Rich Dad Education – Real Estate Blog

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Quick Start Guide to Investing – Part 2: Power Team and Making Offers

 

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There are 8 steps beginning investors should take to get their real estate investing activities off to a quick start with a minimum of heartache:

      1. Understanding Real Estate Cycles
      2. Identifying the Key Indicators in Your Market
      3. Building Your Power Team
      4. Making Offers
      5. Finding Financing Sources for Your Deals
      6. Implementing Finding Strategies
      7. Understanding Exit Strategies
      8. Constantly Learning and Mastering Your Craft

 

Last time, we talked about the first two. Today, we’ll be discussing Steps 3 and 4.

 Step 3 – Building Your Power Team

Real estate is not a business where you can achieve success all by yourself. You are going to need to have a team that can help you with various aspects of the process.

At a minimum, you are going to need a real estate agent, a lender, and a title company or real estate attorney. These people can help you take a deal from start to finish and so it is important to have them in place as soon as possible. This is a huge key to getting started.

When you have a great real estate agent, they can save you time by only bringing you properties that fit the type(s) you’re looking for.

A good lender will be able to get you into deals that you wouldn’t have thought possible. It may take awhile to find the right lender; but when you do, the returns that they can give you can be exponential.

There are other people that you can add to your power team as your career progresses. This would include people like accountants, attorneys, contractors, property managers, inspectors etc. The important thing to keep in mind is that team building is a constant activity.

Step 4 – Making Offers

Another key step in getting started quickly is to actually make offers. This is one of the biggest items that set apart successful investors from the rest of the group.

During our Rich Dad Education trainings, we instruct you on the proper way to make offers. Follow those guidelines because they are designed to protect you as you make offers. You want to put yourself in a position where you have everything to gain and very little to lose.

By Mark Justice

Rich Dad® Education Elite Training Mentor

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Mobile Home Investing 101: The Forgotten but Profitable Investment

Rich Dad Education Real Estate

Mobile home investing typically happens one of two ways. You invest in mobile homes attached to your own land, OR you invest in mobile homes that are on someone else’s land (typically the land rented in someone else’s mobile home park).  Today, let’s talk about mobile homes located on rented land.

First of all, there are no closing costs. In many states, owning a mobile home is very similar to owning a car or a truck.   For us as investors, that can mean no title insurance, no real estate taxes or insurance prorations, no fees, no surveys, and no doc stamps or other costs that typically come with home ownership.

Mobile homes located on rented land, such as mobile home parks, do not close at a title company or attorney’s office.  You can close “traditionally.” I even encourage that in some cases, but you can save those dollars once you understand the process for your area.   As I mentioned, mobile homes in parks are considered “personal property;” and for that reason, it may be as simple as buying or selling an automobile, boat or lawnmower.

The second reason to invest in mobile homes is you have built in bird dogs and lead generation. At the start of my mobile home investing career, I was almost too embarrassed to tell people I was investing in mobile homes.  I really thought that my investor friends were sure to scoff and think I had lost my mind.  What really happened?  No one scoffed. Well, maybe a few did at first; but for the most part, my fellow investors were happy for me. They were happy because now, they could do something with all the mobile home leads that had been stacking up for months. They could bring them to me. Investors were bringing me done deals or great new leads on a silver platter every day.  It still is amazing to me no one seemed to know what to do with “ready to go” mobile home leads that came to them from their regular marketing efforts.

The other “built-in bird dog” resource is the park residents themselves.  Once you start visiting the parks, you will be amazed at the people who will simply strike up a conversation.  They will begin telling you not only their business, but everyone else’s as well.    If you are willing to take the time to listen and ask good questions, those conversations often lead to additional inventory, information about market needs and motivated sellers and buyers.

Next reason, avoid the crowds. When I started getting leads and looking at homes listed at $1000, $3000 or even “FREE…MUST BE MOVED,” I really thought that my calls would be answered with “It already sold.”  To my delighted surprise, approximately 9 out of every 10 homes hadn’t been sold and the sellers were desperate to play “Let’s Make a Deal.”  I remember to this day the voices of anxious mobile home sellers telling me how other investors wouldn’t even talk to them because they had a mobile home or how interested buyers were asking for owner financing and the seller didn’t understand the concept and didn’t feel equipped to handle that situation.

The fourth reason is low dollar deals…REALLY! This is the reason I started buying mobile homes. I didn’t have cash or credit when I started. Mobile homes in parks can be VERY inexpensive. I have gotten many complete homes (appliances included) 100% FREE in terms of purchase price.

With mobile homes, you start with initial investment capital of hundreds of dollars, not thousands. This also helps if you are hung up by a “fear of loss” factor.   Although none of us like the idea of losing money, committing a $1,000 “uh-oh” (what we call that the cost of “real world education”) is a lot easier to recover from than a $100,000 catastrophe!

