Volume 18 Issue 1 GENERAL MEETING January, 2015 Our Next General Meeting is Monday, January 19, 2015 6:30 pm. Registration 6:55 pm. Visit the Vendors 7:05 pm Members Offering Deals 7:10 pm General Announcements JANUARY 2015 METRO METRO Real Estate & Investor's Association 7:15 pm ANNUAL ROUNDTABLE DISCUSSIONS The Meeting will break out into rotating sessions: • How to Work with Realtors: Brian Mann • Getting Started in Real Estate: Dan Schwartz • Creative Financing Techniques: Dave Corsi Each session will allow time for questions and suggestions! MREIA is a Member of: Inside This Issue 3 President’s Desk: Are Earthquakes Covered in Your Insurance Policy? by Dan Schwartz 4 Finding Deals: How to Untangle the Know of Real Estate and Divorce by Lindsay Harrison, Esq. 5 Asset Protections: Common Sense Asset Protection by Larry Goins 6 Probate: Ownership of Property Out of State by Dyches Boddiford 7 Options: Options and Lease/Options Solutions by Jack Miller 11 Environmental: Lead Paint-Federal Rules are Serious by Jon Bolton 13 Security: Burglar Proof Your Home by George N. Skidis, Jr. 15 Goals: Treat Your Business like a Business by Rob Arnold 16 Wholesaling: Can a Real Estate Agent Wholesale Properties? by Vena Jones-Cox 17 Investing: The Importance of Cash Flow by William Bronchick, Esq. 18 Rehab 101: Fix for Profits-Don’t Remodel by Jay DeCima 19 Estate Planning: Why a Will? by Dyches Boddiford 20 Rebab 101: Estimating Repairs in Real Estate Investing by William Bronchick, Esq. 21 Environmental: Why Natural Gas Stinks and What to Do by Kevin Smith 23 Financing: Fractional Financing…or how to Live a Champagne Lifestyle… by Jack Miller 23 Beginners: Paint Your Way to Ownership by Jay DeCima 25 Financing: No Money? 12 Ways to Buy Property with Nothing Down by Phyllis Rockower 26 Beginners: Oftentimes No is the Right Answer by Bill Cook 27 Contractors: How to Pay Your Contractor by Kevin Smith 29 Dealmaking: Deal of the Month-June 2014 by Augie Byllott 30 Finding Deals: How to Determine if a Seller is Not Motivated by Jason Hanson 31 Home Inspections: How to Conduct a Thorough Pre-Buy Property Inspection by Thomas Lucier LANDLORDING 33 What do I do When the Tenant Won’t Pay the Late Fees? by John Nuzzolese 34 Quick Tips for Showing Your Rental by John Nuzzolese 35 Agreement to Hold House [Reserve Deposit] Form 36 Keep Property Values Steady 37 Are You Cut Out for This? by Robert Cain 38 Apartment Management in Difficult Times by Bruce Kahn 40 Management Tips from MrLandlord.com 42 Take Advantage of Application Fees 43 Vendors/Sponsors & New/Renewing Members 49 Important Information about Metro Real Estate & Investor’s Association Volume 18 Issue 1 2 of 49 January 2015 FROM THE PRESIDENT’S DESK Are Earthquakes Covered In Your Insurance Policy? This month’s MREIA general meeting will feature its annual Roundtable Discussions: three groups, each having its own moderator. Every forty minutes you will have the opportunity to change from one group to another. Much time will allotted for your questions and comments! The Topics: Buying Houses Creative Financing. Dave Corsi, Moderator How to Work with Realtors®. Brian Mann, Moderator Getting Started in Real Estate. Dan Schwartz, Moderator Additional Premiums for Earthquake Insurance Some time ago I received a notice from State Farm offering coverage for earthquakes. I discovered that I would have to pay an additional premium. New Jersey has relatively small earthquakes from time to time. You might consider checking with your insurance agent to ascertain the cost of the additional premium. An earthquake is defined as: A shaking or trembling of the earth that is geologic or tectonic in nature Including shock waves or tremors before, during or after a volcanic eruption Including after-shock waves that occur within a seventy-two hour period following an earthquake State Farm states that a typical homeowners or commercial fire insurance policy: • Does not cover the cost to replace or repair your damaged dwelling, premises or structures, such as garages, resulting from an earthquake • Does not cover the cost to replace or repair the contents of your home or business if the damages result from an earthquake • Does not pay for any additional living or business expenses if your property is badly damaged or destroyed by an earthquake. “Historically, an earthquake in New Jersey is a rare event, although the possibility exists that it could happen. Over the five-year period from 1997 to 2002, for every $1 of earthquake insurance premium, 3/10 of one cent has been paid out for losses. Dan Schwartz Volume 18 Issue 1 3 of 49 January 2015 FINDING DEALS Investors’ Guide To Untangling The Know Of Real Estate And Divorce by Lindsay R. Harrison, Esq. The most interesting thing about being a real estate lawyer is that, like property, every problem and every case I handle is unique. Being in the real estate industry and working primarily with real estate investors, brokers, and professionals, I get a lot of questions about how an issue concerning a domestic or family matter will impact the sale or purchase of real estate. Real Estate issues involving divorce are the most common question we get. Most of our clients who buy and sell real estate professionally are looking for that great deal; and often distressed property is prime territory for a quick buy at a good price. However, issues involving feuding divorcees who won’t speak to each other, let alone sign over a deed, quickly turn that great deal into a bad dream. There is nothing worse than having escrow tied up on a purchase with buyers who won’t – or can’t – come to the table. Another complicated scenario we see with our investor clients is with non-married co-tenants who purchase investment property together, i.e. father and daughter, brother and sister, best friends, etc. If that property is secured by a mortgage, walking away from property after a bitter feud isn’t so easy. It’s also made more difficult if one party wants to sell up and the other doesn’t. What happens then? For the real estate professionals that I advise, I always insist that regardless of whether they are buying at auction, through a bank REO listing, or directly from the distressed homeowner, having a clear understanding of the parties’ legal responsibilities to the property is key. So is clear title. Make sure you check for a quit claim deed that is buried inside a recorded marriage settlement decree; some divorce attorneys do not record a deed separately and rely on a court’s final judgment to act as the transfer of property. In many states, this is not a valid transfer and can prolong and even complicate the title process if a separate deed needs to be drafted and executed by the divorced parties. There are several strategies that we recommend to our clients to protect themselves before they buy. We counsel our clients to investigate options for pre-purchase agreements, contracts similar to “pre-nups,” which spell out the parties’ duties and rights in advance. There are also fictional entity mechanisms for putting property into the care of a third party before purchase, so although each party owns and retains the beneficial interest of ownership, neither party can hold the other ransom at the closing table. Many of these options can also be exercised after property has been purchased. Reprinted by Permission. Lindsay R. Hall Harrison is the owner of Hall Harrison Law, P.A. located in Winter Park, Florida. Prior to hanging her own shingle Ms. Harrison represented banks and national lenders in residential foreclosure actions across the state of Florida. Ms. Harrison concentrates her practice on representing and working with real estate professionals including brokers, developers, asset managers, and investors. Contact Lindsay R. Hall Harrison, Esq. Hall Harrison Law, P.A. 1330 Palmetto Avenue, Winter Park, FL 32789 (407)205-2901; [email protected]; www.lawandtitle.com Volume 18 Issue 1 4 of 49 January 2015 ASSET PROTECTION Common Sense Asset Protection by Larry Goins I wanted to share a few ideas about asset protection to help you on your way to success in your investing career. You don’t have to be rich to start thinking about and implementing asset protection strategies. It is better to start and get in the habit while the amounts are small. This is similar to tithing. Tithing is much easier if you start while the amounts are small. Example: It is much easier to start tithing when you are taking a dime out of a dollar than it is to start when you are faced with giving $100,000 out of a million. Wouldn’t you agree? Lets look at some basic principles of asset protection that anyone, and I do mean anyone, can use. I also want you to keep in mind to try and keep your life as simple as possible. Don’t try to over complicate things. The older I get the more simple I want my life to be especially when it comes to protecting what I have worked very hard for. Here are some ideas to help you along the way. 1. Keep quiet about what you own. It’s not a good idea to be telling your tenants how many houses you own or telling you neighbors how much you make buying houses. You never know when someone will use it against you. Just be careful and keep you mouth shut. 2. Use a Post Office Box. Just trust me on this. You don’t want a tenant showing up at 11:00 pm to pay the rent to avoid a late fee. Always have all correspondence go to the post office box of your office if it is separate from your home address. 3. Don’t be too flashy. It usually seems that the flashiest people are just one payment away from being behind. If they missed a week of work they would miss next month’s payment on something. It just doesn’t make good business sense to buy too many toys. Anyway, just think of all of the things you could do with the money and put it to work for your future. 4. Always use an attorney to close your deals. This may sound basic but I know of some people that draft deeds and close the deal at the kitchen table of the seller’s house. I wouldn’t recommend this. If you use an attorney at least you have the safety of knowing that everything you are doing is legal. 5. Always get title insurance and an owner’s policy. Sure, an attorney did the title search and the lender (if there is one) purchased a title policy but did you know that the title policy only protects the lender? To protect yourself you need to get an owner’s policy. The attorney will usually ask you if you want one. It is a one-time fee and it is not very expensive at all. The owner’s policy will protect you if someone in the future has a claim against your property. For example, if, in five years after you purchased your property, you get a call from a person who claims to be related to the person who sold you the house and they have a deed that shows your seller gave the house to them before he sold it to you. The title insurance policy would fight the battle for you. Don’t take any chances, Get title insurance. (Continued on Next Page) Volume 18 Issue 1 5 of 49 January 2015 (Continued from Previous Page) 6: Make sure you have enough insurance. As you start to accumulate assets, you want to make sure that you have and keep enough insurance on your properties. It is a good idea to evaluate your policies every couple of years and compare them to the current value of your properties to insure there is enough coverage due to appreciation. If you are doing rehabs or flipping properties you will need a builder’s risk policy. Even though this is expensive insurance, it is well worth it since it covers the property while it is vacant and being repaired. 7: Get an Umbrella Insurance policy. This is a policy that extends the limits of your liability policy. They are sold in $1,000.00 increments. They are very inexpensive. They will cover any liability losses over and above your homeowner’s policy or auto liability policy. They are only issued to individuals so if you have a business, you will also need a company liability policy. Reprinted by Permission. For more articles on real estate investing, to sign up for a free newsletter and listen to free weekly training teleconferences. Visit http://www.larrygoins.com/ to find free forms, documents, EBooks, Downloads and more. Also visit http://www.financialhelpservices.com/ for investor financing. PROBATE Ownership of Property Out of State by Dyches Boddiford Do you own property in a state or states other than your home state? If so, how you title that property can mean a difference to your family of hundreds or even thousands of dollars in additional legal and probate costs to deal with probate in each state when you pass! Ancillary probate occurs where an owner resides in one state, but owns real property titled in his or her name in another state. Because state probate courts have no jurisdiction over real property in other states, a separate probate is necessary in each state where property is located in order for the court of that state to approve and authorize the transfer of the title to the appropriate heir by the executor or administrator. This almost always requires an attorney licensed in that state to represent the estate. With the proper estate plan structure, any additional state probates outside your home state, can be avoided altogether! Certain kinds of trusts or even LLCs can be structured to accomplish this result...but they have to be properly done. For example, an LLC in a state where the LLC terminates at the death of the owner could require probate of the property in that state. This can usually be handled by stating in the Operating Agreement that the LLC will not terminate at the death of the owner. Reprinted by Permission. Copyright The Oaks Group, Inc., PO Box 505, Marietta, GA 30061 Visit www.assets101.com Volume 18 Issue 1 6 of 49 January 2015 OPTIONS Options and Lease/Option Solutions by Jack Miller An Option is a marvelous tool that reduces risk while passing on to the holder most of the benefits that can be obtained from leveraged real estate. An Option can be used to pass on tax-free cash to a high-bracket seller, or to enable another seller to be able to cash out a personal primary residence tax free. Options are ideal for building up tax free cash inside a Roth IRA which otherwise would be subject to tax if it invested in conventional debt leveraged assets. An Option can be used to extend the 45 day period allowed to identify a replacement property when doing a delayed tax free exchange. Options can also enable those who can't find loans with which to buy property with a low down payment to nonetheless buy properties on the installment plan. Let's take a closer look: Anyone who sells a property within one year of its purchase pays ordinary income tax on the profit. Suppose a seller had an opportunity to sell a property for a quick windfall profit after owning it only nine months. He wouldn't want to turn down the offer, but would want to reap the benefit of the current 5% - 20% long term capital gains taxes rather than pay taxes in his ordinary income tax bracket. Suppose, instead of selling the property itself, the seller sold an Option on it, then allowed the Optionee to close the Option only after a full year had passed. In this instance, he'd be able to receive the money tax free until the Option was exercised, and would only pay low capital gains tax on the sale. Alternatively, he could enter into a delayed Exchange and re-invest all sale proceeds tax free. That could be a real plus for market traders and real estate investors alike. The same market timing strategy would apply to anyone who wanted to sell a primary personal residence that they had only lived in and owned for a period less than two years out of the r most recent five years. In such case, a buyer could buy an Option, give them the Option money tax free; then complete the purchase and move in after the two year period had elapsed. In special situations, such as where a home owner is selling a residence that he has bought under a lease/Option, he might have lived in the property for two years, but not actually owned it for two years. In this case, the owner might sell an Option to a buyer for a significant sum, and let him move in on a lease until the two years had expired. Both the Option consideration and the final payment would be tax free to the seller. Pure Options can be purchased for cash or for management effort. They can be written to capture all or a portion of any price appreciation as well as loan amortization. The trouble with Roth IRAs is that it is difficult to accumulate much money from contributions and build up in values in any significant amount until several years have elapsed. Suppose a Roth IRA custodian were to buy an Option on a house that was being rented by a non-related party in order to induce the seller to lease the property rather than to sell it outright. The seller would receive tax-free Option consideration plus rent. The tenant would be able to enjoy a residence that might otherwise have been unavailable. The Roth IRA would have a highly leveraged investment with no risk. (Continued on Next Page) Volume 18 Issue 1 7 of 49 January 2015 (Continued from Previous Page) Let's quantify this: Assume a Roth IRA paid $10,000 for a two year Option to buy a $150,000 house that had recently been received in a property exchange by someone who didn't like management. The Option would be conditional on an unrelated party, acceptable to the owner, paying $1200 per month rent for two years. Out of the rent, $100 per month would be credited