What You Need To Know Wednesday!!

How to prepare for the Comeback of Real Estate!!

This last year has been a tough year for real estate investors looking
for ways to cash flow their properties. I've talked to a lot of
business owners or employees who have not yet invested in real estate
and wonder if they've missed out on the real estate rocket. And,
everyone wants to know, "What is the next big thing?" And here is my
radical response: I don't care.

You see, if you have trained yourself to see deals everywhere, know
how to create value where none existed, and have the ability to use
general wealth-building and tax-reduction strategies in
everything--well, if you have those things, you don't need to worry
about what the next big thing is going to be. You can create it.

1. Higher credit score = Lower interest rate
Did you realize that just one little item on your credit score can
bring your credit score down 100 or more points? And that might be
enough to raise your credit score by a point or more.

On an average priced home of $250,000, you could end up paying $61,000
more over the course of a loan. In fact, fix that one little item and
you suddenly have $200 or more each and every month in cash flow on
your property.

2. Make money in real estate and NEVER pay taxes
New laws make it easier than ever to buy and sell real estate through
your pension plan. Did you know that your IRA--or better yet, your
ROTH IRA--can borrow money with an up to 70% loan-to-value?

Consider setting up a RE IRA LLC. This special LLC is manager-managed with you personally acting as a manager. Your pension is the member of the plan. The LLC then writes the checks and makes the deposits. You won't need to run everything through an absentee administrator.

There was a lot of information contained in that last paragraph. It's
all possible, and won't tell you how to go through each step of this
plan that lets you make money and never pay taxes if you have a ROTH
IRA or delay taxes if you use a regular pension plan. Free up the
money in your pension plan and start making some real money with real estate.

3. New tax loophole: Production deduction
No one is talking about this amazing gift that Congress has given
business owners and real estate investors. If you are a
"manufacturer", and the definition is pretty broad, you get a 3%
deduction this year, and it won't cost you a dime. Of course, 3% isn't
a huge number, but it's free!

The definition of manufacturer includes pretty much any company that
takes something and changes it to resell or rent. That means if you
rehab a house, you're a manufacturer and get this new tax loophole. If
your business is involved in construction or engineering, you're
qualify and get the special benefit.

So many ways to accomplish your goals this year in Real Estate!! What
are you going to do?

For any questions, please comment below. For investment services, leave a message at 314-246-9484 or you can email at dhibb99@gmail.com

TUESDAY: TIP OF THE DAY!!!!

House Painting - Quick Real Estate Investing Tips on Painting Houses

Hey everyone! The post today is about painting. Great tips from the REICLUB. Tune in!

GO TO

http://www.youtube.com/watch?v=bfP04pIovpc&feature=youtube_gdata_player

Main question of the day Monday!!!

Hey! Today I'm going to Break down to you all lease options from a sellers point of view.

Most of the time, as real estate investors, we are buy on lease option for a property's cash flow, appreciation potential, or time to get our financing in place. What happens when one of our tenants wants us to option a property to sell to them?

This recently happened with me. I want to share this story with you, so you can see how, as real estate investors, we can sell property by optioning to tenants. Read on as this situation has a unique twist.

My tenant has been in this property three years. This is a nice home in a good family neighborhood 4 bedroom, 3 baths, 3 car garage near schools, shopping, and work. The tenant's credit score is under 600 due to problems with a judgment and bankruptcy.

They came to me and asked if they could buy the property and have me finance the sale for them.

Why I didn't want to carry the financing

Though they have made their rental payments on a timely basis over the last three years, if I were to owner finance the sale, a few things would happen that could put my position in jeopardy.

1. I have a very low interest rate mortgage on the property that is non-assumable. Half pregnant (meaning my loan-to-value (LTV) is well under 50%). I want to keep this mortgage in place and not be in a position of having the loan called. Though most institutions are not policemen, I know of two investors who recently have had the "due on sale" clause called.

2. The tenants payment would go up over $600 per month with ownership versus renting. Based on my due diligence, I was unsure as to whether they could afford that much of an increase each month. Their debt ratio would have been over 40%.

