt finance income tax.

Do I pay taxes and penalties when using my IRA to buy Real Estate?

No. Buying Real Estate with your IRA is just like any other investment made with it, except if you use non-recourse financing. If you use non-recourse financing then you are subject to tax on the income generated by the amount finance minus a $1,000 deduction.

Does leveraging real estate still make sense?

Yes, because it increases your buying power. The benefits of this increased buying power, far outweigh any risks involved in leveraging. However, make sure you have reserves for when things wrong. Rental property involves people and people have problems, so don’t risk your retirement for a higher yield if you don’t have the reserves.

Can my Self-Directed IRA LLC get a loan if my IRA is short of the funds to purchase it outright?

Yes, your Self Directed IRA LLC can get a non-recourse type loan. Unfortunately, with this type of loan, if your IRA can not make the payments, the property is the only recourse the lend has available against the loan. You may also want to speak with a tax professional, because a loan of this type is subject to UDFI (unrelated debt finance income) tax.

Can I manage the property I purchase?

The answer would be no with a simple self-directed IRA. But with a Self-Directed IRA LLC you would be able to manage the property, collect the rent checks, advertise for renters, pay the real estate bills, etc. A Self-Directed IRA LLC, unlike one without the LLC, doesn’t have a laundry list of restrictions. This will save your IRA a lot of money, giving you more to enjoy during your retirement.

Can I make renovations or improvements to the property using my IRA?

Any improvements made to the property must be paid for by the IRA. Since the property is an investment of the IRA, all expenses or profits generated by the property, must be returned to the IRA.

Can I buy vacation property?

Yes you can, but you can not vacation there.

Can I buy my retirement home with my IRA and then live in it when I reach the age of my retirement?

Yes. Upon reaching retirement age, the property could be distributed to you. Of course, you would be required to pay any taxes generated by this distribution.

Can I use my IRA to invest outside of the country?

Of course – there are many great investment opportunities in other countries.

Can I loan money to others for property using my IRA?

Yes. This is done frequently, and can be a great investment.

Can I give my brother a loan for the down payment on his house?

Yes. Loans to siblings are not considered prohibited transactions.

Can my Self-Directed IRA LLC make loans to a friend?

Yes. Your IRA is able to make loans to friends for just about any purpose.

Can my Self-Directed IRA LLC make loans to a real estate developer?

Yes. This is a great way to get your IRA involved in real estate. Many developers rely on provate financing and a good develop, is a good investment.

Can my Self-Directed IRA LL make loans to businesses or companies?

Of course – as long as you have no ownership interest in the company.

Can my Self-Directed IRA LLC be used to purchase a business?

Yes.

Can I invest in a business?

Yes. This can be done by purchasing stock as a loan to the business.

Can I transfer funds from an existing retirement account to my IRA?

401k, IRA, Sep IRA, Roth IRA, or 403b accounts can all be invested in an IRA LLC.

Why is so little information available on Self-Directed IRA’s?
Many in the investment community don’t want smart investors to know about the options available outside of the traditional stocks and bonds they offer. Since most brokers make their money through fees and commissions, they want you to buy what they are selling, not invest outside of it.

Can I co-invest with my IRA?
You are not prohibited from doing so, but certain rules need to be followed, and in many situations it is not advisable.

Can my IRA co-invest with my friends?
Yes.

Are the profits made by my Self-Directed IRA LLC taxable?
If your IRA is used to purchase a property that is then sold for a profit, the profit stays within the IRA. If you have a Roth IRA it should be tax exempt and traditional IRA’s are usually tax deferred.

Are there any special taxes that apply if I use debt financing to purchase real estate?
Yes, your investment would be subject to unrelated business taxable income (UBTI).

What are IRA Prohibited Transactions?
Prohibited transactions usually involve one or more of the following:
(1) Business dealings with a disqualified person(s)
(2) Transactions which benefit someone other than the IRA
(3) Loaning money from the IRA to a disqualified person(s)
(4) Prohibited investments

Putting it as plainly as possible, a prohibited transaction goes against the basic intent of the IRA. The rules governing prohibited transactions are available in IRS Publication 590, IRC 4975.