toward the $140,000 Option strike price. Let's further assume that house prices were rising at about 8% per year during this period. Each year the Roth IRA would see its equity in the Option grow by $1200 by virtue of the rental credit, and by $8000 through property appreciation. At the end of 2 years, the initial $10,000 investment would have grown to $18,400. That represents a 42% annual yield each year for two years. Negotiating leases and Options require different approaches from buying and selling. When leasing, the best lease targets are people who have been unable to sell, or who are reluctant to place vacated properties on the market because of all the hassle. A vacant house can be a real burr under the blanket when payments must be made on it. So, the potential lessee would present himself or herself as a desirable, responsible long term tenant who would take good care of the property. One might even agree to pay rent payments annually in advance in return for a high discount. Using the above $150,000 with a fair market rent of $1200 as an example, in a pure lease situation, the benefit to the lessee is in a cash flow spread between rent that is being received from a sub-tenant and cash that must be paid out on the lease. The benefit to the owner is a hassle free, vacancy free, maintenance-free rental that he can write off while getting all the appreciation. In a typical situation, the potential tenant would try to get 10% discount for paying the rent one year in advance. It could be pointed out to the owner that he could recover this discount easily in today's stock market. Next, perhaps 5% additional discount could be negotiated for signing a five year lease. Just one month's vacancy each year would be much more than that. Another 3% discount might be negotiated for taking care of all maintenance items under $100 per month, and as an override on any maintenance arranged on larger items. If you add all this up, the tenant winds up renting this house for 18% under market, or $984.00 per month. Let's assume that market rents on the sub-lease could be increased by 5% per year; the first years net rental spread would be $2592. The second year the annual rents would rise by $1200 and the spread would increase to $3312. The third year the spread would be $4068; the fourth $4860, and the fifth year, the tenant would be receiving over $475 per month for doing little more than managing one rental house. Do you suppose a person could manage more than one rental house? Of course, in the real world, none of these number would work out. There would be expenses, vacancies, etc. On the other hand, if, as is spelled out in the rental agreement previously covered, many of these expenses were passed along to the tenant, it would be a very worthwhile endeavor for someone trying to find cash to feed a highly leveraged cash flow property. The monthly cash flow could pay for several Options too. Options without leases are an ideal tool for relieving an owner's cash flow squeeze when he doesn't want to sell his property, or wants to move out and rent it. Using the above $150,000 house again, suppose the original loan dating back several years had been for $100,000 at 8% for 30 years and the current monthly payments were $733.36 plus taxes and insurance. Suddenly, the breadwinner is laid off and there's no money in reserve to make the payments to protect the $75,000 equity. (Continued on Next Page) Volume 18 Issue 1 8 of 49 January 2015 (Continued from Previous Page) A reasonable proposition would be to provide one third of the total payment each month for two years in return for one third of the equity. Thus, for about $300 per month for 24 months, or $7200, the Optionee would, using an Option strategy, be able to leverage into a $25,000 net equity without any management chores at all. Not a bad spot for the Roth IRA at all. When you combine a lease/sub-lease sandwich with an Option in which a credit is given against the Option price for each payment, then the sub-lessee is actually buying the Option for you. There is a negative cost in this investment. There is nothing quite like this anywhere else in the investment world. Each payment that is credited against the ultimate cost has the same effect as any principal loan payment made to amortize a mortgage, but with a major difference. Option payments "amortize" at a much faster pace. Here's what I mean: Options are the ultimate OPM strategy. If you were to buy a $150,000 house with a 10% down payment, it would cost $15,000 down, plus closing costs. Payments on the $135,000 balance over 30 years would be $990.58 plus taxes and insurance. At the end of 5 years, you would still owe $128,344 on your loan after having paid in a total of about $59,435. On the other hand, suppose you had made exactly the same payment on a lease/Option, but had negotiated a credit equal to 25% of each rental payment? First of all, other than your lease deposit, you would have made no down payment at all. Secondly, over the same five year period, almost $15,000 would have been credited against the purchase price. Best of all, this would have been paid by your tenant, not by you. The only problem with this arithmetic is that the rental market could weaken, leaving you with a $990.58 payment to make each month you experienced a vacancy. Over five years, you could wind up paying a lot of money for this lease out of your own pockets. One way to limit your risk is to write your lease/Option for one year, with an Option to renew it each year for the next four successive years. This way, you would only be liable for, vacancies that occurred in each year that you elected to renew the lease/Option. Of course, anytime you tired of leasing the property, you could either sell the lease to another entrepreneur who wanted the growing cash flow spread generated by rent raises; or sell the Option to a passive investor based upon the growing equity. You might sell half of the Option to the investor for cash flow, and keep half as your own investment. Or, you could simply exercise the Option and simultaneously sell the house itself to capture your growing equity. Lease terms can transfer negative cash flow and risk from the owner to the lessee, while using the tax code to help both of you. A person who is already experiencing negative cash flow because he can't or won't manage a rental would be desperate to have another person come along and alleviate the problem. His only cost would be a share of future sale proceeds, and that wouldn't seem very important weighed against current cash flow needs. He'd have no vacancy, no management, all the tax benefits, and cash from the rents to help him make his payments. On the other hand, the lease/Option presents an outstanding opportunity for the entrepreneur who is able to garner equity through both the appreciation of the property and rental credits given against the Option price. It would be difficult to come up with a better arrangement. Where do you find house owners who would be motivated to enter into this kind of arrangement? To locate motivated sellers, mine the newspaper ads for people willing to carry back installment payments and convert them to Lease/Options. (Continued on Next Page) Volume 18 Issue 1 9 of 49 January 2015 (Continued from Previous Page) Prowl the neighborhoods looking for vacant houses. Scour the courthouse for eviction notices. The owner of a rental who has to evict a tenant is about as disenchanted with the rental house business as he'll ever be, and as willing as he'll ever be to hear your proposition. If you've already got a source of cash for payments, you can offer additional cash flow in return for a much greater Option credit to solve cash flow problems for an owner who needs more money. In the above illustration on the $150,000 house with a $75,000 balance, instead of simply making the loan $990.58 payments for the owner, suppose you offered $1500 per month with an Option credit equal to 125% of the payment? Let's suppose that you were only able to rent this property for $1200 per month. Each month, you would be paying out $300 in negative cash flow, but getting a credit of $1875. This translates to a return of $22,500 each year against the purchase price at a cost to you of $3600. That boils down to a yield of 625% on you're invested cash, taxed as capital gain, that you would realize when you sold the Option after a couple of years. Hold on, this book is about creating positive cash flow, not negative cash flow. The solution would be to sell half of your Option to a private investor (Dare I mention Roth IRA?) who would be delighted to pay the negative for only a mere 100% return, leaving you with the remaining $17,300 in Option credit each year. The key is to find the person who needs this kind of deal. Divorces present a rich source of Option opportunities. In a typical situation, when a household breaks up, the equity in the house is divided in such a way that the mother keeps possession while the father pays alimony and child supports. Quite often, there simply isn't enough money to provide much of a life style for either party, thus, alimony payments to the mother become very unreliable. Your solution is to get both parties to agree to an Option in which tax-free payments will be received by the mother with which to make house payments, and credited against the purchase price in lieu of alimony or child support payments paid by the husband. This technique solves a real financial problem for both spouses, as well as their children. And, with an appropriate percentage credited by the Optionee against the purchase price, it can be extremely profitable for him or her. Another kind of distress situation in which a lease/Option is welcomed with open arms occurs when a would-be investor is either burned out from management, or unable to cope with it. As you swoop in with a lease/Option offer, you'll look a lot more like an angel than a vulture to these people for the simple reason that you will be fulfilling a real need in a way that nobody else can. Options: Try 'em, you'll like 'em. Learn more with the following home study courses: INTRODUCTORY OPTIONS ADVANCED OPTIONS OR.. OPTIONS COMBO Reprinted by Permission. © Copyright 1975-2014 CREWorld Media LLC and/or its suppliers. All rights reserved. Visit www.CashFlowDepot.com or call (972) 496-4500. Volume 18 Issue 1 10 of 49 January 2015 ENVIRONMENTAL PROBLEMS Lead Paint-Federal Rules Are Serious by Jon Bolton Can you believe or did you even know that the Federal lead hammer dropped just over five years ago?! Please don’t shoot the messenger! April 22, 2010 was the big day. On this date and forward, all persons and firms working in pre-1978 homes and child-occupied facilities are required to be certified and must to use lead-safe work practices during renovations. The EPA and HUD are behind the new RRP rule and have established accredited training and certification programs for workers, supervisors and inspectors conducting work and evaluation of targeted housing containing lead based paint. Abusers will receive huge fines. HUGE fines. I have a previous article that goes into more depth on the source, uses and health risks involved with lead based paint. If you like, please shoot me an email and I’ll be glad to forward that to you. The final rule addresses lead-based paint hazards created by renovation (hello investors and house buyers), repair and painting activities that disturb lead-based paint in “target housing” and “child occupied facilities.” “Target housing” is defined as a home or residential unit built on or before December 31, 1977, hence the pre-1978 jargon. “Child occupied facilities” is defined as a pre-1978 building that meets all three below criteria: 1. Visited regularly by the same child, under the age of six. 2. The visits are on at least two different days within any week provided that each day’s visit lasts at least three hours. 3. The combined weekly visits last at least six hours and the combined annual visits last at least 60 hours. These child occupied facilities include residential housing not just day care facilities. Not only does someone on the crew need to be trained and certified under this program but the firm must also be certified. If you are not receiving documentation literature from your contractor, he’s either not in compliance or not properly trained and certified which also makes him/her stupid. Firms found to be non-compliant may be liable for civil penalties of up to $32,500 per violation! Those firms who knowingly or willfully violate this regulation may incur an additional $32,500 fine per violation and/or imprisonment! (Continued on Next Page) Volume 18 Issue 1 11 of 49 January 2015 (Continued from Previous Page) There are also some minor repair and maintenance activities that are exempt from compliance: 1. Interior work where less than six square feet (2sf if HUD facility) of painted surface is disturbed in a room or 1 2. Where less than 20 square feet of painted surface is disturbed on the exterior. 3. You’re doing work yourself in your own house. 4. You have the area to be renovated tested by a Certified Renovator or Certified Inspector and have it cleared. Window replacement, however, is not minor maintenance or repair and will require full compliance. If the painted surfaces to be affected by a renovation do not contain lead, then obviously you would not be required to be in compliance with the RRP Rule. So how do you determine if a painted surface contains +/> 1 mg/scm? The least expensive option is with an EPA approved test kit and sampled by a Certified Renovator. This is intrusive and minor damage will be done to the surface being tested. Doing large areas or whole houses would not be practical and would take a lot of time and money. These tests cannot be used on drywall or plaster either. Other options include X-Ray Fluorescence (XRF) instrument sampling taken by a Certified Inspector or Risk Assessor. This is non-intrusive and much quicker. Lastly, paint chip sampling and lab testing can be performed but this can be quite intrusive causing much more visible damage and cost much more. FYI: Realtors®, investors and sellers, “The results of paint testing using test kits are part of the official lead-based paint testing record for a home, and must be disclosed under EPA’s Real Estate Disclosure regulation (40 CFR part 745, subpart F). However, EPA’s regulations only provide for a certified inspector or risk assessor to conduct a lead-based paint inspection and to prepare a lead-based paint inspection report. Thus, allowing renovators to test components does not negate the requirement that a certified inspector or risk assessor follow the requirements set forth in § 745.227(b) when conducting a lead-based paint inspection.” Source EPA website. EPA notes (not me): “Home test kits for lead are available, but studies suggest that they are not always accurate. Consumers should not rely on these tests before doing renovations.” They want (and will require) trained and certified persons to inspect and confirm the presence or absence of lead. Now we’ve had lead disclosure for many years but since December 8, 2008, all landlords must use the new pamphlet entitled, Renovate Right. You must also then get a Confirmation of Receipt of Renovate Right. You can obtain these on-line or shoot me an email and I’ll send them to you. Reprinted by Permission. Jon Bolton is a home and building inspector, water intrusion specialist and public speaker. Call 407.678.HOME or visit www.inspectagator.com and www.buyaware.net. Questions or suggestions? Contact Jon Bolton via email at [email protected]. Volume 18 Issue 1 12 of 49 January 2015 SECURITY Burglar Proof Your Home by George N. Skidis, Jr. Burglars and copper thieves aren't fussy where they break into. They just look for the easiest opportunities. Your mission, should you decide to accept it, is to inconvenience them to no end. Your goal for this year is to practice Three Principles: ● Make your property look less appealing to burglars ● Make your property look harder to break into. ● Make your property look like less trouble than your neighbors. Lesson 1: Think like a Burglar To get in that criminal frame of mind give your spouse or significant other your keys and have them lock you out of your property, but only if you trust them to let you back in. Once outside figure out how you would break in. It isn't really that difficult. En-gage the creative side of your brain and give some serious consideration to how a burglar might gain entry. Check for open windows. Look for places to hide, dark spots and most importantly "Tools of Opportunity." Lesson 2: Tools of Opportunity Can you find any "Tools of Opportunity" lying around the yard? Look for small portable objects that may be sitting near the porch or on the deck. Look for anything nonchalantly parked around the outside of the home. These are everyday objects that you just might take for granted. Here is what I found around one of my rentals: large can of charcoal lighter fluid, hammer, rake, garbage can, decorative rocks, concrete blocks, garden hose, limbs, sticks, toys, yard furniture, rusty screwdriver and a two gallon can of gasoline. Any rigid item that can be lifted easily might become a tool of opportunity. Ladders make second story work a breeze. Many individual do not lock their second story windows because nobody can jump that high. Then they leave an extension ladder leaning against the back of the house. You may see