Real Estate Investing FAQ (Frequently Asked Questions)

How do I get started investing in real estate?

Education comes first. Developing a good knowledge base is important so that you can determine the best investing strategy for your specific situation. There are a few real estate investing books that I recommend on the recommended reading page. Check out #49 for a list of real estate investing websites.

But, do not make the mistake of thinking you have to know it all before you take any action. True learning takes place when you take what you study and put it into practice.

Finding a real estate investing mentor is a way to fast track your way to success. Learning from an expert’s experience and mistakes can save you a ton of time and money.

What typically holds back beginning real estate investors when getting started?

I’m going to cover the top 2 things that come to mind.

1. Negative Thinking

This covers negative self talk, self limiting beliefs, and accepting negative feedback from others as if it were true. This is the most destructive type of thinking that exists. No matter what vocation you’re interested in, if you want to be successful, this must be addressed. Being optimistic and positive is a standard trait among the top performers in every industry. As a Man Thinketh, by James Allen, is an excellent book on the subject. Also, check out 4 Fundamental Assumptions from Your Real Estate Investment Advisors.

2. Inaction

Bottom line, if you want results, you’ve got to get off your butt and take action. Reading a hundred books on real estate investing and taking some seminars isn’t going to do anything for you unless you put it into practice. I’ve seen too many professional seminar attendees that continue to spend thousands of dollars every few months but still haven’t bought their first deal. That’s ridiculous! Start making phone calls, start your marketing campaign, and go out and make some offers!

What’s the best way to finance a deal?

Deals can be structured in many different ways as a creative real estate investor so having multiple options provides you the best way to finance them.

Start by looking at your own resources (cash, equity, credit, etc.). Determine what assets you may have personally to use in your real estate investments. If you have some cash or good credit, that can definitely aide you in getting started but is not a necessity . . . I started without cash or credit.

The first and easiest lender to get on board on your team will be a hard money lender. They lend based on a property . . . not a person. Bring them a good deal and the financing is waiting. You can most likely find one at a real estate investment club near you.

Partnerships can be a great way to get deals done. There is a limitless number of ways that partnerships can be set up so be as creative as you want. Our first partnership deal was a 75%/25% deal split. The partner provided the financing and got 25% of the net profit once the property was sold. Check out Profiting from Partnerships for more on that.

Recruiting money from private investors can be one of the most profitable and flexible ways to finance your deals. A private investor can be anyone that wants to make a good return on investment from real estate. We did a free no pitch 100% content webinar on recruiting private money about a month ago. If you missed it, click here recruiting private money webinar replay.

Click here for more on real estate investment financing strategies.

How is the current market affecting real estate investors?

It has affected my business mainly by making it more difficult to monetize properties through sales and refinances.  When selling a property, there is a great deal of competition. In my area, there has been a 250% increase of the number of houses on the market compared to 3 years ago. The mortgage industry is still changing so much, who knows what’s in store for us there.

But, with that said, it’s a great time to buy! Anyone that has a lot of cash and/or has the ability to buy and hold properties is in a great position right now! There hasn’t been a better time to buy in many years.

In my opinion, the most important thing you can do right now is to plan for multiple exit strategies. This will insure that you do not put yourself in a tough spot with a house in today’s market.

How do I protect myself when putting a property under contract?

One way is to limit the amount of earnest money that you put down on the contract. We, as investors, rarely put down any more than $500 as an earnest money deposit. We typically put down $100 for earnest money. This money is held by the  closing attorney or title company of our choice.

Another way is to have a clause in your contract that states something like, “This offer is subject to partner’s approval.” It can be as simple as that. Doesn’t matter if you technically have a partner or not. This will allow you to pull out of the deal if you find out that it’s not what you thought it was.

After you’ve put a property under contract, you want to make sure to file the right paperwork against the property to protect the deal. The last thing you ever want is to get an awesome property under contract and lose the deal because you failed to act intelligently about it.

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If you missed the first episode, check it out before watching the newest installment. It’s on our due diligence for the property at 5536 Rio Street, Charleston, South Carolina.

Episode 1 : Due Diligence for 5536 Rio Street

We just closed on the property last Wednesday, September 17th. The second episode commenced last Friday when we kicked off the renovation.