What are IRA Prohibited Investments?
The prohibited investments outlined in the Internal Revenue Code include: artwork, rugs, antiques, metals, gems, stamps, coins, beverages, stock in a s-corporation, and certain other tangible personal property.

How can I avoid prohibited transactions and / or self-dealing transactions?
Only invest in new properties, or properties not owned by you, or a disqualified person. Also, make sure any purchases made by your IRA are for investment purposes only. For example, if your IRA is used to purchase beachfront property, you are not permitted to use that property for your next vacation. One last thing, if you perform maintenance on a property owned by your IRA, you may not pay yourself from the IRA for the labor performed.

What is the definition of a disqualified person?
Disqualified persons include: The IRA owner, his/her spouse, ancestors or lineal descendants of either, managers, investment advisors; any corporation, trust, partnership, or estate which the IRA holder has a 50% or larger interest in; as well as anyone who would provide services to the IRA such as a trustee or custodian.

It is my IRA. Why am I a disqualified person?
Your IRA is a separate trust for your benefit when you retire.

Can I form an IRA S-Corp?
No.

Can I invest in stocks and other more traditional investments using my Self Directed IRA LLC?
Yes. Any traditional IRA investments are still available to you. The benefit of a Self Directed IRA LLC, is the freedom you have in choosing these investments. By cutting out the middleman, you can direct your own investments and and have total control over the IRA’s finances. A Self-Directed IRA LLC is just like a traditional LLC, minus the middleman.

Can I move a 401k I had with an old employer into my Self Directed IRA LLC?
Yes, and we can help you do it. If you have several old 401k plans or IRAs, it is also possible to combine these for investment in your Self Directed IRA LLC. You should also consider investing any funds you are unable to combine into the same Self Directed IRA LLC, because this will maximize your buying power.

Can I move money from the 401k I have with my current employer into a Self Directed IRA LLC?
In most cases, you cannot move money from a 401k plan if you are still working for the employer. Although, certain 401k plans may allow you to unlock a portion of your funds for reinvestment.

Is the transfer of funds a taxable event?
No.

Am I able to invest in an LLC I manage?
Yes.

Can I allow someone else access to my IRA’s LLC, if I no longer want to manage it?
Yes.

Am I able to partner with my LLC?
You are, but a separate LLC must be created for the partnership.

Am I able to partner my IRA with another unrelated individual?
Of course.

Can I use my IRA to pay for pre-construction reservations I intend to assign or simultaneously close on?
You can.

Is investment in secured and unsecured notes allowed with my IRA?
Yes.

Is a bookkeeper required for the rental properties owned by my IRA?
No

Are funds in my IRA insured?
The funds are usually in a FDIC insured checking account, since you will have checkbook control.

Do you allow debt-financed properties?
Yes .

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What is the Key to Negotiation?

RJ Palano here from BuyCashFlowProperties.com. First a little background. I’ve been involved in the acquisition of real estate since 1977 when I bought my first house. Since that time, I’ve owned and sold thousands of houses, a couple office buildings and apartments. The houses I’ve been involved in span over 50 cities and 12 states. I’ve made more than my share of mistakes and failed forward to where I am today – a full cycle turnkey operator in Atlanta Georgia.

I’ve attained this level of personal and financial development due to four things:

1. My never quit attitude which is encompassed by a phrase I’ve claimed as my own “Anything worth doing is worth doing to excellence.”
2. The information and knowledge I’ve obtained through serious study and more importantly “hands on” experience.
3. The courage of my convictions to not just take action, but take massive action.
4. My learned ability to negotiate with homeowners.

It’s the latter which I feel is so important and now becoming a factor in today’s real estate market in 2014. You see, negotiation is the highest paid skill in every business and is critical to make a profit in real estate.

The key to negotiation is to only negotiate with the decision maker of the property you are trying to buy. So, the first question prior to negotiation should be: “Are you the decision maker with a follow up question of who is the owner?”

In the last six years we’ve played the “highest and best” game with sellers as most of the sellers were lenders that foreclosed. We all know the game: They would list the house below market value to attract as many offers as possible and then ask for the highest and best. It’s still going on but rapidly coming to an end. There really was no negotiation skills required as we were all dealing with MLS listings and going through agents, brokers, asset managers, etc.