The final reason: going, going, gone! What’s that you say? “Good luck selling a mobile home and making money in this market!” It true selling a used mobile home in a park for “all cash” could be difficult in many markets today. The fact is not many mobile home buyers have $5,000 to $80,000 lying around. But there is a world full of serious buyers ready to own their own home.

Our target buyers have had some credit challenges in the past and may not be bank approved; but they DO have a clean record, savings account and good job history. Plus, they have $2,000 to $5,000 cash for a down payment and the ability to make monthly payments. In my experience, they make the ideal customer; and being able to create a home ownership opportunity for someone that thinks they can never own (or never own again) is AWESOME!

Those are just a few of the many reasons that mobile home investing can be easy and extremely lucrative. I hope to see you in the Rich Dad Education Mobile Home Elite Training, so you can discover more of the profitable approaches to investing in mobile home units and parks. And so, like I did, you can go from skeptic to motivated!

By Jonathan Dugger

Rich Dad® Education Elite Training Mentor

Quick Start Guide to Investing – Part 1: Real Estate Cycles and Key Indicators

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Many real estate investors when they are just beginning are overwhelmed. The one thing they know for sure is that they want to take control of their financial future. However, once the decision to take your financial future into your own hands has been made, what should you do next?

This post is the first in a four part series that will address the fastest way to get started as a real estate investor. This quick start guide will outline the absolutely critical steps in establishing your investing career. They are:

  1. Understanding Real Estate Cycles
  2. Identifying the Key Indicators in Your Market
  3. Building Your Power Team
  4. Making Offers
  5. Finding Financing Sources for Your Deals
  6. Implementing Finding Strategies
  7. Understanding Exit Strategies
  8. Constantly Learning and Mastering Your Craft

Today, we’ll deal with the first two.

Step 1 – Understanding Real Estate Cycles

The reason that we put this step first is that you are going into investing blind without an understanding of how real estate cycles work.

You must understand how the real estate cycle changes and the variables that cause it to change. You must also understand how financing changes as the cycle shifts. In addition, different investing techniques will work better than others under certain market conditions.

While there are undeniable national trends in real estate, local market conditions can vary greatly from location to location. You must spend the time getting to know the specific real estate market where you want to invest or you will not be properly prepared.

When you have the information about real estate cycles and how they function, you can begin to lay out a game plan for investing. You will know what strategies are likely to be best for your market.

Step 2 – Identifying the Key Indicators in Your Market

This step is very closely linked with Step 1. In order for you to truly understand what is happening in your market, there are some statistics you need to examine.

These include:

  •  Jobs Coming In
  • Occupancy Rate
  • Rent Incentives
  • New Units Permitted
  • Inventory for Sale
  • Average Days on Market

Since supply (homes for sale/for rent) and demand (people coming into the area) are the factors that push the cycle from one stage to the next, you want to monitor these indicators closely.

By staying in touch with these statistics, you will see changes coming instead of being blindsided by them after they have happened.

Next time, we’ll talk about building your power team and making offers.

 

By Mark Justice

Rich Dad® Education Elite Training Mentor

Using Net Operating Income (NOI) to Make Smart Investment Decisions

Rich Dad Education Real Estate

As investors, our worst nightmare is to over pay for a piece of real estate. If you have attended my training, you may recall I have stressed several times that after a real estate closing, no one cares about you including the broker. This is why I have stressed on the importance of understanding value and the proper use of Net Operating Income (NOI) when valuing real estate.

When calculated correctly, NOI is essential to establishing purchase price, financing and a future sale price for any investment property. This can be established by calculating the acquisition cap rate and disposition cap rate and understanding debt service coverage ratio. This will be discussed more thoroughly in future blogs. Now take a moment and ask yourself, “Do investment properties appreciate in the same manner that single family properties do?”  The answer is NO. Single family and two family homes will appreciate through the effects of supply and demand as well as the absorption of the market during that specific period of time.

Here is an example that will help you better understand the effect that NOI has on appreciation.  Tom purchased a strip mall four years ago with the NOI at $50,000. Today, the NOI has stayed constant at $50,000. Did the appreciation of the building increase, decrease or stay the same throughout the years?

The correct answer is it would stay the same. Let’s recall, if your income levels do not increase on the building, which can be accomplished by raising the price of rent and keeping the expenses in control, the building will not appreciate. That’s why we project future value, so we can hit our benchmarks every year. Keep in mind, you are not only buying the building; you are also buying the income stream that the building generates.

When you are in the market for an investment property, the seller or listing broker will provide you with a pro-forma. A pro-forma is a detailed description of all income and expenses on that specific property. So let’s be smart. Before using those numbers to calculate a final purchase price, ask yourself, “Where did those numbers come from?”