walls or trash cans that you can climb. If it's dark, you may notice that certain areas of the property are unlit. You may even notice access points that you had forgotten existed! Burglars look for the weakest linkthe "chink in your property's armor." By simply spending five minutes looking at your property from a burglar's point of view, you can identify your property's weak spots. Lesson 3: Vacation Pitfalls Don't leave clues. If you'll be away from your property for a few days, suspend newspaper and mail delivery. Ask a neighbor to collect any other mail such as free newspapers and leaflets. If you have a porch pull the blinds so that mail delivered through a mail slot is not visible from outside. Use on timers different lamps to give the illusion that someone is in the property. Unplug the electric garage door opener and use a throw bolt to secure the door. I actually installed a light switch that I can turn off or on to interrupt the garage door circuit at my storage building. I kept finding the door open for no reason I knew of. Never, Never, Never post your vacation status or photos until you have returned from the trip. Face-book may be fun, but it is visible to anyone. Digital photos frequently contain a GPS Marker that let everyone know where you are. (Continued on Next Page) Volume 18 Issue 1 13 of 49 January 2015 (Continued from Previous Page) Lesson 4: Perform a Safety Check Are there any areas of your business, home or rental property that could allow an intruder to work undetected? Make sure that a side entry garage door has secure locks installed. If it has a glass upper consider installing a security mesh or replacing the door altogether. If you have a door that leads from the garage into the home make sure it is extra secure. Once in the garage a thief can take their time breaking into the house secure in the knowledge that no one can see them. Overhead garage doors can provide good security if a monitor of some type is in place. There are devices that send random codes that look for garage doors that can be opened. Lesson 5: Landscaping High hedges and bushes can screen a burglar from the road or from neighbors. If the door or window is obscured it can be targeted or even worse a burglar can hide their and wait for you to come home. Lesson 6: Storage Sheds Storage Sheds are a great place for someone to hide and an even better place to shop for "Tools of Opportunity." If it is a rental property consider removing the shed entirely. If not broken into it will at least be filled with the last tenants discards when they move out. Make sure sheds are securely padlocked and possibly alarmed. Tools in the shed could be used against you: for example, a hammer could be used to break glass, or a spade could be used to lever open a window. Lesson 7: Ladders Store ladders inside or at least lock them up. Ladders are a great "Tool of Opportunity." They are particularly useful to burglars, so make sure you keep yours locked up. If a ladder must be stored outside, padlock it to the wall with special brackets. Lesson 8: Accessible windows Burglars hate the sound of broken glass because it may alert some-one, but that won't stop them from gaining entry via a window. Step one: break the glass. Step 2: reach in and unlock the window. Step 3: open the window. Install locks on all windows. Look into installing blocks that can prevent a window from being opened more than a few inches. Windows with easy access are the most susceptible. Check windows near flat roofs and those that could be accessed by climbing a drain pipe. Lesson 9: Alarm Systems There is a plethora of alarm systems out there. They range from the $5.00 door buzzer to state of the art monitored systems. We have several good companies in this area that sell, install and monitor alarm systems. Yale Security, George Alarm, Pass Security and ADT are all good companies with excellent products. There are also systems available on the internet that you can install yourself. Lesson 10: True Wireless Alarms vs. Landlines Several years ago my office was burglarized and a few items taken. Before entering the building, the burglar cut almost every phone line at the junction box and turned off the power breaker at the twin can electrical service. They cut seven phone lines but missed the eighth one which dialed the alarm company using a battery backup. They were gone before the Sheriff's Department arrived. One more snip and we would have found out about the theft the next day. Your best bet is a true wireless alarm sys-tem with a cellular phone that calls the alarm company. Lesson 11: Smashing the Keypad In many older systems the brains of the alarm system were in the keypad. Quickly smashing the keypad with a "Tool of Opportunity" before the entry timer ran out and the alarm was triggered defeated many older alarm systems. Get an alarm system where the brains are not in the keypad, but hidden away somewhere else in the building. Lesson 12: Remote Monitoring and Features You can buy alarm systems that can be run by an app on your smart phone. This is a new idea and I am not sure it makes sense. How long before somebody develops a smart phone app that uses random strings and codes to disarm your security system? I do like the idea a temperature monitoring to prevent frozen pipes, heat monitors in the kitchen that detect a heat spike and not smoke, smoke detectors in the bedrooms and common areas, carbon monoxide detectors to comply with state law and moisture detectors to call when you have a water leak. In conclusion, we need to adapt to survive in this business, How far are you willing to go to succeed?" Reprinted by Permssion. Copyright © 2014 by George N Skidis, Jr. All Rights Reserved. Email: georgeskidischarter.net Volume 18 Issue 1 14 of 49 January 2015 GOALS Goal Setting For The New year-Treat Your Business Like A Business by Rob Arnold, ABR, CPL, CRB, GRI New Year's resolutions. Yuck! You set them. Then for most people before January even ends, you have already broken them. I have never been one for making these resolutions. If you are in the real estate business, then you need to be doing what normal business people do. Treat your business LIKE A BUSINESS. Take the slow time during the winter months to work on your budgets. Figure out what is and is not working. Set some goals, both long-term and short-term for your business. Develop a strategic plan of action to make those goals happen. I call mine a strategic business plan, and I make sure to review and re-develop it at least once every quarter. Maybe that is all a little too deep for your average real estate person, but it should not be. So here are a few tips on developing and then achieving your goals. Just remember the acronym S.M.A.R.T. Your goals need to be: (1) Specific. Clearly defined and written. If a goal is too vague, it becomes too hard to measure and plan for. If it is not in writing, then you probably are not serious about it anyway. (2) Measurable. You need to have some way to determine how close you are to achieving your goal. That way you can make changes as necessary to continue moving forward. (3) Attainable. A goal needs to be worthy of the time, effort, and expense involved to attain it. It needs to be something that you can thrust yourself into so that you are motivated to get it accomplished as scheduled. (4) Realistic. A goal needs to be just out of reach but not out of sight. If the goal is too simple to accomplish, you just need to do it and get it out of the way. If the goal is too difficult to accomplish, you need to break it down into smaller goals. (5) Timely and tangible. A goal needs a specific deadline to be accomplished by. This creates a sense of urgency to get it done. Break your goals down into the smallest denominator that you can. If you have never bought a house before, then flipping 50 houses in 2015 might be unrealistic. However if you want to flip 50 houses in 2015, then that means just over four houses selling every month. If your ratio of converting offers into a closing is one out of three, then you need to be working on 12 solid leads every month to get four to close. If four out of five leads are not investor price/term deals, then you need to generate 60 property leads (or make 60 offers) every month (or 15 per week / 3 per business day) in order to get 12 solid leads in order to get four to close. The numbers above are just for example, but hopefully you get the drift. I spend approximately 30 minutes every Sunday evening planning out my upcoming week. This helps me get a jump start on Monday morning. On the last Sunday of every month, I spend another 30 minutes or so setting my goals and plans for the upcoming month; I base these monthly goals on my yearly and longer-term goals for myself and my business. Additionally every day before I close up shop, I spend about 10 minutes writing up a to-do list for the next day. I am not a morning person, so if I do not do this I would end up spending 2 hours the next morning floundering around figuring out what I need to do. Time management software like Microsoft Outlook can make keeping you on track very easy to do. Regardless of what plans you have for the New Year, set a few goals. Even if you only accomplish half of what you set out to do, that puts you way ahead of where you would have been otherwise. I hope that this year brings you a fantastic and prosperous year. If you need help or advice with getting your real estate career on track, feel free to contact me. Copyright © 2013. Sand Dollar Realty Group, Inc. All rights reserved. Reprinted by Permission. Rob Arnold is a Florida managing real estate broker and licensed mortgage broker. Call 407-389-7318, 877-389-7318, visit www.SDRhouses.com or www.WeBuyHousesFlorida.com Volume 18 Issue 1 15 of 49 January 2015 WHOLSESALING Can a Real Estate Agent Wholesale Properties? by Vena Jones-Cox Q: I am a real estate agent. My broker tells me that I cannot wholesale properties because it’s illegal. What do I say? A: I probably get this exact question two dozen times a year, and there are two answers to it. The long one is below; the short one is that you MIGHT need to find another broker. Bottom line is, if he’s not comfortable with you wholesaling properties, it’s his right to keep you from doing it even though it’s perfectly legal. The only solution—other than showing him the explanation below and hoping that he comes around—is simply to move your license to a broker that’s more investor-friendly. Now, a word for your broker Dear Mr. Broker: The “illegal flipping” to which you’ve seen reference is NOT what your agent is asking permission to do. Illegal flipping involves deception, false appraisals, and, usually, bank fraud. Although it wears many faces, an “illegal flipping” transaction typically has some or all of the following characteristics: It is done with the intent to defraud the buyer, who is almost always an unsophisticated, low- to moderate-income first time home buyer. The property is purchased at a very low price and sold at a higher-than-retail price by a seller who has done does minimal repairs to the property, often covering up major defects without fixing them. The seller colludes with an appraiser to get a higher-than-market appraisal, and with a mortgage broker to falsify information on the buyers application, making the buyers seem more qualified than they are. The result is that the buyer overpays for a property that he can’t really afford, and which turns out to have major problems that he can’t afford to fix. He can’t sell his property, because he paid more than it’s really worth, and when he can’t hold on any more, the property is foreclosed upon. The buyer loses his home and his credit rating, the bank loses when it gets the property back–and we all lose when homes go vacant by the hundreds and property values drop as a result. Before the word “flipping” was hijacked by these folks, it was most commonly used to describe a strategy called “retailing.” In a “retailing” deal, the investor buys a property at an under-market price, then fully repairs and renovates it with the intention of making a profit by providing a qualified home buyer with a top-quality home. Unlike “illegal flipping” transactions, the home buyer is generally middle- to high-income, as the properties chosen by real retailers are not in low-income areas. The seller prices the house at–not above–true retail value; therefore, no appraiser collusion is necessary. The seller pre-qualifies all potential buyers to assure that they will be able to purchase the property quickly and with no hitches, thus assuring the seller a quick return on his investment. The buyer goes through the normal loan process with the lender of HIS choice–not one chosen by the seller for the lender’s willingness to “bend the rules.” What your agent is proposing to do is something different altogether…it’s called “wholesaling,” and it involves no banks, no appraisals, and no homebuyers whatsoever. In wholesaling, the buyer pays cash, rarely has an appraisal done, and is always a sophisticated investor or landlord who is out to make money from the deal, not an overly-excited home buyer dreaming of how lovely her couch will look in the living room. Though wholesaling is also called “flipping,” and though it is another fast way to turn over real estate for a profit, it clearly can’t be the same as the “illegal flipping” you’ve heard about. It has none of the characteristics or warning signs. There’s no fraud involved. Yes, it’s not your everyday retail buyer/seller transaction, and yes, your agent is acting as a principal instead of an agent. But as long as t he agent does all the proper disclosures, both he and you are legally and ethically in the clear in these transactions. Copyrighted by Vena Jones-Cox. Reprinted by Permission. from the REGoddess E-Letter, December 2008. National Speaker Vena Jones-Cox has appeared at past MREIA meetings and has been a full-time real estate investor since 1989. She focuses on high-profit, low-hassle strategies that leave her the time and freedom to enjoy financial independence. All told, she’s bought over 600 properties. Vena is also the host of public radio’s “Real Life Real Estate Investing” (Wednesdays at 5 p.m. est at wnku.org), a live weekly program that addresses all aspects of real estate investing. She is past president of Cincinnati REIA, Ohio. Email: [email protected] or visit www.regoddess.com Volume 18 Issue 1 16 of 49 January 2015 INVESTING PHILOSOPHIES The Importance Of Cash Flow by William Bronchick, Esq. Many businesses fail in the first few years mainly due to poor cash flow management. According to a recent survey, the number one thing small business owners say they wish they’d have done differently was have more start-up money. Even experienced companies file bankruptcy, not because they don’t have a good business model but because they run out of cash. Consumers, too, don’t often manage their cash flow effectively and this can lead to foreclosures. True, the catalyst may have been an unexpected layoff, a change in the economy, a divorce, or some other crisis, but with sufficient cash reserves, consumers can overcome virtually any problem. The same principle applies to any business. Something can go wrong or business can become slow because of a down cycle, but as long as the business manages its cash flow, it will survive. Real estate investing is no exception. The reason most investors fail is because their plans and investment strategies don’t include effectively managing their cash flow. For example, let’s say an investor (we’ll call him John) buys a house as a rental property investment with no money down. If John has no cash reserves, what happens if he experiences a 20 percent vacancy rate—that is, he doesn’t rent the house for several months? What happens when there are repairs and unforeseen problems that may result in the need for thousands of dollars in repairs or improvements? John will have real problems if any of these events occur if his cash flow is low or nonexistent. Many novice investors make the mistake of putting more cash down to lessen the risk of negative cash flow. This may be wise, unless you are putting up your last dime into the property. Regardless of how much cash flow you have on paper, you can still end up negative. With no cash reserve in the bank (because it’s all tied up in the property), you will end up scrambling to come up with cash when the property goes negative. Although I plan for repairs, vacancies, slow months, and a down market, I’ve had more than my share of unexpected cash crunch issues. For example, several times a local municipality made me re-pave a driveway, remove an abandoned car, or rebuild a fence. My insurance company made me re-concrete a long walkway because of what they considered safety issues. More than a dozen plumbing problems have caused major water damage to my properties—damage that was less than my insurance deductible. Every investor at some time gets blindsided by an unexpected repair cost, so be conservative when establishing your cash reserves. In short, it’s better to have a cash reserve to handle negative months than to put more money down to increase your cash flow. In essence, real estate investors are no different from average Americans who struggle to get by and live paycheck to paycheck, then suddenly get hit with an unexpected medical bill or car repair expense. The bottom can fall out from underneath quickly, so you’d be wise to set up a financial