Today I can see the change coming as we attack the acquisition side of our business, targeting homeowners.

Regardless of where or who you are buying through, you need to know how the person controlling the property fits into the picture. This is the beginning of your negotiation. If it’s a realtor, enough said as most couldn’t negotiate a cup of coffee at Starbucks. If it’s a promoter, which in most cases acts as nothing more than a realtor, ask them what their markup is. I’m sure most readers realize that the bench mark commissions in the U.S. for real estate are a 3% listing fee and a 3% selling fee.

Wouldn’t it make sense to ask what someone what they are charging you for their service? Isn’t everything in life negotiable? Think about that. We’re all in sales and constantly trying to sell, impress, win over people all of our lives. This is a human relation skill applied to everyone we have contact with: Think about what you said or did to attract your girlfriend or wife. What about when you applied for a job, bought a car, hired a house painter or bought a house. If you don’t’ have the courage to ask you’ll pay retail or above retail for everything. Whenever possible, negotiate with the person that makes the decisions. You need to know their needs and be able to provide a solution to their needs in order to be successful. Never pay retail for anything.

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The First Question You Should Ask – When Negotiating the Purchase of Real Estate

RJ Palano here from BuyCashFlowProperties.com.  First a little background.  I’ve been involved in the acquisition of real estate since 1977 when I bought my first house.  Since that time, I’ve owned and sold thousands of houses, a couple office buildings and apartments.  The houses I’ve been involved in span over 50 cities and 12 states.  I’ve made more than my share of mistakes and failed forward to where I am today – a full cycle turnkey operator in Atlanta, GA.

I’ve attained this level of personal and financial development due to four things:

  1. My never-quit attitude which is encompassed by a phrase I’ve claimed as my own “Anything worth doing is worth doing to excellence.”
  2. The information and knowledge I’ve obtained through serious study and more importantly “hand on” experience.
  3. The courage of my convictions to not just take action, but take massive action.
  4. My learned ability to negotiate with homeowners.

It’s the latter which I feel is so important and now becoming a factor in today’s real estate market in 2014.  You see, negotiation is the highest paid skill in every business and is critical to make a profit in real estate.

The key to negotiation is to only negotiate with the decision maker of the property you are trying to buy.  So, the first question prior to negotiation should be: “Are you the decision maker with a follow up question of who is the owner?”

In the last six years we’ve played the “highest and best” games with sellers as most of the sellers were lenders that foreclosed.  We all know the game: They would list the house below market value to attract as many offers as possible and then ask for the highest and best.  It’s still going on but rapidly coming to an end.  There were no negotiation skills required as we were all dealing with MLS listings and going through agents, brokers, asset managers, etc.

Today I can see the change coming as we attack the acquisition side of our business, targeting homeowners.

Regardless of where or who you are buying through, you need to know how the person controlling the property fits into the picture.  This is the beginning of your negotiation.  If it’s a realtor, enough said as most couldn’t negotiate a cup of coffee at Starbucks.  If it’s a promoter, which in most cases acts as nothing more than a realtor, ask them what their markup is.  I’m sure most readers realize that the benchmark commissions in the U.S. for real estate are 3% listing fee and a 3% selling fee.

Wouldn’t it make sense to ask someone what they are charging you for their service?  Isn’t everything in life negotiable?  Think about that.  We’re all in sales and constantly trying to sell, impress, win over people all our lives.  This is a human relation skill applied to everyone we have contact with: think about what you said or did to attract your girlfriend or wife.  What about when you applied for a job, bought a car, hired a house painter or bought a house.  If you don’t have the courage to ask, you’ll pay retail or above retail for everything.  Whenever possible, negotiate with the person that makes the decisions.  You need to know their needs and be able to provide a solution to their needs in order to be successful.  Never pay retail for anything.

-RJ Palano

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Be Careful What the Numbers Tell You

There are a few different ways you can tell if the housing market has hit bottom.

You can look at permits for new construction.  You can look at housing statistics, including home values, number of homes sold and foreclosures.

I believe that all the statistics above are for people looking for excuses to do or not to do something.  These numbers don’t take into consideration what you can observe right in your neighborhood.