Here’s a quick list of what you’ll find in the video:

• Meet our partners on the deal, Sean Hall and Eli Sanderlin.
• How the lead came in and a “Must Know” Tip on marketing.
• Why Sean and Eli decided to partner with us on the deal and the value of working together.
• Some interior shots of the property after the initial tear out.
• How the renovation will unfold.
• How we plan on adding curb appeal with Chris Williamson and his crew.
• The Negotiation and another “Must Know” Tip for success.
• Our total repair estimate and time line to get it all done.

(if you are reading this article from your email subscription, you may have to go directly to the blog to see the video)

To give an overview on the deal, here’s what we are working with:

Purchase Price: $58,000

Repair Estimate: $15,000.00

Estimated ARV (after repaired value): $115,000.00

Time Frame for Renovation: September 17th to October 16th

As I stated in the video, it’s crucial based on our exit stategy of retailing the home to finish the renovation by the middle of October. This will give us a solid month to market the property prior to the winter months.

Stay tuned for the next episode!

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Here’s the top 3 real estate investing articles of all time here at MustKnowInvesting.com:

1. 59 “Must Know” Tips in Creative Real Estate Investing to Minimize Risk and Maximize Returns

This creative real estate investing article presents tips throughout the entirety of the investing process. Whether you are a beginner, an expert, a flipper, a wholesaler, however you relate to the real estate investing world, you will be provided with some insights into safely maximizing your returns.

There are a ton of links throughout this article to help guide you through the blog to find exactly what you are looking for.

click here to read the article

2. How to Turn a Good Deal into a Great Deal : Creative Real Estate Investing

You’ll learn 7 simple ways to turn a good deal into a great deal such as getting “the stuff,” negotiating seller financing, rezoning a property, and more.

Remember, you never want to make the mistake of “trying” to make a deal work. Either it’s a deal or it’s not! What we’re talking about here are some simple ways to pad the deal for a greater comfort level and profitability!

It doesn’t ever hurt to be on the conservative side of things . . . especially in today’s market!

click here to read the article

3. The Most Costly Mistake You’ll Ever Make as a Creative Real Estate Investor

Here’s a little excerpt:

Have you ever read or heard about a killer deal that a real estate investor did and thought to yourself, “Why in the world would the seller ever accept an offer like that?” or “I could never make that kind of an offer” or “How do you talk someone into that?”

If you answered “yes,” than you have most likely suffered from this common profit destroying tendency. At some time or another, ever creative real estate investor has made this mistake and must always be on guard against it . . .

click here to read the article

Enjoy!

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Read this first if you haven’t already, Secrets of Real Estate Investing Success : The Missing Link (part 1).

In part 1 of this series, we identified that profit is the #1 reason why you are in business and discussed the four key focus areas of your real estate investing business’s profitability (marketing, your negotiating / communicating skill set, converting your real estate investing actions into cash, and leveraging through systems).

But, knowing all of that isn’t enough, there’s still a missing link that separates the mediocre majority and the successful real estate investors who are where they want to be!

The missing link is understanding and effectively applying the Pareto Principle, also known as the 80/20 rule, in the key focus areas in your real estate investing business.

The Pareto Principle states that 80% of the effects (results) come from 20% of the causes (actions). This can be applied across the board to almost anything. If you want to learn more about that, just google it.

Alright, you know the #1 reason why you’re in business is for profit, you know the key focus areas to maximize your real estate investing business’s profitability, and that the missing link is applying the 80/20 rule to it.

Not what?

Applying the Pareto Principle to Your Real Estate Investing Business

First, you want to determine where you are as an investor. What are your strengths and weaknesses that apply most to your being a successful investor? Have you bought your first deal yet? Are you struggling to get past your fears of the unknown? Have you been getting the same mediocre results for years and can’t figure out why?

A beginner and an intermediate investor would apply the missing link in very different ways based on their circumstances.

Second, you must gain a full understanding of how your time is spent. This is done by writing down everything, and I mean everything, that you do on a day to day basis during your working hours. Until you can take an educated view of how you spend your time, chances are, you’ll stay stuck at your current investing level. You’ll continue to get the same results you’ve gotten month after month, year after year.

If you think you know how you spend your time, prepared to be blown away. You most likely spend the majority of your time doing unimportant things in a very haphazard way. Not what we advocate if you really want to be successful as a creative real estate investor! (in our creative real estate investing mentoring program, we take each student through a thorough time analysis applied to the key focus areas of profitability in their real estate investing business)

Now that you know where you are as an investor and have a baseline for how you spend your time, you’re ready to apply the 80/20 rule!