3. I know I could get a sizable option consideration payment, but don't know if they will have the ability to fulfill the contract in the time allotted.

I sat down with my tenants and told them that I would be willing to sell the property to them under an option agreement. This is a separate agreement from my lease for two reasons.

Why an option was better

1. As many of you know, I have a unique lease. I did not want that lease altered in any way, because it does a good job of protecting my rights and enforces items that are not standard in a typical lease.

2. My tenants want to finish the basement. That major job had to be addressed. We did so in the option agreement.

A unique option clause

We had our attorney draw up a clause that no work would be done without our written approval, the contractor would have to provide copies of their license and worker's compensation insurance covering any workers on the job, as well as the tenants proof of financing the job to completion.

In other words, they have to have the money to finish the job. NO MONEY, NO BASEMENT FINISH. Plus they have to post the following notice on the premises:

NOTICE

Notice is hereby given that the owner of the within premises has not ordered any construction or reconstruction or improvements on these premises; and the owner's interest in the premises shall NOT be subject to any lien on account of any construction, alteration, removal, addition, repair of other improvements to the premises.

Yes, this is attorney language.

Why would we go through this effort? Because we don't want a half finished basement! The tenant wants to finish the basement. We will only allow this if they have the money and it is done by a professional contractor.

Since I have no idea when they can come up with the money, which may not happen until after they exercise their option, IF they exercise their option, there is no way I want to be unprotected.

A large option consideration

My tenants put up a considerable sum for the option consideration. They feel if they don't exercise the option within the time period allowed, which is one year with a renewable second year, they would look at the consideration payment as an increase in rent.

Obviously, if they do not exercise the option, I keep the money and have the right to draw up a new option with them if I desire. I keep the same tenant for two more years, and I have options if they don't fulfill their agreement.

We all win

This is a property that I can live with or without, so it is a good one for me to option. If they exercise the option, I will trade my interest in this property for another. Beside the option payment, I am getting an inflated price for the sale of the property. I feel we all win.

If my tenants get conventional financing, I get to trade up; if they don't, I get to renew the option with them or just continue to rent the property, and finally the mortgage will be paid down to the point of a very low LTV with a short time left on the mortgage. Plus, since my entity still owns the property, I could borrow against it should I ever need to.

That said, if you ever decide to option a property make sure your option agreement meets your needs. It is easier to explain to the tenant what is needed, since you are in the power position at the time, then to have someone else dictate their rules to you!

For any questions, please comment below. For investment services, leave a message at 314-246-9484 or you can email at dhibb99@gmail.com

Fact Friday!!!!

If you had the chance to start over again, knowing what you know now, what would you do differently the second time around? This question cuts to the core of the essential lessons of a lifetime of real estate investing. Here is my six-part answer to this question.

Realize it is never about the property.

One of the biggest misconceptions about real estate investing is that the most critical thing is the property itself--its condition and location. The truth is that these considerations are secondary to the motivation of the seller.

If the seller is NOT motivated, then no matter what the condition or the location of the property you still are not going to get a great deal.

But if you have a motivated seller, then you have a great chance of turning a handsome profit no matter what the condition or location. When this really sinks in, it revolutionizes how you prioritize your search for finding great deals. No longer do you waste time on due diligence and inspecting the house UNTIL you have made sure you've found a motivated sellers.

Finding this motivated seller becomes the most important activity you can ever engage in. This is what you must focus your time, efforts, and creativity on. This also means that the highest leverage activity you have is to be sitting face-to-face with a motivated seller.

Don't allow non-motivated sellers to waste a minute more of your time listing off the wonderful features of their homes. You don't care about the house until you've established the seller is motivated.

Understand if you never ask, you'll never get.

When I got started investing in real estate I was scared to death to actually make offers to sellers. The root was my fear of them rejecting me and my offer. In my mind, the two were one and the same.

Over time I came to realize that this one mistake kept me from making offers that, in retrospect, I feel the sellers would have accepted. This cost me hundreds of thousands of dollars in lost profits.