In my neighborhood in Tampa, Florida, it’s obvious that we have entered a “Seller’s Market.”  Four years ago 10% of our 1,000 house subdivision was for sale.  Today, it’s less than 2%, and good houses go fast.

Look at the neighborhoods you buy houses in or are interested in and compare that to what you saw there one year ago or two years ago.

Did it turn into a rental neighborhood or is it primarily a homeowner neighborhood?  Are there a lot of “for sale” signs or are there a lot of vacant houses?

What you can actually see first hand is far better information than what some real estate guru, politician or the media is reporting.

“Statistics are for losers,” said Mike Ditka, the former Chicago Bears football coach years ago.  I believed him then and I believe him now.

Recently I read that Atlanta, GA home prices dropped 14.5% from April 2012 to May 2012.  Honestly, I have no idea how someone perverted the figures here in Atlanta, but that sure is not what I see on a day to day basis.

We have to out-hustle a zillion competitors to deliver the best houses we can to investors that appreciate our efforts.

The numbers you read in the paper don’t count.  What counts is what happens to you when you buy a cash flow house.

The current decrease in the number of houses on the market has increased the prices in the markets where we buy houses.  This is a good thing for people that are currently holding well-located houses.

If you don’t own houses, or are looking to add to your portfolio, GOYA baby!  Get off your anatomy and do something about it now!  One year from now you will look back and realize the best time to buy houses has passed you by.

Get in now while you can take advantage of cheap interest rates, allocate cash reserves for cash flow, or use your retirement account to buy houses.

Be careful of all the numbers you read about regarding any topic.  People use statistics to persuade you to their way of thinking.

There is no replacement for common sense.

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The #1 Most Important Thing about Buying House at Auction

If you’re watching “Flip this House” or “Property Wars” on television, take my advice: Turn it off.

These shows are orchestrated BS showing potential buyers doing inadequate research hoping they find a pot of gold in a house. If this is your approach, you will lose.

You would be surprised to know that institutional buyers send people out to take a picture of a prospective house, then they do an examination of comparable sales, and that determines their price to bid at auction.

People who guess about the condition of a property are gamblers, and gamblers always lose in the end. Sure, they can have some great winnings and this is what they talk about. But in the end, if you’re in Las Vegas, the house always wins. If you’re on the streets buying and you try this approach, you will end up like most recreational gamblers in Las Vegas who lose.

What is my No. 1 rule for buying a house at auction?

Go and personally look at the house! Seems elementary, doesn’t it?

I always knock on the door of a prospective auction house with the hope of talking to the occupant to get an idea of the property condition, as well as the occupant’s intention. That person could be the owner, a tenant or a squatter, and I’ve run into all three types of occupants.

If it’s a tenant, you want to alert him of the auction, as you are his friend now trying to protect him while you ask questions to determine what his rent is, if he wants to stay and the condition of the house. This information is critical for your assessment of the property and the tenant. We have bought several houses where we kept the tenant or the owner as a tenant after auction.

The questions you ask will reveal the information you need to know to make an informed decision.

If it’s the owner, you want to know if he plans to stop the auction, either through an ongoing loan modification, short sale, or filing bankruptcy. Or, if he simply plans on letting the house go and/or if he wants to stay and pay rent.

By asking these types of questions, you could find yourself with a great existing tenant who had some bad breaks with job loss or other situations and now he is financially stable again. When we keep these types of tenants, we keep them on a short leash and we demand payment on time. Often, these are people who got used to living “rent free,” or “mortgage free” and sometimes they never have enough financial discipline to pay anything on a regular basis, especially rent.

If the property is vacant, figure out if there is any safe and legal way for you to gain access. This isn’t an article on breaking and entering but I can tell you that you should be able to get in more than 50 percent of vacant houses safely if you are resourceful. Unlocked garage doors, and unlocked doors and windows are all possibilities. In situations where this is not possible, knock on the neighbors’ doors and ask questions as they might be familiar with the house.

This reminds me of two situations in the last year

auction houseThis house in the Atlanta metro area was purchased for under $100,000 and sold to an investor in a shared-equity program.