Remember, 20% of the your current actions are producing 80% of your results. Ask yourself, “How could I change the way that I use my time to produce far greater results? What key focus areas of profitability do I need to focus on based on where I’m at?

The ball is in your court now! What you do is solely up to you. Are you going to be proactive with this information?

Most people will continue to fall into their habitual reactive mode and respond to everything during their day that “happens.” They will work on the things that aren’t important and procrastinate on the things that make THE difference between being a highly successful real estate investor and those stuck in low levels of performance.

The choice is yours!

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Traditionally, real estate investing has been taught through various books, home study courses, and seminars. Most of the books that are on the market are good for getting an idea as to what real estate investing is all about but don’t give you the information that’s needed to actually go out into the real world and make it happen. For that kind of info, you’ve had to pull out your wallet if you wanted the good stuff. Home study courses can cost anywhere from $300 to a couple thousand dollars, and seminars usually run you $3,000 to $5,000 and sometimes more.

All of those learning tools and experiences are great, but times are changing. Through the explosion of the Internet, information is just a click away and FREE. Now the problem is sifting through the information glut and finding a reliable source for good actionable content.

Check out the video below so that you can get a full view on how we look at your real estate investing education in today’s world and how MustKnowInvesting fits into that.

(if you’re reading this post through your email subscription, you may have to go directly to the blog to view the video)

Bottom line, we aren’t holding anything back as far as what we teach, high level creative real estate investing tips, techniques, and strategies. You simply don’t have to go out and spend hundreds or thousands of dollars anymore to get the best of the best creative real estate information.

Your Golden Opportunity

Comment on this post and tell us what you want to learn more about! We’ll be happy to write articles specifically to suit your interests and needs. We look forward to hearing from you soon!

Happy Investing!

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This post is for the 85% of creative real estate investors who say to themselves:

____________________________________________

“I’m not where I want to be. I want to

Make BIG MONEY Investing in Real Estate!

What am I doing wrong?”

____________________________________________

What’s the difference that makes the difference between mediocrity and success in creative real estate investing? What’s the missing link?

Before we can get to the missing link, you must ask yourself, “Why am I in Business?” If you didn’t say profit as your #1 reason, we’ve got a problem! You are going to need to reevaluate what you’re doing if you care about becoming a successful real estate investor.

“But Patrick, the #1 reason that I’m in business for myself is to give back to my community, help my parents out financially, and eventually, start a nonprofit.”

WRONG ANSWER! These are all terrific reasons to go into business for yourself, but they all hinge on the One Most Important Thing of All, Your Business’s Profitability!

OK, so we’ve established that profit is the #1 reason why you’re in business. To get to the missing link, we must analyze what specific actions make a real estate investing business profitable.

__________________________________________

Key Focus Areas for your Real Estate Investing Business’s Profitability

1. Marketing

Do you have plenty of seller and buyer leads at your disposal? What is your marketing strategy? Do you track your cost per lead, cost per deal?

2. Your Negotiating / Communicating Skill Set

Have you studied sales and negotiating? Do you use a sales system? Do you effectively communicate with sellers, buyers, investors, contractors? How do you handle typical objections?

3. Converting Your Real Estate Investing Actions into Cash

Have you learned the ins and outs of wholesaling, assigning contracts? Do you use lease options as a strategy for selling property at maximum value? Do you know how to flip a house and come out on top?

4. Leveraging through Systems

What real estate investing systems are you using to manage and organize your business?

_____________________________________

Depending on where you are at in your real estate investing career, you will want to focus more on some of the key focus areas more than others. For instance, if you’re a beginner,  the first action that should be taken would be in marketing. If you don’t have any leads, there’s really not anything for you to do, right? No way for you to make any money as a real estate investor.

But, even knowing what the key areas of focus should be for your real estate investing business is not enough. There’s still a missing link! And that missing link is the difference between average mediocre results in real estate investing and Making the Big Money!

Tune in later this week, in part 2 of this post, I’ll be explaining exactly what holds back most investors from ever achieving their dreams and what to do about it!

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Last Tuesday night, my business partner, Dusty Keefe, spoke at the Charleston Real Estate Investor’s Association on “Utilizing Trusts for Asset Protection as a Real Estate Investor.” Unfortunately, I could not make it sense I was presenting on the recruiting private money webinar that night (which went Outstanding!! if I could say so myself). But . . . one of our buddy’s video taped it for us and we’re going to share a clip with you from the other night!