Today I see other investors falling for this same trap. Sometimes it is the disbelief that a sellers would ever accept a no money down offer. Or walking away with a promise to "get back with them" (rather than making the offer on the spot). The cost is the same.

The most important lesson I learned is that NOT asking is an automatic no, and asking isn't as painful as I'd imagined. Over the years I've asked for and gotten everything from extensions on the term of a seller carry back, to money for a repair, to free appliances.

Always maintain "walk away" power.

The common denominator for all the borderline deals I've bought, flipped, or lease optioned is that at some point in the negotiation, I crossed over to the point where I felt I "had to" do the deal.

If ever you hear yourself saying these words, even if it is merely to yourself, push back you chair, get up from the negotiating table, and walk away.

I'm serious about this. If the deal is that good, a small break while you take a moment by yourself won't stop the deal. And by taking this time you might just keep your ego and your emotions from pushing you to make a deal that means lots of work and risk for little real profit.

I'd put $3,000 into a house to fix it up and then find it needed a $2,000 repair I didn't know about. So I would spend $2,000, so I wouldn't lose the $3,000, only to find out? You get the idea here.

Beware this slippery slope and know when to cut your losses. Remember, good deals are like buses--if you miss one, another one comes along before too long.

Beware of the "rehab" trap.

Have you ever caught the bug? "Fabulous wealth can be yours if you buy junkers and turn them into palaces." There are millions to be made in rehab projects, but before you dive into this type of investing, you need to do some serious soul searching. Rehabs aren't right for everyone.

I've discovered that rehabs aren't for me. In my opinion, they take too much up-front money, too much energy to complete, and too much time to turn them. The first causes too much risk; the second cuts into your efforts to find more deals; and the third eats into your cash flow and turns you into a motivated seller!

I've come up with rule that I follow: If it needs more than minor cosmetic work, flip the deal to another party. I want to make it clear here that this is my personal bias and that many investors love rehabbing properties and are well paid for it. It's is just not for me.

If you are going to rehab make sure you listen to the following rules:

Don't overpay for the property. Build a LARGE profit in by buying right.

Make sure you factor in ALL the real costs, not just the financial costs to rehab a property.

This means you must factor in the TIME cost to do or oversee the project. You must factor in the EMOTIONAL cost of having to do the work, having so much of your money on the line, etc. Finally, factor in the OPPORTUNITY cost of having your cash, time, and attention tied up for the duration of the project.

Reprogram your beliefs about self worth and money.

Collecting money from a buyer can cause you to confront deeply-hidden pitfalls from your past about self-worth and what it means to be wealthy. This might be hard to accept, but in my opinion it's one of the biggest road blocks to making a fortune in real estate. I've gone through this myself.

On one level or another, I didn't feel good enough about myself to think it was okay for me to make that much money with so little effort. My beliefs about money and what it meant to be "rich" made making money a dirty thing for me.

On some of the first properties I sold, I was uncomfortable to even collect an application fee from prospective tenant buyers.

It took years to clear out this garbage and get comfortable with the wealth that flowed into my life. My mentor, Carl Hampton was instrumental. He was a great role model for a down-to-earth, ethical millionaire.

Who do you know that can be this kind of positive role model for yourself? Spend as much time with these people as possible.

Gather as many positive references of people using money for good purposes as possible. This will help you reprogram your beliefs about what you can do when you have money.

Read biographies about billionaire philanthropists like George Soros and Ted Turner who have literally given away BILLIONS of dollars to worthy causes. Tithe 10% (or some percentage) of your profits to groups you want to support. This lesson deserves your attention and honest self-evaluation.

You'll never know it all, but you can learn enough

I was probably just like you when you got started investing. I kept learning more and more, but never felt like I knew enough. Then one day I realized when a person really knows enough?

It's not when you know it all because you'll never it know it all.

It's not when you know all the legal aspects and contract clauses.

You know enough when you step out and take action, acknowledging that you'll never know it all. This leap of faith is the final ingredient of success.

For any questions, please comment below. For investment services, leave a message at 314-246-9484 or you can email at dhibb99@gmail.com

Do it yourself Thursday!!!