This house was in a great area in where I have bought a half dozen houses and it had a great setting on the end of a cul-de-sac in the subdivision. I couldn’t get in, so I talked to the neighbor as he was cutting his lawn. He told me the people were clean, moved out, installed beautiful tile and it was in excellent condition. I bought it for $100,000 at the auction and the neighbor was partly right. The tile was beautiful with inlaid pieces, but that’s all there was. The kitchen cabinets, bathroom cabinets, toilets, every light fixture and plumbing fixture in the house was gone! You can’t always believe everything you hear, and that’s why it’s so important to get inside.

I saw the house on a Friday, the auction was Tuesday and the house was torched and burned to the ground on Saturday before the auction after we had looked at it. We were the successful bidders and right before we paid at the auction, a friendly bidder came over and told us about the fire. Yikes! I could have lost $70,000 if this person had not told us about that fire.

These examples illustrate why the most important thing you can do when attempting to buy houses at auction is to personally go look at the houses and that means right before the sale. By doing this, not only will you be able to protect your money, but you will also be able to determine your exit plan and bid accordingly.

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4 Key Reasons for Buying Houses at Auction

When I look at a prospective property that I will make an offer on at an auction, I know right there and then what my plans are for that property and how I will exit it.

This thinking is critical prior to making offers or bidding at auction. If you don’t have a clear plan for your real estate investments, you will make decisions on false expectations.

Clearly the idea behind buying properties at any type of auction is to make a profit on your real estate investment. However, prior to bidding, or making an offer on any property, you must begin with the end in mind.

In this situation, you must know what your intentions are in advance of buying homes for sale at auction.

Specifically, why are you buying?

There are four potential reasons for buying at auction

They are:

1. Keep as a rental for your real estate investment portfolio
2. Renovate the house and sell at a retail price to a home buyer
3. Renovate the house and sell to another real estate investor
4. Acquire the property and wholesale in “as is” condition to another investor

Know your guidelines upfront for houses you want to keep for long-term rentals as well as the minimum profit you want to make on a flip. The price you pay may be too high to keep it as a rental or too high based on the required renovations to get the property “rent ready” or in good enough condition to pass a home inspection for a retail home buyer.

The best example I can give you on this is the third house I bought in 1979 in Williamsville, N.Y. It was a fire-damaged house on Nottingham Terrace about one-half mile from my home. I actually started to rehab the house myself. I lasted one day. I hired a crew and I never personally worked on a house again. It’s not the best use of my time, but it could be the best use of your time.

If you have more time than money, and you like to personally work on rehabs, then do it yourself. Me? I like to leverage other people’s talents and do what I do best and what I like to do – that’s why what I do doesn’t feel like work. So, as we completed this rehab on the fire-damaged house, we were about 90% done when I realized the following:

 

  • It wasn’t a good enough rehab for my family to move into it
  • It was too good of a rehab to rent it
  • It was a difficult time to sell because interest rates were too high in 1979 and it was difficult for home buyers to obtain financingSo, I leased the house to a tenant and I gave them an option to buy the home with a $4,000 non-refundable payment upfront for the option and $1,000 a month in rent. I paid about $25,000 for the house and the rehab was another $55,000. I then borrowed money from the bank, kept the house as a rental and a year later, when the tenant didn’t exercise their option to buy the house, I was able to sell it for a $20,000 profit.

    This lesson has helped me sharpen my pencil prior to making offers on bidding at auction. Always know your exact plan on a property prior to bidding on it at auction and acquiring it.

    Remember: Ready, Aim, Shoot. Not shoot and then figure it out. This is the first thing you need to know when buying any homes for sale in Atlanta, GA, particularly at auction, because you must know what your intentions are and how to exit the property as this will help determine your bid or purchase.

    The real estate business avails itself of so many different opportunities and is only limited by your ideas, financial resources and your ability to take action.

    In our society today, we are bombarded by marketing gurus and self-proclaimed experts and unfortunately many of them are regurgitating someone else’s ideas and programs without personal involvement. The problem with this is that they lack real-life real estate experiences and they don’t really know what it’s like to feel the thrill of success or the agony of opportunities gone badly.

    The knowledge I’ve gained over 33+ years of real estate investment comes from my personal involvement in thousands of transactions. The results of my successes and failures allows me to fine tune and constantly re-evaluate my approach to best practices for marketing and sales.