safety net. Reprinted by Permission. Visit www.legalwiz.com or call 1-888-587-3253. The author, CEO of Legalwiz Publications, is a nationally known attorney, author, entrepreneur and speaker. He has been practicing law since 1990, and has been involved in over 700 transactions. Volume 18 Issue 1 17 of 49 January 2015 REHAB 101 Fix For Profits-Don’t Remodel by Jay DeCima Let me spell this out up front. If you are under the false illusion that you can make any serious money fixing houses that don't have anything wrong with them, forget it! People don't sell fixer houses at fixer prices and terms unless they really are fixers. To prove what I'm saying, let me ask you, would YOU sell your house for much less than it's really worth because it needs paint and a new carpet? And neither will anyone else. In order to get the kind of buying discounts you want, you'll need to take on the seller's problems. The big money is made when the seller and your competition think the problems are much worse than they are. In other words, when the seller thinks his house is beyond repair and you know very well it's not, you're in the drivers's seat. The most frequent questions I'm asked about fixing up are: What is your dollar limit and where do you draw the line and simply walk away? Dollar limits are a matter of writing out my fix-up cost estimate and then adding that sum to the amount I'm willing to pay for the property. If those two numbers are higher than 80 percent of the fixed-up market value, I generally back away. Especially on lower-end properties where cash flow is my overriding concern. For example: let's take a house that will have a $65,000 market value after the fix-up work is done. I'm willing to spend $52,000 total to acquire the property and do the fixing. The figures might be something like: $43,000 purchase price and $9,000 for fix-up work. If my fixing estimate is on target, I'll end up with $13,000 equity when I'm done. Also, in the above example, you'll notice that my fix-up costs are roughly 20 percent of the purchase price. When costs begin to exceed this percentage, re-check your fix-up estimate. Anything over 20 percent, not counting the brand new roof or a full foundation, means you're into some fairly heavy-duty fix-up. Most of us always underestimate the fix-up job and that can turn the best of intentions into a lousy idea faster than anything I know. Whatever you do, don't play house with your fix-up plans and don't spend more than 10 percent over your original cost estimate. Both of these "don'ts" are not the easiest advice to follow. Don't expect to get them right on your first attempt. I don't know of any shortcuts around experience and practice. Fix-up specialists are not remodelers, so don't try to be one. You won't be happy with the money they earn. Splitting up big rooms to gain an additional bedroom or dining room, making the kitchen bigger, expanding the bathroom or changing the hallway around seldom pays off. These changes are generally a matter of preference or taste. Seldom to any two people agree on rooms or configurations. You'll be money ahead if you keep things simple. Leave the house alone and simply clean it up and fix what needs fixing. Fiddling around with the walls and room sizes can throw a house out of balance. For example: changing a two-bedroom house to a three-bedroom likely means that more people will live there. You might need more heat, cooling and electrical circuits. The bathroom and kitchen may be too small for larger families. Just one change could have a ripple effect. Adding more power and more heat could easily cost more than any benefits you'll gain. (Continued on Next Page) Volume 18 Issue 1 18 of 49 January 2015 (Continued from Previous Page) Inexperienced fixers have trouble saying no. If you figure on spending $700 to paint the kitchen and replace the counter tops, do just that. Don't replace the cabinets and flooring as an after-thought. If you decide on replacing the worn roof shingles on the street-side of the house because they look so ugly, that's fine. But don't let your roofer sell you on the merits of doing the whole roof at one time because it's cheaper while he's there! Exterior painting is one of the most productive jobs on the fix-up list. It's not unusual to spend $1,000 painting and get back $10,000 or more in added sale profits. You're achieving high leverage fix-up when you can spend one dollar and get ten dollars back! You must develop discipline if you intend to stay within your budget and make a profit. Lots of folks can fix up houses if the money supply is unlimited—but it's a whole different ball game if you insist on making money for doing it. Reprinted by Permission. The author, known to many as “Fixer Jay,” is a seasoned real estate investor with more than forty five years of hands-on experience. Nearly half of the time has been devoted to his specialty: fixing up run down houses and adding value. Many years ago, Jay began teaching others about his moneymaking strategies at seminars and at his popular house fixer camps, in Redding, CA. Visit www.fixerjay.com ESTATE PLANNING Why a Will? by Dyches Boddiford We just got word that the sister of a friend passed away. Our condolences to the family...this a sad time for all. She had been hospitalized several times in the past with multiple health issues. Last year when she was discharged from the intensive care unit, a mutual friend strongly suggested that she get a will in place for a variety of reasons. Time passed and life got in the way...she never got around to making a will. She stated early on that a will was really not necessary since she didn't have a lot of assets. What she did have were two children that are still minors. Normally, for purposes of guardianship of the children, the surviving parent would be the natural guardian of the children. BUT in this case the husband is not a natural parent of the children nor had he adopted the children. The children have different dads. A will would go a long way in determining what happens to the children. What about assets she had? State law will dictate where these assets go. Will the children receive enough financial support? What did she want to happen? There are a lot of open questions... All this could have been solved with a will, including reducing the costs of probate and a contentious family fighting. And they will never know if they are carrying out her wishes or not. It is sad that the family now has to deal with these issues in their time of grief... Don't let this happen to you or your family, especially if you have children. Let your wishes be known! Reprinted by Permission. © Copyright 2014 Dyches Boddiford. All Rights Reserved. The Oaks Group, PO Box 505, Marietta, GA 30061. Dyches is a National Speaker has been a MREIA featured speaker at past meetings. Visit www.assets101.com for more information. Volume 18 Issue 1 19 of 49 January 2015 REHAB 101 Estimating Repairs In Real Estate Investing by William Bronchick, Esq. Novice investors often delude themselves about the necessary rehab costs estimating repairs when Real Estate Investing. The following story illustrates how investors should approach estimating a rehab project. Legend has it that Tiger Woods was playing golf in a tournament with the late Payne Stewart, another great golfer. They were tied at even par. On one particular hole, they both hit their drives down the fairway and their balls landed about 100 yards from the green. Payne’s ball was just a few inches behind Tiger’s, so he would take the next shot. Payne asked his caddy how far he was from the hole. “One hundred yards,” his caddy replied, handing him a club. Payne hit the ball, which landed ten feet from the hole. Tiger turned to his caddy and asked, “How far?” His caddy replied, “Ninety-seven yards,” and then handed Tiger a club. Tiger hit his ball six inches from the hole. Payne turned to his caddy and angrily demanded, “Why did you give me around number and Tiger’s caddy gave him exact yardage?” Payne’s caddy replied, “Because you’re not as good as Tiger Woods.” The lesson here is that most investors are not good enough at estimating repairs to guess exact numbers. Instead, it’s best to think in increments of $5,000 or $10,000, always rounding high. For example, an investor who’s talented at estimating repair costs may come up with the figure of $7,200 to rehab a property. A “guestimating” investor may come up with a similar number, but should round it up to $10,000 to play it safe. Ideally, you already have a trusted contractor on your side. Good contractors have the experience and expertise to provide a quick, accurate estimate of needed repairs. Even so, always estimate high on repair costs and cost of materials. Our experience has consistently shown us that two things are inevitable when rehabbing a property: • It always costs more than you think it will. • It always takes longer than you think it will. As with market conditions and property values, be defensive. Estimate conservatively on repairs and you will be pleasantly surprised if it costs less. It’s essential to know how to valuate a house quickly and accurately because you can’t determine whether you have a good deal unless you know what the property is currently worth. Being defensive means being as dead-on accurate as you can with the realistic value of a home in its present condition and what it will be worth after repairs or renovations. Reprinted by Permission. Visit www.legalwiz.com or call 1-888-587-3253. The author, CEO of Legalwiz Publications, is a nationally known attorney, author, entrepreneur and speaker. He has been practicing law since 1990, and has been involved in over 700 transactions. Volume 18 Issue 1 20 of 49 January 2015 ENVIRONMENTAL PROBLEMS Why Natural Gas Stinks and What To Do When Your Hot Water Stinks. by Kevin Smith December 2009 There is a little town in Rusk County, East Texas called New London. It is in east of Tyler and south of Kilgore below US 20. During the Depression New London fared better than most places around the country financially because of a large discovery in the nearby Rusk oil fields and the tax revenue that it produced. Some of that tax revenue went to build a steel and concrete school which cost an estimated $1 million, about $15 million in today’s dollars. It was a showpiece. Constructed in 1932, the school team was called The Wildcats, after the wildcat well that brought the school district its fortune. The team played in a new stadium illuminated by electric lights, the first in the state. The construction of the school was on an incline on a hillside, with the substructure creating a 250 foot long void under the classrooms and school buildings. The school was heated by 72 gas heaters installed throughout the buildings. In the spring of 1937, the school board decided to drop their natural gas contract with the local provider and turn to a product called “residue gas” or “casing head gas.” This gas was a byproduct of the oil well drilling, and at the time was thought to be a useless product. It was routinely flared off, that is, allowed to escape out of a pipe where it was burned out in the open to get rid of it. It was decided to tap into this residue gas line and use the product to fuel the 72 heaters in the school. Some chemistry and a little background: natural gas is composed primarily of methane. Methane is the largest component of this residue gas, and methane in concentration is highly flammable and explosive. It is colorless and odorless in its natural state, and cannot be detected with the senses. When it accumulates, all it needs is an ignition point, a spark or an open flame to set off an explosion. When the tap was made into the residue gas line to provide the school with heating fuel, the tap was not done properly. It leaked. The problem was that it leaked into the 250 foot long void under the school and accumulated a tremendous pocket of this volatile gas beneath the classrooms. School was due to let out at about 3:30 PM.. At about 3:20 PM a shop teacher turned on an electric sander. It is believed that a spark from this sander was the ignition point for all of that gas under the school rooms. Eyewitnesses said the roof of the school went straight up in the air and that the walls were bulging out. When the roof landed, the walls supporting it were gone and the steel and concrete of the roof structure came crashing down on the classrooms. Huge pieces of the school building were thrown about, crushing cars and outbuildings and people everywhere. Of the more than 600 students and 40 teachers in the building at the time, over 300 souls including children and teachers were either burned to death or blown to pieces. A movie was planned for release sometime in 2009 called “When Even Angels Wept.” It is the story of the New London school disaster. Within weeks of the disaster, the Texas Legislature mandated that odorants be added to natural gas so that any leaks could be detected quickly. Most gas used in the world today is odorized by adding mixtures of mercatans and sulfides. T-butyl mercaptan, methyl mercaptan or similar thiols are the most common. These compounds have odors ranging from rotten cabbage to rotten eggs and are so uniquely disagreeable as to be readily detected. It was a terrible lesson to learn, but that’s why your natural gas stinks today, to keep an explosion from happening to anyone else. Now, let’s get out of the history books and the chemistry lab and talk about why the hot water stinks in some houses, especially vacant investment houses. (Continued on Next Page) Volume 18 Issue 1 21 of 49 January 2015 (Continued from Previous Page) What to do when your water stinks. Have you ever gone into a vacant property and turned the water on and smelled rotten eggs? What you smell is a disagreeable little compound called hydrogen sulfide. Now if you have knowledge of the oilfield, you already know that hydrogen sulfide is a highly toxic gas sometimes associated with deeper gas wells. It has been known to kill people on the drilling rigs or downwind of it who have inhaled it. It comes out of the ground as a product of drilling that particular well in that particular place. It kills very quickly. So what’s the difference between hydrogen sulfide gas at the well head and hydrogen sulfide gas coming out of the faucet in the kitchen of a foreclosure? Concentration. The stuff that kills people at the oil well is in a concentration of 50 to 200 parts per million or more, whereas the aroma coming out of the faucet is 10 parts per million or less. You would have to snort quite a bit of the water odor to get dizzy. Hydrogen sulfide in drinking water will not kill you or make you sick. It just smells bad Why would an investor want to know about this? It’s a problem if you are going to live in the house, rent it or sell it with the stuff smelling up the water. There are a couple of solutions and we’ll get to those in a minute. First, let’s take a look at where it comes from and then we’ll talk about what you can do to eliminate it. The rotten egg smell in drinking water comes from bacteria in the water heater. Water heaters are built with an element in them called a sacrificial anode. This anode is a rod with a steel center and a coating of magnesium surrounding it. It is there to protect the inside of the water heater from rusting in a process called cathodic protection. In plain English, the sacrificial anode deteriorates instead of the metal of the water heater tank. Voila! No rust! When you see a water heater warranted for a number of years, it usually has to do with the amount of magnesium on the sacrificial anode, or the number of anodes present. Neat, huh? So where does the smell come from? Sulfur bacteria occur naturally in water. They become smelly when the magnesium of the sacrificial anode combines with naturally occurring sulfur in the water to form hydrogen sulfide. Besides providing the water with a nuisance odor, it can also tarnish copper and silverware, and stain clothes and porcelain. How would you fix it? The sulfur bacteria die above 140 degrees. One way to kill them is to first make sure that your temperature and pressure relief valve on the water heater is less than three years old and properly installed. Crank the thermostat up all the way to 160 degrees if possible, and let the water heater sit like that overnight. Come back the next day and lower the temperature back to normal. Now drain the water heater by opening the hot water faucets in the house and let them run freely for about 45 minutes to an hour. This should do the trick. Didn’t work for you? Here is plan “B.” Turn off the inlet valve to the water heater. Open a hot water faucet to drain about a gallon of water off of the tank. Turn off the faucet, open up one of the risers (water supply lines on the water heater), and pour in a quart of household bleach. Now reconnect the riser (don’t forget to change the washer in the riser), turn the thermostat all the way up, and let it sit overnight. Next day, turn the inlet valve back on, and flush the tank as above by letting the hot water run in all faucets for about 45 minutes. If that does not cure it, you will have to replace the sacrificial anode or get a new water heater. If you are not familiar enough with water heaters to do the above procedures, you will need to call a licensed plumber to help you out. He will know what to do about stinky water. Reprinted by Permission. The author, of Forward Assist, has conducted "Mr. Fixit" workshops, and served on the Realty Investment Club of Houston (RICH) Board of Directors as “The Enricher” Newsletter Editor for three years. He shares his treasure chest of secrets with anyone who asks. You can reach him at (713) 858-1330 Volume 18 Issue 1 22 of 49 January 2015 FINANCING Fractional Financing…Or How To Live A Champagne Lifestyle On A Beer Budget by Jack Miller John was broke! He'd been wiped out in a collapsed speculation on land that had left him little other than an appetite for good living and a creative imagination. He was smart and willing to do just about- anything except hold a regular job. He retained his lavish life style replete with a fine home on the water, an airplane, a sailing sloop, an island hideaway -and even regular access to one dining and liquor at a popular restaurant. He did this by selling fractional portions of each and retaining an interest for himself. Here's how he did it: John was a good negotiator. He avidly sought out properties that he wanted to own. When he found a property he wanted to own, he would negotiate a cash price at a "wholesale" price way below true value. Then he really got cracking. Once he'd gotten a purchase contract signed, he'd SYNDICATE the transaction with all-cash investors who knew a good deal when they saw one. Naturally, he dealt with real estate investors on his house, boaters on his boat, etc. He offered ONE FIFTH INTEREST IN THE PROPERTY IN RETURN FOR ONE FOURTH THE COST! He kept the remaining fifth for himself along with the right to use the property which he shared with the others. He even rented his personal water front residence for 4/5ths of market rents - which were considerably lower than economic return. But because of his wholesale price, his investors stayed happy with the deal. Excerpted from Jack Miller's Creative Financing eManual. Visit www.CashFlowDepot.com or call (972) 496-4500. Reprinted by Permission. Jack Miller passed away in October 2009. Jack appeared at MREIA meetings and was an international speaker and active investor, specializing in single family houses. He wrote a monthly investment newsletter and conducted seminars on Exchanging, Management, Portfolio Strategies and Options. BEGINNER’S CORNER: BUYING RUNDOWN HOUSES Paint Your Way To Ownership by Fixer Jay DeCima Not long ago a young family asked my advice about investing, not unlike many others who have called me. Bob and Susan said they wanted desperately to get started investing, but didn’t have a nickel to spare. Bob worked full-time and Susan did baby sitting in her home. That way she could earn a little extra money and still take care of her six year old twins. Susan said that their biggest problem was that they couldn’t seem to save any money for a down payment but felt the $850 monthly rent they paid could easily pay a mortgage payment instead. Credit card problems and some heavy debts in their past had been cleared up. Still, banks and mortgage companies were not convinced that they were out of the woods yet and living within their financial means. Seldom do I recommend that buying a house to live in is the best way to begin investing. However, in Bob in Sue’s case, it seemed like the right plan at the time. My idea was to convert the $850 rent payments into something that would build equity. I also knew after listening to them go through several hours of “true confessions” about their past credit problems, they would be in deep doo-doo if they had to borrow from a conventional lender. They still didn’t have “pink slips” for their six year old twins; they were still sending monthly payments to the hospital where the twins were born. (Continued on Next Page) Volume 18 Issue 1 23 of 49 January 2015 (Continued from Previous Page) Bob and Susan were financially committed up to the hilt as far as their present income was concerned. They couldn’t turn up an extra dime if their lives depended on it. I told them to start searching the local newspapers for a seller who might be flexible. Look under the headings FOR SALE, FOR LEASE, FOR TRADE and even FOR RENT. Also, gather up all the freebee booklets with real estate advertising-the kind you find in the paper racks at supermarkets, etc. This includes penny-shoppers and deals on wheels papers which have real estate sections. All are free. I explained to Bob and Susan about the ideal property to look for. I told them to start calling up ads and talking on the phone. There’s no use driving around until we find a seller who shows some interest in what we have to offer. Basically, the strategy we are using is called, “Painting for Down Plan.” Obviously, it’s not just limited to painting. The only limits I know of would be the capabilities of Bob and Sue to fix up the property we find. Painting for Down works as follows. First I estimated that Bob and Sue could afford $700 a month mortgage payments. That’s $150 less than the rent they currently pay. The extra $150 will be needed to fix up any property we find. They $700 will pay off a $125,000 mortgage ant 5.5% amortized for thirty years. Of course, it can pay a bigger mortgage at less interest. We start by looking for a house that is totally rundown. It probably needs painting very badly. The yard looks like the site of a national auto dismantlers convention. If gutters exist, they’re falling off. In general, the property is an ugly mess. We also look for an owner who lives out of town, perhaps recently divorced or recently married, is elderly, has been transferred or has tried and failed at being a landlord. The house can be empty or occupied. You need to learn about market values. Real estate agents or friends can help. I suggest driving around matching up comparable houses and prices in the surrounding neighborhoods. Exactly is not our goal. Being in the ballpark is good enough. When you approximately what the ballpark values are, we need to find an ugly property selling for about $15,000150,000. Seller motivation and the rundown condition determine how weak or how strong your offer needs to be. As you gain experience doing these deals, you’ll look back from time to time wondering if you didn’t give too much away. Don’t harbor thoughts like this for very long. In the overall scheme of things, the “big picture,” paying a few thousand dollars extra won’t hurt you too much. What will hurt you is not going after these deals in the first place. The strategy I’ve outlined above works very well. Obviously there are as many different variations to this technique as your imagination will allow. Once you start making telephone calls and begin talking with potential sellers, you’ll be pleasantly surprised to find out how creative you really are. For example, I’ve done transactions where my full down payment was a ski boat or an old pick-up truck. There are many ways to acquire real estate besides using hard cash. For folks like Bob and Susan, it’s tough to beat this start-out plan. Buying a property with no up-front cash and painting your way to ownership makes very good sense. Reprinted by Permission. The author, known to many as “Fixer Jay,” is a seasoned real estate investor with more than forty years of hands-on experience. Nearly half of the time has been devoted to his specialty: fixing up run down houses and adding value. Over fifteen years ago, Jay began teaching others about his moneymaking strategies at seminars and at his popular house fixer camps, in Redding, CA. Visit www.fixerjay.com Volume 18 Issue 1 24 of 49 January 2015 FINANCING No Money? Here’s Twelve Ways To Buy Property With Nothing Down by Phyllis Rockower Nothing down does not always mean no cash to the seller. Here are 12 creative ways to buy for cash with no cash out of your pocket. 1. Find the deal, tie it up with a contract containing a weasel clause and assign your rights under contract to another investor for cash. 2. Find the deal, tie it up, and get a partner to put up the money. You do all the work and you and your partner share 50/50. 3. Find the deal, tie it up, arrange for a long closing, find a buyer, and do a simultaneous closing. 4. Find the deal and then use your credit cards to pull the cash needed for the down payment and fix ups. (Get a Home Depot credit card for repairs.) 5. Find motivated sellers with no equity. They will give you the keys. Find someone to take over your deal for a few thousand. People who don’t have to qualify will pay 10% more than market to get a house. 6. Find a motivated seller with a free and clear property. Trade your fix up skills for the down payment and get the owner to hold the balance. 7. Find a motivated seller with a free and clear property who needs some but not all cash. Borrow the money needed for the down payment from a hard money lender. Most hard money lenders will lend you 50% loan to value with no credit or qualifying. Make the owner accept a second mortgage for the balance. Be sure not to mention interest unless they do. 8. Find a motivated seller who has a house in need of fix up and is behind on credit card payments. Instead of giving the seller cash, offer to pay off the credit cards. You can then negotiate a discount on these amounts. Use your credit cards to pay off these debts. 9. Find out what the seller needs the money for. It may be something you can charge on your credit cards. 10. Control the property with a lease/option: Sublease the property to cover the payments and then sell your option or do a simultaneous closing. 11. If you have to put up a down payment, and the owner is holding the mortgage, call the money “advance payments.” That way you won’t have to come out of pocket for a while. 12. Get a straight option from the seller at a discounted price or great terms and then re-sell. Tell the sellers that they can even list with a Realtor®; just exclude you from the listing agreement. Do you get the message that you need a MOTIVATED seller? Usually this creativity will not work with a realtor. You need to deal with the homeowners directly. Anyone have any other ideas I have not thought of? The author is the President and Founder of REIC of LA. Reprinted by Permission from the R.E.I.C. of L.A. News. March 2013. Published by the Real Estate Investors Club of Los Angeles. Phone: 310-792-6404 Visit www.realestateclubla.com Volume 18 Issue 1 25 of 49 January 2015 BEGINNER’S CORNER Oftentimes No Is The Right Answer by Bill Cook January 28, 2010 Today’s real estate market is turned on its ear. Nothing is like it was three years ago. In 2006, I had to knock on A LOT of sellers’ doors to find someone wanting to sell their house under the terms and conditions I needed in order to make the deal work. Today, about 75% of the sellers I meet with are willing to just give me their house! Take yesterday for example: I met with a seller who literally begged me to take her house. She said she’d give it to me if I’d just take over her mortgage payments. She needed to immediately sell to avoid foreclosure. If you are a new real estate investor, this may sound like an incredible deal that needs to be jumped all over. But a word of warning from an old, baldheaded, grey-haired guy who has been around the block. Sometimes the best deals you do are the deals you don’t do. This is worth repeating: Some of the best deals you do are the deals you don’t do! Burn this into your skull. It will save you a lot of time, heartache and money. (Ask me how I know!) In the same light, I’m reminded of something Jack Miller (God rest his wise soul) said: Bill, when you’re looking at a deal, oftentimes No is the right answer. Each week, I get phone calls from investors who are in deep dookie. Most are in trouble because they did a deal that they shouldn’t have done. As we discuss their deal from the beginning, they quickly see that the deal was cancer from the start and was one from which they should have walked away. Why do most real estate investors, including myself, get into bad deals? Here are a few of the reasons: I think experienced investors get cocky and lazy. If we do fifteen good deals in a row, we think: I’m a real estate god who can do no wrong! Wanna bet? New investors often get stuck in a bad deal because they don’t know any better. Instead of partnering up with a been-there-and-done-that investor to guide them, they say to themselves: I’m not splitting my profit with old soand-so. I can do this without any help! Wanna bet? All investors come across sellers who tear at the heart strings. The seller is in a bind which is not of their own making. The seller needs her house gone right now! Even though the investor knows he should pass on the deal, he buys it anyway because his pride tells him he’s good enough to make the deal work. Wanna bet? As you meet with a seller, be sure to carefully analyze the deal. In this market, it needs to be an absolute grand slam of a deal. If it’s not, it’s better to let it pass. Bill and Kim Cook live in Adairsville, Georgia and have been successfully investing in real estate since 1995. They’ve been writing their weekly real estate investing newspaper column since 2003. Reprinted by Permission. Copyright © 2004-2014 BiggerPockets Inc. All Rights Reserved. Volume 18 Issue 1 26 of 49 January 2015 CONTRACTORS How To Pay Your Contractor by Kevin Smith I get a lot of phone calls from investors every week, and I am happy to help whenever I can. Usually it is a question about how to do something or how something is supposed to look if it is done right, or how to go about doing something. When you are new to the real estate business, you need all the help you can get. If it is a question about inspections, or rehabs, or construction on single-family housing, I can usually come up with the answer or tell you who to call to find out. One thing I can’t do is to get your money back for you after you have paid someone who does not do the work you paid him for. That is the toughest phone call to take, because the options you have in that situation are so few and so weak that you really don’t have much chance of prevailing. Investors call me and tell me that they have paid the guy several thousands of dollars, and then the guy disappears and the investor can’t find them. Another frequent complaint is that the contractor did some work, and the investor just paid him without inspecting the work. Another situation is that the contractor asked for money and the investor did not have the expertise to know whether the work was done right or done completely, and did not find out until the house was inspected by the buyer just prior to closing. This is how investors become former investors. This is how investors lose their hard earned money, this is how you learn to reach into your refrigerator to pay for the rehab (that’s another way of saying that it is coming out of your pocket instead of the house paying for it). When the investor tells me one of these stories the only thing I can do for him at this point is to tell him that he is talking to the wrong Mr. Smith. He needs to be talking to James Robert Smith, attorney at law. Those are tough lessons to learn. What if there was a way for you to become more knowledgeable about how to pay contractors so that you could greatly reduce the risk of doing the wrong thing? Would you make yourself available for that information? Would you turn your brain on for that? Well, press on, gentle reader help is not on the way, help is here. Contractors can be paid in several ways for the work they do, but the most common method is to request a draw. A draw is a payment made for a part of the work done under an agreement. If you have done the homework of putting together a scope and budget for the project, then you and the contractor already know when he will get paid and what he has to do to get paid. It works like this: the contractor and the investor decide what is to be done, and how much is to be paid for the work. The next step is one that a lot of people either leave out, or do poorly, and they wind up paying for the way they handled it. The next thing you do after you decide what is going to be done and how much to pay is how the money is going to be paid out. It is important to come to an agreement about how much money is going to be paid and under what circumstances. This is one of the most important things you will ever learn to do as an investor. Do this right and you will have a sane experience with your contractors; do it wrong and you will have a miserable time and probably lose money while you are doing it. The easiest way to set up a payment schedule is by identifying milestones in the project and paying when these milestones are reached. This is done by creating the scope and budget for the project. A scope and budget is a line item list of everything you will be doing to the house, and a cost to cure or complete the item right next to it. Examples of milestones would be the roof is complete and the trash and nails have been picked up, or the exterior carpentry has been totally completed, or the exterior has been painted, or the appliances have all been installed and are operating, or the carpet and vinyl is installed and the job is cleaned up. (Continued on Next Page) Volume 18 Issue 1 27 of 49 January 2015 (Continued from Previous Page) These are examples of completion draws, some phase of the work has been completed satisfactorily and so the money can be paid out. The other kind of draw is called a partial payment draw, and it is basically a percentage draw. A partial payment draw is done on a by guess and by gosh basis because the contractor needs money to