DIY Projects and Home Repair

Check out the three Do it Yourself tips you can do in your home today!

GO TO

http://www.youtube.com/watch?v=QeS_XpY_K60&feature=youtube_gdata_player

What you Need To Know Wednesday!

How to not Lose on Lease Option!

When you are buying a house on a lease option, you must protect

yourself from paying your rent payment to the seller, but him not

paying the lender.

The single best way to protect yourself is for you to pay your payment

directly to the LENDER so that you are certain that the payments are

kept current. Many sellers will be okay with this, although many

sellers won't.

Pay the lender directly

Whenever possible, this is how I handle my own lease option

properties. Currently for about 30% of my houses I pay the lender

directly.

In many cases, I started off paying the seller directly, but after a

little bit of time had passed, and I built up trust in the

relationship, I ask the sellers if I can just send the payment to the

lender directly.

Note: One very powerful way I build trust in the relationship is that

I pay my sellers EARLY! I mail checks out on the 25th of each month.

You would be amazed at how this small gesture impacts your

relationship with the seller.

Option two is for you to set up an escrow account you pay your monthly

payments into, and for this escrow company to pay the lender each

month (and notifying the seller and you that they have done so.)

I don't use this method because it's too complicated for my thinking.

Variations on this theme are to send the seller a check made payable

to the lender in the amount of the mortgage payment with a

pre-addressed and stamped envelope to let the seller quickly forward

the check on to the lender.

This allows the seller to feel confident that the payments are coming

in, and lets you know that the payment has been made (by checking to

see if the check has cleared.) Instead, if I can't pay the lender

directly, I simply pay the seller and let them pay the lender. How do

I know the payments are being made?

I get the seller to sign two specific documents up front (in addition

to the performance mortgage or deed of trust and all the other closing

paperwork we escrow on the front end of any lease option deal.)

Document one: Authorization to Release Information

This gives me the ability to talk with the lender about any of their

loans. I can even check every few months that the payments are current

by calling into the lender's touch tone phone hotline and entering in

the seller's loan number and social security number!

Document two: Authorization for Direct Payments

This gives me the right to pay any third party that is owed money by

the seller that the seller hasn't paid who could place a lien on the

property, and to count this money as money paid by me to the seller

under my lease option agreement. This includes mortgage payments,

property tax payments, etc.

Here's part of the agreement we use when buying on a lease option. See

if you can find the powerful incentive we give the seller to make sure

he does in fact make his payments with the money we send him:

"If the mortgage payments, property taxes, association fees, insurance

premiums, or other property payments on __________________________

ever go into arrears, then ________________________________ (Landlord)

hereby gives_______________________________ (Tenant) or his/her/its

assigns or heirs the right to make payments directly to the lender or

other party who is owed payment on Landlord's behalf.

These payments sent directly to the lender or these other parties by

the Tenant shall be considered as rent (or other money due) received

by Landlord from Tenant for compliance of Residential Lease Purchase

Agreement between these parties dated _________________.

To adequately compensate the Tenant for the additional risk incurred

by making such payments of additional rents and costs, for every one

dollar ($1) paid to lender or other parties to make up late payment(s)

and/or fee, premiums, etc., three dollars ($3) shall be credited off

the option price stated in the Residential Lease Purchase Agreement of

December __________________.

Once these payments/fees are made current, Tenant may make his or her

payments directly to the Lender and other parties for the remainder of

the lease period state in the Residential Lease Purchase Agreement

dated on ______________ between _____________________________ (Tenant)

and ____________________________ (Landlord).

These continuing payments sent directly to the lender or these other

parties shall be considered as rent (or other money due) received by

Landlord for compliance of Residential Lease Purchase Agreement

between these parties dated on ___________________, but shall not be

credited with the three for one credit detailed above."

For any questions, please comment below. For investment services, leave a message at 314-246-9484 ror you can email at dhibb99@gmail.com

Tip Of the day Tuesday!!!

Banking Secrets & Advice : How to get Financing for Buying a Home

Go to:

http://www.youtube.com/watch?v=m2kOV4UNzSo&feature=youtube_gdata_player