If you aren’t yet privy to the power of trusts in real estate investing, check this out. Dusty covered a ton of content ranging from the players in a trust (the trustee, beneficiary, successor trustee, director, etc), the differences between land trusts, personal property trusts and living trusts, some of the many benefits like getting your name off public record, avoiding probate, protecting yourself when buying subject to, avoiding seasoning problems, transactional privacy, and much more.

Here’s what some of the attendees had to say about it:

“I was very impressed by Dusty’s knowledge and his willingness to share it. Hope he’s available at other meetings for questions once I have a grasp on his information. Thanks Dusty for your brilliance!”

- Sheryl Greenberg

“Dusty, your presentation was unbelievable, and it was packed with valuable information and tips. As I told Patrick, you all should be commended for all the free information that you are willing to share in order to help others succeed. Thanks for taking the time to share your knowledge and experience about land trusts with the group, and I look forward to learning more from you in the future. The group is lucky to have you and Patrick as members.”

-Bryant Pearson

“Dusty did do a wonderful job of explaining and trusts. I have always been somewhat confused by these and to date have never used them because I wasn’t really sure how. Thanks to Dusty I now have a greater understanding and am planning to begin using trusts on future purchases. Greatly appreciate Dusty’s time and willingness to share information.”

-Karen Rapchick

“Dusty did an excellent job. He stepped to the plate (with very little advance notice) and clobbered it. He really opened my eyes to different approaches; the info was priceless. Thanks again!”

-Rob Robinson

Dusty’s spoke for over an hour but here’s a short clip on the benefits of transactional privacy with land trusts and how Walt Disney used this technique to lock up over 28,000 acres for pennies on the dollar.

If you are interested in gaining access to the entire lesson, all you have to do is sign up for the email updates on the site.

This is just the tip of the iceberg as far as trusts go. Just so you know, this kind of information usually costs thousands of dollars and you would get it from someone less knowledgeable than Dusty. Dusty has studied asset protection, specifically, using trusts in real estate for many years. Enjoy!

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I was on a coaching call with one of our students the other day, and we got on the subject of free and clear properties. He has done several deals now and is really getting his feet wet in the real estate game. He purchased a couple properties recently and just finished with the renovations. He owns the houses free and clear and wants to pull his money back out through a refinance. His plans are to hold on to the properties and use the cash from refinances for his next deals.

This brought to mind a couple suggestions for his free and clear properties that would potentially save him a bunch of money and protect his assets at the same time.

Two Reasons to “Mortgage” Your Free and Clear Property

When I say “mortgage” your free and clear property here, I do not mean bring in a new loan and leverage your property. I am suggesting to file a mortgage against your property from an entity that you are familiar with.

1. Save Money when Refinancing

If you foresee yourself wanting to pull out money from a free and clear property down the road, here’s a good tip.

The rate that you could get on a rate and term refinance is typically much better than a cash out refinance. This could easily translate into saving tens of thousands of dollars over the life of a loan. If you own a free and clear property and want to pull out some funds, you’ll have to do a cash out refinance.

BUT, what if the free and clear property you owned, had a mortgage on it that you were familiar with. You could apply for a rate and term refinance and you would simply supply the payoff on the mortgage for closing. The mortgage is paid off but little does the bank know, it goes right in your back pocket!

You get a rate and term refinance, save a bunch of money, and get the cash you wanted. Win-Win-Win!

2. Protect Your Assets

Let’s say that you own a free and clear property and are doing some renovations. You’ve got a team of contractors working away steadily until one day, Joe Contractor falls off the roof. And come to find out, he wasn’t even licensed.

Joe Contractor is feeling pretty down on his luck as he lays in the hospital getting better. As he is watching Jerry Springer, he gets a great idea.

Why don’t I sue Mr. Deep Pockets Investor since he’s such a wealthy land barren?

Joe Contractor calls his attorney and his attorney finds out that the property is free and clear. Soooo, the attorney gladly takes the case. “With all that equity, there’s plenty to go around,” says the attorney.

Now, you’ve got a lawsuit on your hands, your rehab project is on hold, and you watch as your investment dreams turn to nightmares.