    It’s an ongoing process to attract opportunities and investors alike as market conditions and investor appetites constantly change. People with the courage of their convictions act on their perception of the market. Thus, these experiences will aid your thought process in regard to auctions and especially mortgage foreclosure auctions.

    A mortgage foreclosure auction is an auction whereby the lender on a property initiates a foreclosure against an owner of the property who violated the terms of his promissory note, usually nonpayment. The promissory note is secured by a recorded mortgage, which gives the lender a lien on the property. Depending on which state you are in, a mortgage can be called a deed of trust or a security deed.

    You know what a mortgage foreclosure auction is, right? Here are some things you may not know about Georgia foreclosures auctions.

    The terms of foreclosure are regulated by the state. It’s easy to find out how to go about these opportunities in your area by consulting with an attorney who forecloses on behalf of lenders. You must know the rules for your area prior to doing research on properties and going to any sales.

    Other forms of auctions are from sellers trying to sell their properties fast through auctioneers on the property site or online with companies that provide a platform for sales like Auction.com and RealtyBid.com. These auctions may have a reserve bid or they can be absolute auctions.

    A reserve bid means that the property must reach a “reserve price” that the lender has set. It is a protective measure to prevent a buyer from stealing a house particularly if there are no other bidders.

    An “absolute auction” means the property will sell for whatever the highest bid is regardless of the price. In many cases, a mortgage foreclosure will have an “opening bid” where the bidding will start. Looking at properties that have an opening bid will indicate which houses you should do research on because there is no point to do any research if the opening bid is more than you would want to pay for a house.

    If you are serious about this as a business, then it is advisable to do research on all the houses without opening bids as well. There is no substitute for preparation for an auction or anything else in business and it is very time- consuming. This is where most amateurs fall out as there is so much work involved to be successful.

    It requires a time commitment and a money commitment and my attitude is to be completely prepared for success. Otherwise, candidly, you don’t deserve it. Are you ready for success?

 

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An Introduction to Buying Houses at Auction

I bought my first house at auction in 1979 in Williamsville, New York and I paid $23,200 for it. That house was rehabbed for under $8,000 and was sold for a profit of slightly over $20,000 within three months.

It only took me one transaction to get hooked buying homes at auction. This was my first real estate investment and it was the beginning of many things to come.

Of course there was another side to this first purchase at a foreclosure auction. On the day we had to evict the homeowner, it turned out he had a warrant for his arrest. Seven sheriff’s cars showed up and took him away in handcuffs because the warrant for his arrest charged that he swung an ax at a police officer.

One of the keys to be successful in the real estate business is to buy when people have to sell or are forced to sell.

This is a basic business principle that ties in to the first question I asked myself when evaluating a property:

“Who will buy this house from me for more money than I am paying?”

This house in the Atlanta metro area was purchased at a foreclosure auction for under $100,000 and sold to an investor in a shared-equity program.

Since 1979 I have bought hundreds of homes at auction and typically I average over 100 house acquisitions per year. I am fresh off a mortgage Georgia foreclosures auction in early August where I acquired 15 houses.

I don’t write this to brag or pat myself on the back. It’s written so that you know that I have the experience and I am worthy to dispense my advice to real estate investors like you.

There is a system I have created that works very well for me and it is my hope that you can use some of the information I provide to take action and make money now.

More importantly, if you heed my advice that comes from the experience of over 3,000 real estate transactions over the last 30 years, hopefully you will avoid pitfalls I have encountered. Experience comes at a price and it always best to learn from someone else’s experience. But in reality, we learn the most from our own experiences, particularly the bad ones.

Life is up and down, and we never acquire much wisdom when everything is going perfectly. The time we learn and change our approach to business is when we are in the midst of problem solving. These are the experiences that shape our destiny as we respond and react to the challenges of business and life itself.

After all, life is a series of challenges that have to be met. And you know what? Thank God or your mother for the challenges that are in your own path, otherwise life would be pretty boring.

The good times will never feel good if we didn’t have some bad times as well. More importantly, overcoming challenges gives meaning to our lives. If you really want to know how important this is read Holocaust survivor Viktor E. Frankl’s book, “Man’s Search for Meaning.”

So, roll up your sleeves and prepare to dig in as I serve you the most important information on how to be successful at auction.

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