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My First Real Estate Investing Deal And What You Can Learn From It
By David Neese
Every real estate investing deal is an opportunity for both profit and education. Well my first deal was a good combination of both. When I decided I wanted to get involved in real estate investing it took me eight months to decide to do my first deal.This particular deal came as a result of networking in my local real estate investor group. A local Memphis investor found a deal on a 3 bedroom, 2 bathroom home in a moderate to lower income area where people still like to buy homes. This was a wholesale deal for the other investor and he assigned his contract to me to close on the deal. I was buying the property for $58,000 and $5,000 of that went to the investor for assigning the contract to me and $53,000 went to the seller of the property. I had the cash available so I paid all cash for this deal and for $4,000 in repairs this property needed. The after repaired value of the property was approximately 95k. I had decided I wanted to do a rent to own or lease option deal with this property. I put a yard sign out with property flyers and had links to a website with inside pictures of the property. At the time I was doing this a more experienced investor told me I should try to retail the property and take the quick cash and go on to the next deal. Well as a new investor I wasn’t sure how long it would take for me to find my next good deal so I wanted to get the maximum out of this property. After about a month(and about $800 in ads) I found a tenant I considered suitable and agreed to take
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<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif><STRONG>Wi-Fi around Chicago..</STRONG></FONT></P>
<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif><FONT size=2>The Daley Center between Clark and Dearborn is now (as of September 2003) a wi-fi hot zone. I have not personally connected there, but the word is </FONT><FONT size=2>that the signal around Daley Plaza and Block 37 is strong. Click <A href="http://www.xchicago.com/main/article.php?articleID=413">here</A> for more information. </FONT></FONT></P>
<P><FONT size=2>If you are outside of downtown Chicago,the UPS stores (formerly Mailbox Etc.) will have wi-fi access (for a fee) in mid-September as will many McDonalds (for a fee). <A href="http://www.computerworld.com/mobiletopics/mobile/story/0,10801,80914,00.html">UPS story</A></FONT></P>
<P><FONT size=2></FONT> </P><P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif><STRONG>Truth about Annuities</STRONG></FONT></P>
<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2>Many clients buy annuities. I think it is fair to say that most clients do not understand the annuities and, in many cases, the annuity purchase was an inappropriate choice. In my opininion annuities are appropriate when:</FONT></P>
<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2>1. The client wants to save more for retirement and already puts the maximum in his or her IRA/401k; </FONT></P>
<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2>2. The client is in a high tax bracket and wants to reduce taxes;</FONT></P>
<P><FONT face=Verdana size=2>3. The client won't need the principal for quite a long time and the annuity makes up a small portion of the client's total investments.</FONT></P>
<P><FONT face=Verdana size=2>I have one client who paid no income tax, was 85 years old, had been retired for 20 years and purchased 4 annuities with all of her liquid assets; her only other assets, after the mass annuity purchases, were her condo and a checking account. The annuities were "unsuitable" for her, but were perfect for the annuity salesperson who netted at least $20,000 in commissions.</FONT></P>
<P><FONT face=Verdana><FONT size=2> See the </FONT><A href="http://www.annuitytruth.org/"><FONT size=2>annuity truth</FONT></A><FONT size=2> web site for some interesting reading on annuities and whether one is right for you </FONT></FONT></P><P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2><STRONG>What to Do if Your Mortgage Lender Bails Out on You</STRONG></FONT></P>
<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2>Recently, as interest reates rose and the number of files on their desks exploded to record levels, mortgage companies have bailed out on clients and failed to close. In two cases I am involved in (both of which are new construction) the mortgage companies literally "forgot" about the client. The loans were not ready to close because no one paid attention to the file for months. The other problem is that many lenders are so busy that they can't close by the end of the "lock-in" period. The client is left with a lame promise that the mortgage company will do a "free refinance" later to cure the problem.</FONT></P>
<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2>How can you prevent this? Pick a reputable lender in the first instance; not one from the internet or your brother-in-law who thought he would try out mortgage brokerage. Stay in touch with the lender. If all else fails, file a complaint with the office of banks and real estate. Here is the form to file the complaint:</FONT></P>
<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2> </FONT><A href="http://www.bre.state.il.us/CONSUMER/FORMS/c-Form41.pdf"><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2><a href="http://www.bre.state.il.us/CONSUMER/FORMS/c-Form41.pdf">http://www.bre.state.il.us/CONSUMER/FORMS/c-Form41.pdf</a></FONT></A><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2> </FONT></P>
<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2>It rarely pays to file a lawsuit against the lender. Attorneys fees are cost prohibitive and your damages are hard to prove.</FONT></P>
<P><FONT face=Verdana,Geneva,Arial,Helvetica,Sans-Serif size=2> </FONT></P>