pay the men on Friday. It means that you get to try and figure out how much of a certain type of work has been done, and what part of the whole job that constitutes so you can pay the contractor and keep his men on the job. Fun? You bet, but it gets even better. What do you do next week when it’s time for the contractor to put his hand out again? Well, you get to figure out what he did last week that you already paid him for. Then you get to figure out what else has been done in the meantime. Have you figured out which type of draw is my favorite yet? I always recommend the completion draw, and that’s because I have been on both kinds of these draw payment for years and years. Decide what the milestones are for your project, assign the proper dollar figure agreed upon by you and the contractor, and give a copy to the contractor. Tell him that he has to plan his work to get paid in time to pay his men. Make sure you tell him that you are dying to write him a check for the whole job, and that you can’t wait until all the work is done so that you can do that. If materials are involved, decide who is going to pay for what and when the money will change hands and how, if you are going to reimburse the contractor for materials he purchased for your job. I prefer to have the contractor get all the materials and roll it into the job price. The majority of contractors I have met are not smart enough to jack up the prices on materials; heck, most of them are not smart enough to figure in the time it takes to go to Home Depot every day to get the materials. That’s why they are fixing houses and you are buying houses. Get the picture? Keep talking to each other. It is the most important thing you and the contractor will do. Make sure he always understands that you are ready to pay him when the work has been completed. Do not let the contractor tell you a sad story about how his truck broke down, or how it’s Thursday and he has no money to pay the guys on Friday. That’s why you tell him up front about how the payment is to be made, and make sure you tell him that there are no exceptions. Make exceptions and you will watch your control over the project erode before your very eyes. When the contractor asks you to come over and pay him for work he says is completed, make sure you get over there in a timely manner. There’s no “net 30” billing in make ready construction. These guys live from hand to mouth, and some weeks their hands don’t make it to their mouths. Please be prompt in responding to their call for payment. When you get out there to pay him, make sure you look the work over carefully. Look it all over, look every bit of it over. If there are things that are operable, operate them. Run the dishwasher, check to be sure the water heater is lit and producing hot water, check all light fixtures and outlets, run the ceiling fans on high speed to make sure they aren’t wobbling. Determine for certain you are getting what you are about to pay for. The contractor will respect you for it and will think that you are being fair. Look to make sure that the whole job is done, that includes clean up. Tell the contractor you expect the place to be cleaned up and all construction trash be removed before payment is made. Tell him his mom called and said she missed her bus, so he will have to sweep up the mess himself before he gets paid. When it comes time to make the final payment, plan on spending some extra time looking the job over. Once the contractor has been paid, your ability to get him back to fix something you both overlooked is distinctly limited. Make sure you are getting what you paid for. Check the job often during the time the work is being done. It is easy to correct something when you catch it early, and difficult after you have put sheetrock, trim and paint on top of it. Get used to checking the work every two or three days. Don’t go longer than three days between visits; the job can get ahead of you and away from you. There isn’t room or time in this article to teach you all you need to know about keeping control of your job, but hopefully the information you have read here will make you a smarter investor and a better project manager. Keep talking with your contractor and keep making sure that you both stay on the same page concerning the project. Reprinted by Permission. The author, of Forward Assist, has conducted "Mr. Fixit" workshops, and served on the Realty Investment Club of Houston Board of Directors as “The Enricher” Newsletter Editor for three years. He shares his treasure chest of secrets with anyone who asks. You can reach him at (713) 858-1330 Volume 18 Issue 1 28 of 49 January 2015 DEALMAKING Deal of the Month-June 2014 by Augie Byllott The property owners of a really nice house in Winter Springs contacted Dawn Reed in response to one of her letters. The sellers desperately wanted to move to Arizona. This was 2010 and Dawn was my student, a relatively new investor. We discussed her options with this deal and here are the results. Using excellent transaction engineering skills, acquired in the PACT Program, she negotiated a purchase price of $118,000. The sellers were asking $125,000, which was the market value. The price wasn’t the genius of this transaction; it was the terms. Dawn learned the sellers’ needs and motivations. They wanted to sell quickly and move to Arizona where they already had another home. She negotiated effectively and the sellers accepted her offer of $118,000 with $5,000 cash paid to them at closing. Dawn would then take over the monthly payments on the 10 years remaining on the 15-year mortgage; this was the key to the deal. The mortgage balance was $103,000 with a monthly payment of $1,103 (P & I). The sellers also agreed to hold a $10,000 promissory note for the balance due to them. The property would be placed into a Land Trust and Dawn’ s LLC would acquire the beneficial interest in the Land Trust. Dawn got it under contract; now all she needed was the money to close the deal, about $8,000. She approached my wife, Audrey, an equity partner and split the profits 50/50. It sounded like a good medium to long-term investment even though there wasn’t much equity at the time. This is one of those transactions where the deal actually produces the cash over time. Average investors most likely wouldn’t do a deal like this because they wouldn’t know where to find the profit. Each monthly mortgage payment was retiring close to $600 in principal and that amount would rise every month. Audrey agreed to provide the funds but not as a loan or equity partner. Instead, her IRA purchased an option to buy a 50% undivided interest sometime in the future. This allowed all of the cash flow and tax benefits to go to Dawn. The value of the option increased over time and instead of exercising her option to purchase an interest, her IRA simply sold the option at closing. This way Audrey’s IRA had no income (or taxes owed). Dawn, who was managing the property, would receive all of the income and Audrey ‘s IRA would simply benefit from the two A’s of real estate, Amortization and Appreciation. The result is that after a number of tenants and tenant buyers, one finally qualified for their mortgage and purchased the property for $180,000. During the four years of ownership, Dawn collected option fees and rental income that covered repairs, management, maintenance, taxes and insurance. It also paid off the note held by the sellers. In spite of the fact that the underlying financing had a relatively high payment, she still managed to net about $4,000 after all expenses. This was hers to keep, plus half of the profit on a deal in which she had no personal money invested. Audrey’s IRA was able to simply sell her option at closing and, after recovering her initial investment of $8,000, the ladies split a profit of $84,000. The return for the IRA was 46.7% tax-free over the four year period and Dawn’s profit qualifies for long-term capital gains currently at 15%. All I can say is, congratulations ladies! Augie Byllott is a Lifetime member of CFRI and leads the Investment Techniques Focus Group and Osceola Chapter. He is also a CFRI Success Team member and has been coaching investors since 2006. Reprinted Courtesy of the Central Florida Realty Investors. Visit www.CFRI.net From the July 2014 issue of the CFRI Newsletter. Volume 18 Issue 1 29 of 49 January 2015 FINDING DEALS How To Determine If A Seller Is Not Motivated by Jason Hanson October 19, 2009 I recently got off the phone with a seller. The deal involved a property in a neighborhood I really like. There was decent cash flow ($200) and this was the bread and butter type of deal I like to close. I didn't get the deal. One of the funny things about this business is how sellers will appear motivated at first and then when you talk to them the next time their story completely changes. Well, with this particular deal I was trying to buy the property subject-to. I want to show you how I try and "close" a seller and how I know when it's time to give up. When you first talk to a seller you build rapport and ask questions you need regarding the property (I began talking with this person after my assistant found out the initial information about the property). Once you've received all of the information you need, you present your offer to the seller. If a seller is truly motivated, he will take it immediately. However, on this particular call the guy informed me that he didn't want to be on the hook for the loan and he would try and rent his property himself. I then proceeded to re-explain all of the benefits of working with me such as he would have guaranteed payments for the next five years and he wouldn't have to worry about vacancies or any tenant hassles at all. After I explained all of this, he still wasn't interested. Do you know how to tell if a person is at least slightly motivated? If they ask questions! Every time I explained all of the benefits of working with me, the guy didn't ask any questions or care at all. If he were even a little bit interested he would have at least asked me a few questions-questions are "good" and this is when your sales skills and scripts come into play. However, if you're dealing with an unmotivated seller it doesn't matter if you're the best salesperson in the world, because he doesn't want what you're selling. Anyway, after I explained to him the benefits of selling to me-about three different times-he did not even ask one question. I knew there was no deal to be had. However, I'm still going to follow up with the guy in 30 days because time always increases motivation. And remember, you can't force a deal. I know we all want deals badly but if they aren't interested there is nothing we can do. So as soon as you figure out someone is not motivated, get rid of them and move on to the next person. Reprinted by Permission. Jason R. Hanson is the founder of National Real Estate Investor Month, author of "How to Build a Real Estate Empire" and mentor to students all across America. Call 800-865-1702 or visit http://www.PrimoCoach.com . Copyright © 2004-2014 BiggerPockets Inc. All Rights Reserved. Volume 18 Issue 1 30 of 49 January 2015 HOME INSPECTIONS How To Conduct A Thorough Pre-Buy Property Inspection by Thomas J. Lucier When making an offer to buy any type of property, include a clause in your purchase agreement that makes your offer contingent upon the property passing inspection. You must do this in order to avoid being bamboozled by an unscrupulous owner surreptitiously masking a property's major defects. Who should inspect your property for major defects depends upon how much construction knowledge and experience you have. If you lack the necessary knowledge and experience, you should hire a retired tradesmen or professional property inspector to snoop around and inspect the property for major defects that some owners will try and hide. Conduct a search on the Internet to obtain the names of certified or licensed property inspectors in your area. If you know what you're doing, you can do your own property inspections. That's what I do when I need to have a property inspected. I simply make an appointment with the owner and show up at the property in my old coveralls with my high-powered searchlight, trusty ice pick, binoculars, extension ladder, mini-tape recorder and inspection checklists, and inspect the property for: 1. Structural roof damage. 2. Sinking and cracking foundations. 3. Mold contamination. 4. Structural termite damage. 5. Structural dry rot damage. 6. Water and moisture intrusion. 7. Collapsed water and sewer lines. 8. Stripped mechanical systems and missing electrical wiring. 9. Missing roofing material, gutters and down spouts. 10. Rotting wood. 11. Signs of termite infestation. 12. Electrical, fire and safety hazards. Inspect Suspicious Properties For Environmental Contamination In order to avoid buying a potential toxic waste dump, have suspicious properties inspected for various types of environmental contamination that could make a property uninhabitable and render it worthless. By a suspicious property, I mean a property that has been used to house businesses such as gas stations, dry cleaners, automobile repair shops and other businesses that use petroleum, products, cleaning solvents and hazardous chemicals. I recommend that you hire a reputable company to perform a phase one environmental audit on any property you suspect has been contaminated by some type of environmentally hazardous waste. Even if you don't suspect that a property has any type of environmental contamination, use the phase one environmental audit checklist below to conduct your own inspections: (Continued on Next Page) Volume 18 Issue 1 31 of 49 January 2015 (Continued from Previous Page) Sample Phase One Environmental Audit Checklist When conducting a phase one environmental audit, the inspector: 1. Examines the property's chain of ownership for the past fifty years. 2. Interviews the current and available past owners of the property to determine if any present or past uses of the property would have an adverse affect upon the environment. 3. Reviews available past city cross-reference street directories to determine how the property was previously used. 4. Reviews available topographic maps of the property. 5. Reviews available historical aerial photographs of the property. 6. Reviews available geological reports affecting the property. 7. Researches local, state and federal government files for records of environmental problems affecting the property. 8. Researches local, state and federal government files for records of environmental problems affecting adjacent properties. 9. Conducts an on site inspection of the property for obvious signs of past or present environmental problems such as odors, soil staining, stress vegetation or evidence of dumping or burial. 10. Determines the existence and condition of above ground storage tanks. 