Keep in mind; they come from the person who is trying to sell you their building. That’s why NOIs are sometimes called “liars’ statements.” Before accepting the NOI, we must thoroughly examine the pro-forma using sound due diligence. That will give us a better indication of what is really behind the numbers. In other words, this process can be described as reconstructing the pro-forma. This is our way to understand how we are going to own and manage our investments. Keep in mind; typically, no two investors will own and manage the building the same way.

NOI is the remaining income after all expenses have been paid excluding the debt service. I have provided a simple formula below that will help you better understand the calculations:

Potential Rental Income 

Vacancy and Credit Losses

= Effective Retail Income

+ Other Income

=Gross Operating Income

Operating Expenses

= Net Operating Income (NOI)

Once you have fully understood and acknowledged the importance of NOI, valuing real estate becomes that much easier. In doing so, you will be able to make smarter decisions while cutting the time spent on deals that aren’t favorable.

Throughout our income property training,  we explore and provide many ways to value real estate  through the use of NOI. Stay tuned for more helpful tips.

By Jim Aviza

Rich Dad® Education Elite Training Mentor

Building a Power Team For Your Investments

Rich Dad Education Real Estate

We’ve all heard the old saying, “There’s no ‘I’ in team.” Well, there’s no “I” in success, either.

Many times after you finish a Rich Dad Education training session, you feel you have received an overwhelming amount of material. Your feelings are understandable. You are being fed information through a large pipeline, not a tiny garden hose.

Power team to the rescue!

With Rich Dad Education, you are not alone.  Your Rich Dad Education team is here to show you how to digest your gigantic “elephant” of information one bite at a time. Our job as trainers, coaches and mentors is to give you expert guidance that allows you to multi-task, set up efficient processes, reduce stress, make more money and finally, breathe.

Some of us deal with stress and feeling overwhelmed better than others. Some are simply better at hiding it.  Having the right power team and delegating tasks to them are the most important parts of becoming successful as an entrepreneur. The key is to delegate as many things as possible to others, especially those tasks that we hate or are just not good at doing.

Below is a list of places to meet power team members that can help you reduce and eliminate the feeling of being overwhelmed.  You will need some of these members immediately and some you can add later. Keep in mind; it is never too late to start building the strongest team possible.  Also remember for some tasks you really should have professional expertise.

  • The Rich Dad Education: Our team can answer many of the questions you may have.  So take advantage of
    • Elite Trainers
    • Coaches
    • Mentors
    • Other students
  • REIA (Real Estate Investment Associations):  If you haven’t been to your local REIA yet or you are not sure where to find a list of available groups, a good place to start is www.Nationalreia.com.

When you visit the website for an REIA in your area, look for a “Vendors” section, page or tab. That’s where you can begin your search for power team members. If they don’t have a vendor section, you will need to contact the president or a member of the REIA. Ask them, “If you were me and needed a (fill in the blank – contractor, locksmith, mortgage broker, hard/private money lender, attorney, CPA, etc) to help on one of your properties, who would you contact?”

  • Other Investors: Adding other investors to your power team can be very important. You will be able to find them in many places: REIAs, Craigslist, online meet-up groups, Facebook, cash buyers lists, etc.  You can benefit from interacting with other investors that are doing this business on a daily basis. Make sure you ask where they are buying and what buying criteria they use for that specific market.  You can also inquire about which exit strategy or strategies they use most.  Make sure you network with other Rich Dad Education students.  They are like-minded individuals that can help you achieve success.
  • Family and Friends:  Before you hire a family or friend to work for you, think about what might happen if you have to fire them.  Many times family and friends don’t think like employees, and it can complicate your personal relationships. That said, many of our students have found family and friends to be useful when employed as birddogs (people that finds properties for you).
  • Referrals: One team member can lead you to others. Any time you are discussing business with a potential team member, ask who they use for whatever particular task you may need a team member to do. For example, if I’m speaking to an attorney, the first thing I want to know is if they re an investor themselves. If they are, then I can ask them to recommend other teams members I may need

When you find a great team member, they may be able to help you build an entire team. Be patient. You may have to interview 20 people to find one that fits on your team.

Jobs for Your Power Team:

  • “Drive for dollars” (driving an area, collecting addresses of boarded and vacant houses.)
  • Research properties
  • Walk-through properties
  • Place Craigslist ads

Above all, be realistic. Expect that you will fire one out of every three or four power team members every year. Some people will drop the ball on multiple occasions, and you cannot be afraid of firing them. This doesn’t mean burn bridges. There is always a good way of letting people go.  But let’s reserve that topic for a future blog post.

By Travis Howard

Rich Dad® Education Elite Training Mentor

 

For more information on similar topics visit:

http://blog.richdadeducation.com/2013/12/14/networking-for-an-event

http://blog.richdadeducation.com/2013/11/27/interviewing-potential-partners

http://blog.richdadeducation.com/2013/08/13/real-estate-deals

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