a $2500 option fee plus $875 per month and a sales price of $99,000. If the tenant pays the rent by the first of the month then $100 counts as pay down towards the purchase price. If I had sold the property quickly I may have sold for $89k and paid $5k in selling fees and netted about $20k and would have paid about $7k in taxes on that income. Instead by going after lease option it may take 2-6 years to sell and I should get a $99k or better selling price with much less selling costs and should net about $35k of which about $5k will be taxed as capital gains. The lease option method will net me about double what retailing would have done, however it would have been nice to have access to that cash for doing more deals. I think the $15,000 profit quickly would have been better than $30,000 in a couple of years plus the things I could have done with the $62,000 in cash I put into the property.The tenant I chose has not once in the first nine months paid the rent on time so he hasn’t earned the $100 monthly rent credit, and has on average had to pay an extra $100 each month in late charges. I don’t expect this tenant will be able to refinance, however his job status and income have been going up while he has been in the property, and the current market value is now $105k. The tenants father is a mortgage broker and if I get to the point of evicting the son the father has told me to let him catch up the sons rent before filing for eviction so that part is really in my favor.From a humanitarian perspective I like lease option deals as I am really helping someone who could not rent otherwise. I will only do a lease option to someone I believe is improving their credit and job situation and should be able to buy the house within 24 months. With 12 months of on time payments verified by copies of checks many mortgage brokers can get your tenant financed as a refinance type of deal.In the event the tenant doesn’t buy the property within the first 2 years I can either lease option to another tenant or just try to outright sell the property. Even though the property provides great cash flow I would rather sell it and get a big check and use the cash to go after the next deal.Some things I learned on this deal that you can use: 1. We had a yard sign with flyers in a flyer tube plus links to view pictures on a website. Before we would show the inside of the property we insisted any prospects should view the pictures online first. We ran ads in the major local newspaper and we got 20 times as many calls from the yard sign than we did from the newspaper. However this street had decent traffic, other properties I have are more secluded. Always use a yard sign and flyer box and have pics online with good descriptions and always highlight the kitchen and bathrooms. 2. If I had the deal to do all over again I would have retailed the house and tried to sell it quickly. I could have rolled this deals cash into more and more deals and made much more money. My opinion now is that every investor who isn’t already financially well off needs to go for the quick income first and progress to long term deals second. 3. I probably should have waited a little longer for a stronger tenant. 4. You can not do this type of lease option transaction in Texas now due to some strange laws that got passed in 2005. However I live in Tennessee and we don’t have any anti-investor state wide laws yet. We do have a bad local one related to trash left over from evictions but that is minor in comparison.
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Selling Your Business- Deal Structure And Taxes
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2006-08-07 The purpose of this article is to demonstrate the importance of the tax impact in the sale of your business. As an M&A Read more...
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2006-09-13 Established for real estate barons and tycoons, 1031 exchanges have been around since the 1920s. Named for the IRS code which Read more...
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Commercial Real Estate Michigan
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Commercial real estate listings in Michigan area areavailable for your review and purchase. You canpurchase a commercial site that is alreadyestablished, or you can purchase a commercial lot thatis Read more...
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There is an adage that claims that the only things certain in life are taxes and deaths. One could presume that tax laws are as easily determined and understood as one identifies death. When a person Read more...
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Western citrus leaders anxious to learn from Texas HLB
MaryLou Polek of the California Citrus Research Board concurs with other Western citrus leaders: It is a matter of when ? not if ? citrus greening disease is found in California and Arizona.
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<div class="og_rss_groups"></div>Arizona Agri-Weekly: barley seeding in final stage
Ariozna alfalfa conditions remain mostly fair to good. Harvest continues in a few areas across the state.
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National Cattlemen's Beef Association
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The center of CAFO concern stems from what was referred to as a serious overreach of EPA's authority. NCBA Deputy Environmental Counsel Ashley Lyon said the proposed rule could put the nation's food system at risk of increased terrorist attacks.
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Dryland grain growth and development improved from recent rains. However, crops were irrigated since more precipitation was needed to sustain growth.
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Biotech crops were planted by 16.7 million farmers in 29 countries, up from 15.4 million farmers in the same number of countries in 2010. The global value of biotech seed alone was $13.2 billion in 2011, with the end product of commercial grain from biotech maize, soybean grain and cotton valued at $160 billion or more per year.
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U.S. organic dairy, beef, sheep, goat, and bison producers exporting products to Canada will benefit from more streamlined trade.
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At World Ag Expo 2012, Pavilion D, which is home to beef and livestock exhibitors, seminars, live cattle demonstrations and new for this year, a ranching and livestock competition, is the place to be to see the latest advances in the beef and livestock industries.
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A multi-lateral trade deal among nine Pacific Rim nations including the US has drawn significant attention around the globe. Rod Bain looks at why the Trans-Pacific Partnership could be the next big deal in this edition of "Agriculture USA".
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<span>Audio File: </span>
<div class="filefield-file"><img class="filefield-icon field-icon-audio-mpeg" alt="audio/mpeg icon" src="http://westernfarmpress.com/sites/all/modules/contrib/filefield/icons/audio-x-generic.png" /><a href="http://westernfarmpress.com/site-files/westernfarmpress.com/files/podcast/audio/tpp potential.mp3" type="audio/mpeg; length=4804086">tpp potential.mp3</a></div>
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