11. Determines the existence and condition of underground storage tanks. Housing Built Before 1978 May Pose Potential Lead-Based Paint Hazards. The Residential Lead-Based Paint Hazard Reduction Act requires that all sales agreements to sell residential property built before 1978 contain a Seller's Lead-Based Paint Disclosure Statement that discloses whether or not the property has been inspected for lead-based paint hazards, and if lead-based paint hazards have been found on the property. Use HUD's Minimum Property Standards For Housing Handbook. HUD Handbook, 4910.01 R01, Minimum Property Standards For Housing, is an excellent property inspection resource that can be ordered online from the HUD Direct Distribution System for free by logging onto the HUD Direct Distribution System. Always Best To Do A Walk Through Inspection With The Seller. I always insist on the seller giving me a walk-through tour of any property I may be interested in prior to starting any negotiations to buy the property. The reason I want the seller to show me the property is so that I can study the seller's facial expressions and tone of voice as I ever so gently point out needed repairs. Here's what I do. First off, I show up for my prearranged property tour right on schedule. I come with my clipboard, flashlight, ice pick, inspection checklists, binoculars and calculator. I do this to show the seller that I am a serious buyer, while I use these tools of the trade to determine the property's physical condition while doing a rough cost estimate for needed repairs at the same time. When I notice some obvious structural defect or needed repair, I immediately bring it to the seller's attention with a comment like, "how long has this crack been in the ceiling?" Most sellers will respond with something like, "Oh my, this is the first time that I've noticed it." Sure it is! In other instances, I'll just point and shake my head or make comments to myself like "hmm" or "oh boy!" But I never insult the property owner. I just want them to know that I see exactly what is being offered for sale. The reason I conduct the inspection in this manner is to begin to dampen any expectation the seller may have about receiving their initial full asking price. Reprinted by Permission. Thomas J. Lucier is the author of “The Florida Landlord's Manual” and “The Florida Landlord's Eviction Manual,” which are available for purchase at www.floridalandlord.com Volume 18 Issue 1 32 of 49 January 2015 LANDLORDING: LATE FEES What Do I Do When The Tenant Won't Pay The Late Fees? by John Nuzzolese Have you ever had a tenant who pays the rent late, but always ignores the late fee? How about when you repeatedly send late fee notices? Are those notices ignored too? Don't you just hate that? You are not alone. I know the feeling. Many, many landlords experience this frustration. Because the tenant pays the rent, though late, most landlords are willing to let it slide. You may be tempted to look the other way, reasoning that the tenant isn't so bad. "At least the rent is getting paid", you might think. Why rock the boat, right? "At least I'm not dealing with an eviction... yet." You might also be thinking that you can collect these unpaid charges from the security deposit. Depending on the particular situation, that might be an excellent idea. You may be able to stall the inevitable, but sooner or later, things are going to come to a head. Eventually, late charges will accumulate to a level higher than the security deposit. Is there a better way? The LPA Lease provides that late charges are classified as "added rent", which means you may legally collect those late fees in all the same ways you are allowed to collect rent, because "added rent" is rent. In light of the fact that we have "Added Rent" explained in our lease, we have also updated the lease to include another hard hitting sentence. Copy and paste this into your lease if you don't already have the most recently updated copy of The LPA Lease. Late charges, attorney's fees and any expenses related to the enforcement of this lease shall be classified as "additional rent" or "added rent". Lease violation penalty fees shall be classified as additional rent. This additional rent is payable as rent, together with the next monthly rent due. If tenant fails to pay additional rent on time, Owner shall have the same rights against tenant as if it were a failure to pay rent. Owner may elect to apply monies received towards past due added rent, paying the oldest charges first. What does this mean? It means that you have the right to apply the tenant's next payment towards past due unpaid late fees. If you choose to apply your tenant's current rent payment towards past due balances, keep in mind that this action will obviously offset the current month's rent to a deficiency. The amount of the past due charges will determine how far delinquent the tenant's current rent will now be. With that in mind, you may decide not to pay off the full amount of past due charges in one shot, but over a few months. Once you have paid past due charges out of the latest rent payment, you should inform the tenant of exactly how the rent was applied and what the balance now due is. I have done this using the Account Status Notification or the Rent Deficiency Notice . This method of late fee collection can be a delicate one if your intention is to preserve the tenancy. It can also be a propellant to an eviction, since most judges will be far more apt to evict for unpaid rent rather than unpaid late fees. Reprinted by Permission Copyright © 2008 - 2014 The Landlord Protection Agency, Inc. All Rights Reserved. Visit www.thelpa.com, email [email protected] or call (516) 483-4785 Volume 18 Issue 1 33 of 49 January 2015 LANDLORDING: MARKETING Quick Tips For Showing Your Rental by John Nuzzolese Being unprepared can cost you a good rental deal, so here are a few tips on being prepared for your appointments: These simple reminders may sound obvious, but are very often overlooked in the frenzy of daily activity. • • • • • Remember the keys! In the excitement of having an appointment, it is amazing and how many people meet tenants at the rental only to realize they forgot the keys! It can be an embarrassing waste of time. Have a supply of rental applications with instruction on how to submit the completed application unless it is submitted on the spot. You may also decide to have business cards, flyers or other handouts for the prospect. Remember to bring the prospects’ information and phone # with you in case you need to contact them in the event of delay or the prospect's lateness. It is a good idea to have a notepad for you to take notes and a supply of pens with you for applicants. Bring your cell phone. Not only for safety, but also in case of delays or other business reasons, such as checking with your office to reassure the applicant that the unit is still available. What other things can you use on an appointment? Copyright © 2000-2015 The Landlord Protection Agency, Inc. All Rights Reserved. Reprinted by Permission. Visit www.thelpa.com, email [email protected] or call (516) 483-4785 LANDLORDING: OCCUPANCY RULES Connecticut Case Challenges “Two Persons Per Bedroom” Policy The Consent Order agreed to by the parties in a recently settled familial status lawsuit (USA and Emery v Landings Real Estate Group, et al) includes language that prohibits the defendant from "Imposing, maintaining or enforcing an occupancy policy that is more restrictive than the applicable local occupancy code." The defendant, in refusing to rent a two bedroom unit to five persons (a mother with four children) had argued that it was maintaining a legal "two-person-per-bedroom" limit and the family exceeded that limit. For many years private fair housing groups, public and private fair housing trainers and fair housing enforcement agencies have accepted the "two-person-perbedroom" policy unless there was clear evidence that such a policy would be unreasonably restrictive. The Connecticut case was initially filed with, and tested by, the Connecticut Fair Housing Center before referral to HUD and DOJ. The investigation included a review of State of Connecticut and City of Groton fire and occupancy codes, and concluded that in view of "the local and state governmental occupancy restrictions, the occupancy limitation imposed by the Defendant unreasonably limited the ability of families with children to rent the property." Given the high probability that most state and local government occupancy codes will allow for maximum occupancy limits greater than "two-persons-per-bedroom," and the willingness of HUD and DOJ to directly challenge that policy in this case, there is the possibility that there will be an increase in the number of challenges to the "two-person-per-bedroom" policy. Congratulations to our friends at the Connecticut Fair Housing Center for successfully pursuing this case and for securing a $40,000 settlement for the plaintiff, Kandi Emery. Reprinted from Fair Housing News, Feb 2013 Volume 18 Issue 1 34 of 49 January 2015 LANDLORDING: FORMS Agreement To Hold House [Reserve Deposit] Property: ________________________________________________________________________________ Applicant (s): _____________________________________________________________________________ Date: ___________________________________________________________________________________ The above applicant(s) agrees to give a deposit of $_____________________ to reserve the sole right to rent the residence at the above address to be held by the owner for a period of_____________________________ days. This deposit will go toward the security deposit if the application of the applicant(s) is accepted. On ____________________________, 20 __ , the applicant(s) agrees to move in and pay the remaining balance of the security deposit $_______________ and rent due of $_______________ for a total amount to be paid of $_________________. If the application of the applicant(s) is not accepted, the deposit will be fully refunded less the daily rental rate for the above property from the time the deposit: is given. If the application is accepted, but the applicant changes his/her mind, refuses to rent the residence or is unable to pay the amount due at time of move-in, the deposit given on this date is not refundable. The applicant(s) will then be held accountable for days the residence was held and for additional advertising costs and preparation required to re-rent the dwelling. __________________________________________ Applicant ___________________________________________ Owner __________________________________________ Applicant Reprinted Courtesy of the Genessee Landlords Association. Visit www.genesseelandlordassoc.org or call (810) 767-3080 Source: GLA Newsletter, June 2014 Volume 18 Issue 1 35 of 49 January 2015 LANDLORDING: OFFERING RENTAL INCENTIVES Keep Property Values Steady Author Unknown It appears that because of today's financial crunch, local landlords are wondering how to keep their property values steady and keep vacancy rates low. In order to do this, now may be the time to consider rental incentives. Most people think of rental incentives as reduced rent. Offering a rental rate which is lower than the market rate for a specified amount of time is one, way of doing it. But there are several other forms of incentives a landlord could choose: Landlords may offer a moving allowance to get new tenants to move in. Tenant improvement projects such as decorative lighting fixtures, new carpet, paint, garbage disposal, etc. may entice existing tenants to stay. Another incentive could be amenity upgrades such as parking or storage for free or a lower rate for a fixed period of time. A landlord may choose any kind of incentive to offer. No one method is the best. It depends on the market and the property. The landlord has to decide which incentive will best suit his situation. One thing to think about when choosing to offer rental incentives is they don't have to be exclusive to new tenants. Many landlords, by only offering new tenants incentives, leave existing tenants feeling bitter about renting the same type of unit and not receiving anything. Keeping existing tenants is just as important as finding new tenants. Rental incentives to keep a good tenant could be money well spent considering the cost to "turn" a unit, including lost income while the unit is vacant, and the risk of accepting a new tenant. Consider having a $1,000/ month unit sit vacant for six weeks, versus offering a rental incentive to keep a tenant in that unit for a year. One rental incentive RHA would not recommend is reducing the security deposit. If you reduce the security deposit and the tenant does damage to the unit, recovering the amount of the damage may be next to impossible even if you choose to go to court. Incentives offered to applicants should be provided carefully because they can raise fair housing issues. The Fair Housing Act does not make rent incentives illegal, but it does prohibit leasing to people on different terms or conditions based on their race, color, sex, religion, national origin, disability, or familial status. Using rent incentives on an individual basis raises the probability that two people could view the same apartment home on the same day, yet be quoted two different rental rates. Anytime a policy results in two similarly situated people being treated differently, it raises Fair Housing Act implications. So be sure to apply the incentives consistently. The rental incentive should be in writing and part of the lease, usually as an addendum. An incentive addendum should specify the term for which your incentive lasts, and specify that the tenant will have to pay back the discount received should the tenant break the lease. Include a statement that rent incentives will not be applied in any way that will discriminate against people on the basis of their race, color, religion, sex, national origin, familial status, disability, or any other characteristic protected by law. The last thing to remember about incentives is they come and they go. Just because you decided to currently offer a incentive it does not guarantee that same deal in the future or each time a tenant renews a lease. Reprinted by Permission. Courtesy of the Rental Housing Association of Puget Sound. From the February 2009 issue of “Update.” Visit www.rha-ps.com Volume 18 Issue 1 36 of 49 January 2015 LANDLORDING: PROPERTY MANAGEMENT Are You Cut Out for This? by Robert L. Cain August 1, 2008 Andy owns 25 rental properties and manages them all himself. That is his full-time job. He checks out several every week, responds to tenant issues and complaints, and meticulously maintains his investments. He enjoys dealing with his properties, does well dealing with his tenants (most of the time) and realizes that owning investment real estate is a hands-on investment. The Property Owners and Managers Survey conducted by the US Census Bureau found that 53 percent of rental owners either would not or were not sure if they would buy their properties again. Although the survey did not ask why they would not, one complaint that I see and hear over and over is that the property owner is having trouble with management issues, that is, being a landlord. Owning the properties is just fine; it’s probably the hands-on part that results in people saying they would not buy again. Investing in real estate, if done intelligently, is a safe, profitable investment. I have been doing it for over 25 years and have always made money on the properties my wife and I have bought. However, we have a different philosophy and mental make-up than Andy does. We don’t like the phone calls, we don’t like dealing with tenant hassles, and we don’t like working on properties. So we don’t do any of those; we have someone else do it. Andy has the qualities that make him cut out to be a landlord and not just a rental property owner. Not every owner of investment property has those. I have come up with three that will give you an idea about how well you will managing rental property. So are you cut out to be a landlord? Answer the following questions. There are no right or wrong answers. They will be individual to you. Question One: Do you deal with people well? Some landlords are pushovers while others have little or no tolerance for tenant shenanigans, or in fact, anything out of the ordinary. The best landlords are somewhere in the middle. Whenever you deal with people, if you expect to be effective, you have to let some things slide. Knowing what, when and how much to let slide is the key. About the only way you can learn that is by both having the right temperament and a consistent method for dealing with issues. If you believe everything your tenants tell you, you will have problems. If you won’t tolerate anything outside your “system,” you will also have problems. Andy isn’t the most agreeable person in the world, but he is good enough, and his tenants know him and what to expect from him. Question Two: Do you enjoy phone calls at all hours? Count on phone calls coming on a Friday evening before a holiday weekend when you are ready to leave the house for a well-earned rest. And the problem the tenant will be having is one that cannot be put off until next week. If you don’t mind dealing with those calls, or if you can get someone to substitute for you when you want to be gone, you are cut out to be a landlord. Andy doesn’t like the calls, but he doesn’t get very many of them, since he maintains and inspects his properties regularly. (Continued on Next Page) Volume 18 Issue 1 37 of 49 January 2015 (Continued from Previous Page) Question Three: Do you live close to your properties? If you live within 15 or 20 minutes of all your properties, taking care of problems that come up is relatively easy. If you live an hour or more away, dealing with repairs and contractors is a profit killer. If you live three states away, forget it. You aren’t cut out to be a landlord. Oh, you can be a rental owner, but you are in no position to manage your properties effectively. The state of Arizona, for example, recognizes that fact in its landlord-tenant law, requiring any rental owner who lives more than 150 miles from his or her property to hire a professional manager. If you answered “no” to one or more of these questions, you are not cut out to be a landlord. That doesn’t mean you can’t be a successful real estate investor, it just means that you won’t do yourself, your investments, or your tenants any favors by managing your properties yourself. Instead you would do all concerned a favor by hiring someone who is able to effectively manage rental property. The cost will be an actual savings when you factor in the loss of good tenants, damage to your investments and deferred maintenance that come with hands-off management. Owning rental real estate is a hands-on investment; it just doesn’t have to be your hands that are on it. Reprinted by Permission. Copyright 2008 Cain Publications, Inc. Robert Cain is a nationally-recognized speaker and writer on property management and real estate issues. For a free of the Rental Property Reporter call 800-654-5456 or visit www.rentalprop.com. LANDLORDING: FINDING TENANTS Apartment Management In Difficult Times by Bruce Kahn Doesn’t it just seem like yesterday we were all concerned that the arrival of 2000 would wreak havoc with our computers and our banking systems. What a difference ten years makes. We did end up in trouble however it turned out to be man-made, not a computer glitch. Yes, we have all gone back and kicked ourselves for not doing something different with our investments. We should have sold, we should have been in cash we should have done (a million things). As bad and as painful as this last year was, there is a lot that we can learn from it. In economic investing, it’s perhaps paying more attention to our investment portfolios. In commercial real estate it’s rethinking leverage. Over the long term, our lessons will help us. More importantly, what can we do in the short term? I would like to suggest that we all take as step back and create a new year’s resolution for our properties. A good start: how we can put our best foot forward when it comes to our buildings and rental units. Let’s start with the outside of the building. Are the plants and landscaping done to give the exterior the best possible look? As a professional property manager, I spend most of my time driving looking at different buildings. Much to my wife’s horror, I typically am looking left or right at the buildings instead of straight ahead. I am always surprised at how many buildings are languishing without any exterior foliage, or if there is, how often it is left unkempt. How about the “for rent sign?” Is it professionally done or is it a $ 4.50 sign purchased from the hardware store? If you are using an A board, is it fresh and looking good or is it scratched, dented, and barely legible? One of the worst, which I see all the time is a board that has another number pasted over the original one. If management can’t keep up a small sign, how do you think they are doing in the rest of the building? I’ll say it once… “First impressions are VERY important”. (Continued on Next Page) Volume 18 Issue 1 38 of 49 January 2015 (Continued from Previous Page) Try acting as a prospective renter. When you come in the front door, are the hallways clean? When you look at the common areas such as the laundry room, is it swept? More often than not, I find that area is one that is disregarded by owners. Is it well lit? Think about it. How much time do your tenants spend in that area? From my rental days, it is a lot. I’ll say it twice… “First impressions are VERY important.” I spend a lot of time visiting different properties that we do not manage to keep my fingers on the local market. I am absolutely shocked how often I am shown a unit that is not “RENT READY.” The unit has been partially painted but is not finished, the blinds are bent or missing, the stove and floors are dirty, or one of the biggest sins, the lights are inoperable because the bulbs have not been replaced. I always ask about it and I always get the same answer… “Oh, we are still working on it.” How many tenants are lost because of a bad first impression? OK, third and last time… “First impressions are “VERY important!” One last issue I would like to touch on and perhaps the most important is the on-site manager or in many cases, you, the owner. As professional managers and owners, we are always doing rental comparables. I cannot tell you how many messages (perhaps 40% or more) go unanswered by the managers. Sometimes we will call and leave a second or third message. All go unanswered. I am not surprised to see the same “for rent” sign stay there for the same unit, often times for several months. Yes, 2011 was tough. I believe 2012 will be better. The rental market is tough and will remain so. It is imperative that building owners or management keep their properties looking sharp and the person responsible for leasing on the ball. You would not sell a car without washing and polishing it, so why treat your rental unit any differently? The results may surprise you and your properties bottom line will certainly be enhanced. We would be glad to walk through your property and give you or comments or suggestions. In any case, put putting your best foot forward a new year’s resolution when it comes to your rental properties. You will be glad you did! Reprinted by Permission. Bruce Kahn, CCIM, CPM is a Managing Director of The Foundation Group Real Estate Services, a full service investment property management and brokerage company located in Seattle, Washington. He holds the designation of CCIM (Certified Commercial Investment Member) issued by the Commercial Investment Real Estate Institute, and CPM (Certified Property Manager) with IREM (Institute of Real Estate Management). Bruce has been active as an investor and real estate professional for over twenty five years. For further information or for a property analysis, email [email protected] , call 206-324-9424 or visit www.seattlepropertymanagement.org MREIA is Looking for Vendors that could provide any of the following: Home Cleaning Landscaping & Lawn Care Home Improvements All Vendors Must Be Licensed and Insured. Volume 18 Issue 1 39 of 49 January 2015 LANDLORDING: MANAGEMENT IDEAS Management Tips From MrLandlord.com [From a Mr.Landlord.com contributor] I work for the military (civilian) and there is a website that the military use when they are relocated. In many cases, the Dept of Defense pays the landlord direct. It is called AHRN.com and it stands for Automated Housing Rental Network. You can post for free on the network. If you want to get the rental registered with the local military installations, you can call them and get registered with the relocation personnel who help military men and women find suitable housing. I am going through the Department of Defense (DoD) in Michigan. I am having my house walked through by the housing relocation personnel -- it adds a positive review among those that are not. Check it out! This is how I discovered the program and how it has worked for me: Two years ago I took a job in Williamsburg, VA. I called AHRN in Michigan and got absolutely zero results! I ended up coming back to Michigan for lots of reasons (namely, my mother was dying and my job required 24/7 travel 350 days a year). My mother was more important than my new job. In June, I accepted a job with the Dept of Defense (DoD) in Texas. There aren't many jobs in Michigan. I had to go to nearest military installation to get fingerprinted. While I was at the military base, I mentioned something about wanting to rent my house. The person taking my prints told me to hang on a minute. He came back with a woman that works with military and DoD relocation. She gave me the "details." I told her my info was on AHRN but nothing happened. She told me that property managers/landlords have to renew the listing every 30 days even though it is on the site. She also put me in touch with her co-worker who handles transfers. I chose to have my house "inspected" because it offers QA to potential residents. During my advertisement, I am going to add a blurb that says "military and DoD house inspected by ...." so other government (non-DoD) personnel see this. It's another advertisement tag-line. One other landlord shared his experience with AHRN.com. As a retired military guy and landlord who has used AHRN for about five years. It is like any other marketing website in that sometimes you get great residents and sometimes you don't. The quality of your renter still depends on how "well" YOU screen them. Military folks may get a paycheck regularly; however, they may also not pay rent (unless they are on an autopay plan) and/or damage the property. When I've rented to military, the inspections and direct rent payment is coordinated through the base housing referral office. Six Ways to Speed Up Turnover Time After a resident moves out (or evicted) you don't want a property sitting empty for a long time for several reasons. So here are six ways to reduce your turnover time: 1) You MUST put aside a portion of your received rents each month so that when the time comes you do have cash to hire the labor. Most businesses call this "retained earnings," but you can just think of it as your maintenance fund. 2) Do quarterly or semi-annual inspections to make sure the residents are not destroying the place so that there is not as much work to do at time of turnover. 3) Find good, reliable contractors and have them lined up IN ADVANCE. This is essential for doing quick turnovers when there is a bunch of work to be done. (Continued on Next Page) Volume 18 Issue 1 40 of 49 January 2015 (Continued from Previous Page) Nine Uses of Smart Phones for Landlords MrLandlord.com Editor's Note: A regular contributor to MrLandlord.com shared the following ways in which he uses his smart phone to aide in his rental business. We thought you may find this helpful by encouraging you in ways to maximize the use of YOUR smart phone with your rentals. 1. Snap a copy of the driver's license for my applicants then e-mail it to myself for record keeping. 2. Use the mobile banking app to check balance, deposit checks, transfer funds, and pay bills. 3. Check Facebook for a prospect. 4. Do online checking for credit/background on prospects. 5. Check e-mails from tenants. 6. Check out Craigslist for other landlords in the area with the same type of rentals. 7. Use the note pad app to write down a quick note. 8. Of course, use the phone address book to screen out unwanted calls. 9. Check out the local MLS listing for possible new purchases. 10. Bonus Tips from Two other Landlords: The Mr.Landlord Q&A forum is now mobile friendly! Try it out (to receiving landlording advice on-the-go). 11. You can even run credit checks right on the spot with applicants! Reprinted by Permission. The above tips are shared by regular website contributors to the popular MrLandlord.com Q and A forum. To receive a free sample of Mr. Landlord newsletter, call 1-800-950-2250 or visit their informative Q&A Forum at LandlordingAdvice.com, where you can ask landlording questions and seek the advice of other rental owners 24 hours a day. Volume 18 Issue 1 41 of 49 January 2015 LANDLORDING: TENANT SCREENING Take Advantage Of Application Fees Author Unknown Application fees have the additional advantage of being "self-weeding" of bad tenants. Tenants who know they will be rejected usually won't apply to rent from you if they know they will lose their application fee. If all the risk is on you, many times they will just go ahead and fill out a rental application, replete with lies, half-truths, and omissions. But, if they have to risk their own money, they may just go on to the next landlord; the one who won't be so careful to whom he rents. If you do collect an application fee you are either legally or ethically (depending on whether your state has passed a law about it yet) required to do the following: 1. Tell them what you are going to check. 2. Inform them of their rights to dispute any information you uncover. (You don't have to wait for the disputed information to he resolved. You can go ahead and rent to someone with no black marks on his or her credit report.) 3. Tell them the name of the screening service or credit reporting agency. 4. Even if you don't charge an application fee, but you reject them as tenants because of information you received from a credit agency or tenant screening service, tell the applicant that you rejected them because of the information you received, and give them the name and address of the service or agency. 5. You need not tell applicants the specific results of the credit report or screening report, only that it caused you to reject them. They need to contact the Agency for the specifics. You can, however, give them a copy of their "consumer report," as defined in the Fair Credit Reporting Act. 6. Do not charge a fee unless you actually have a unit available to rent at that moment or expect one within a reasonable length of time. 7. If you charge an application fee, but never screen the applicant, give the money back "within a reasonable time." Write all this out as an agreement and receipt that they and you will sign when they pay you the application fee. Reprinted courtesy of The Landlords Of Johnson County, Kansas. July 2010. Visit www.jocolandlords.org Volume 18 Issue 1 42 of 49 January 2015 Vendor/Sponsor Table of Contents Accounting Services Samuel S. Fisher Financing Services Residential Home Funding Home Staging Stage 2 Style PG Construction & Renovations 45 911 Restoration – David Oknin Telecommunications No Current Vendors Energy Services No Current Vendors 46 Home Buyers No Current Vendors Home Inspections No Current Vendors 45 Insurance/IRA No Current Vendors Internet/Computer Services No Current Vendors Investment Services No Current Vendors Pest Control Services Pest Plus Pest Elimination PG n/a Legal Services Fein Such Law, Harry Fieland, Esq. 44 Real Estate Agencies No Current Vendors Member Discounts 45 Kiuken Brothers Ricciardi Brothers Paints & Supplies PC Richard & Sons Sherwin-Williams: Paints & Supplies PG 48 48 47 45 Residential Screening No Current Vendors Title Agencies No Current Vendors Our Vendors & Sponsors support us and help us maintain our low membership dues. Please contact them first when you need a product or service. DECEMBER 2014 NEW AND RENEWING MEMBERS Couper, Eric Frankiewicz, John Kramer, Alan Marzarella, Ray Volume 18 Issue 1 Pepe, William Reynolds, Sam 43 of 49 January 2015 Volume 18 Issue 1 44 of 49 January 2015 Do We Have Your Correct Email Address?? In order to ensure that you, as a MREIA Member are Receiving Our Emails. MREIA periodically Sends an Email with a Link to click on when you receive the email. Thank you so much, MREIA Board Members Harry Frieland, Esq. This advertising Space Fein Such Law Group www.FEINSUCH.com Is Reserved For A New Vendor Member Email Address: [email protected] Samuel S. Fisher & Associates Certified Public Accountants, LLC 100 Bayard St, Ste 311 New Brunswick, NJ 08901 Tel: (732) 846-1700 Fax: (732) 846-1788 Website: www.samfishercpa.com Volume 18 Issue 1 Mailing Address 7 Century Drive Parsippany, NJ 07054 Telephone Number: (973) 538-4700 ext. 3394 45 of 49 January 2015 For More Information please call Mark Kapsky at: (201) 602-9488 Residential Home Funding 100 Lanidex Plaza, 2nd Floor Parsippany, NJ 07054 Telephone Number: (201) 602-9488 Email Address: [email protected] Volume 18 Issue 1 46 of 49 January 2015 Our 102 Years of New Store Location: Route 70, Brick, NJ PC Richard & Son offers discounts on appliances to MREIA members. Please contact Nick Zampetti at (201) 343-8629 for complete details, or e-mail [email protected] and request additional information. At the MREIA General Meetings there is a Wealth of Information That is worth even more than The cost of Your Membership Volume 18 Issue 1 47 of 49 January 2015 Volume 18 Issue 1 48 of 49 January 2015 Your Board of Directors President Dan Schwartz (201) 791-4639 [email protected] Vice President Murray Kane (973) 476-9528 [email protected] Secretary/Past President Nick Zampetti (201) 343-8629 [email protected] Treasurer Bob Mularz No Tel# Yet [email protected] Editor Dan Schwartz (201) 791-4639 [email protected] Past President Frank Barillari (732) 240-2050 [email protected] Audio/Visual Chair Shy Stan (732) 208-3915 [email protected] Legislative Awareness Chair David Corsi. (732) 923-1410 [email protected] Lending Library Chair Angela Fan (201) 889-9026 [email protected] Meeting Site Chair Nick Zampetti (201) 343-8269 [email protected] Membership Chair Peggy Martini (201) 410-5017 [email protected] Registration Chair Chuck Martini (201) 410-5017 [email protected] Vendor Chair Scott Linde (732) 777-6857 [email protected] About MREIA We are a not-for-profit Real Estate Educational Organization and a member of The National Real Estate Investors Association. The elected and appointed officers are unpaid volunteers. DISCLAIMER We do not render legal, accounting, tax, investment or other professional services either through the Metro or at general meetings. We disclaim all liability for actions (or inactions) taken as a result of any communications between the Board of Directors, appointed officers and the membership. We do not officially endorse any product, project, person or organization. Before making any investment decision, you are urged to seek advice from qualified and competent professionals and to use due diligence before using any product, services or ideas presented in the Metro or at general meetings. At times the Board may take particular positions or points of view on matters regarding the real estate industry. Said positions do not represent solicitations. Our speakers are permitted to sell any products or services they may have to offer our members or guests.. The opinions expressed by the speak- M REIA LEN D IN G LIBRARY D o you enjoy spending hundreds or even thousands of dollars buying real estate books and CD s? Som e courses are valuable to have as a perm anent part of your personal reference library. H owever, not all inform ation available m ay m eet your individual goals. TH EREFO RE, last year we created a Lending Library for your convenience and FREE to all M REIA m em bers. O ur goal is to help educate and to guide you in m any areas of real estate, such as creative financing, negotiating techniques, landlording, renovations, asset protection, etc. To use our library, there are guidelines that you m ust agree to: 1. 2. 3. You m ust be a current M REIA m em ber. O nly one book or m aterials m ay be checked out at a tim e. An item borrowed m ust be returned within thirty days. N on-attendance at the next general m eeting is not an acceptable reason for failure to return the m aterials. If not returned, the book/m aterials loan is considered LATE. Your credit card will thereupon be charged a $15 late fee. 4. If you do not return the item borrowed after two m onths, your credit card will be charged the retail value to replace whatever was borrowed. You will then be the owner of whatever you have not returned. 5. See Angela Fan, Lending Library Chairperson, at a general m eeting. The above guidelines are necessary so that all m em bers will have access to all of the books/m aterial being offered. Volume 18 Issue 1 49 of 49 January 2015
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