Or, you “mortgage” the property from an entity that you’re familiar with. The same attorney looks into the situation for his down and out client, but this time, he sees that there isn’t any equity in the property. The attorney calls back Joe Contractor and let’s him know that he’ll gladly take the case, but it’s gonna cost him . . . A LOT!

Joe Contractor doesn’t want to throw his money away and probably files for disability or something. Anyway, you successfully navigated away from a big headache by playing your cards smart.

If only to protect your assets, “mortgaging” your free and clear properties is a great way to minimize risk!

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As creative real estate investors, there are many strategies that we can implement in our businesses to minimize risk and therefore . . . Maximize Returns!

When I first wrote down the idea for this post, I had a few things in mind to list and then something happened. I started to realize how many of the things that I do regularly are done for a specific reason. And that reason is to Minimize Risk and Maximize Returns!

Many of the suggestions and tips that I’m about to share with you were learned due to hundreds of hours study, and years of experience investing full time in the field. So hold on tight because this is going to be hot!

59 “Must Know” Tips to Minimize Risk and Maximize Returns

1. Become a Wholesaler

Some wholesalers close on a property and then immediately turn around and sell it. Others never even close on it in the first place. If your goal is to minimize risk, this is the strategy for you. Find a motivated seller, contract the property, and assign it for a wholesale fee. You can easily make $5K to $10K if you’ve got a good deal and sometimes much more.

Check out these two posts to learn more about real estate wholesaling strategies:

How Flip a House for a $14K Wholesale Profit without Rehabbing It

How to Start Investing in Real Estate Without Spending Money on Marketing

2. Use OPM

If you’re not familiar with the term, get used to hearing it. I’m talking about Other People’s Money. Doesn’t matter whether it’s a hard money lender, Bank of America, or your Uncle Bob. Leverage is powerful! Learn how to use it!

Check out the Real Estate Investment Financing Strategies category.

3. Build a Guerilla Marketing Plan

A Guerilla marketing plan is a low-to-no cost real estate investing marketing plan. There are a bunch of ways to get motivated sellers on the phone that don’t cost an arm and a leg. There’s a book by Jay Abraham on the subject that’s pretty popular.

Also, there are several posts in the Marketing category that go over low-to-no cost marketing techniques. Check them out.

4. Join a Mastmind Group

Andrew Carnegie taught the power of a Mastermind Group to Napoleon Hill, and Hill penned it in the classic book, Think and Grow Rich. If you haven’t read it and care about your financial future, buy the book this week.

As far as a Mastermind Group goes, find like-minded individuals that you can bounce ideas off of. Meet regularly to discuss your experiences, hardships, and successes. This will provide valuable insight into both your business and yourself.

5. Log Your Tenant Communications

When you end up in front of a judge (notice I did not say if), the more organized you are, the better chance you have to come out on top. The judge can pretty much make decisions to suit their personal liking so it’s a great way to minimize risk by knowing exactly when, where, and how you ended up in court with this tenant. Some judges are more tenant friendly, some more landlord friendly.

6. Build a Good Contractor Team

I have heard about and personally experienced bad contractors. I’ve been given estimates for things that didn’t need repairing, had a contractor get paid and never be seen again, and had contractors that stole supplies right off the job site. As a matter of fact, I just filed a judgment against a contractor a couple weeks ago who owes me a few thousands of dollars.

OK, I’m done with my rant now. There are also many excellent contractors. You may have to look hard but we’ve built an excellent team of good quality trustworthy contractors over the years.

Check out a recent post from one of our contributors, Wil Christenson, How to Find Great Contractors for Your Real Estate Investing Renovations.

7. Order a Title Search

My mentor, Louis Brown, said to always buy title insurance. I am a proponent of doing what experienced successful investors say so this one’s coming from Lou.

8. Get Everything in Writing

With your contractors, investors, tenants, partners . . . everyone that you do business with. Write down the terms of your agreement! Determine what will be paid for any products or services rendered prior to them being provided.

You can infinitely improve your chance of building longterm professional relationships by adhering to this often ignored nugget of wisdom.

By foregoing this easy and intelligent tip, you’re putting much more at risk than you realize.

9. Learn How to Utilize Options

Options can be used as a great way to tie up property with minimal risk. Since an option is a unilateral agreement, you can choose whether or not to exercise your option and close on the property. The only thing typically at risk is the option consideration that you put down which doesn’t have to amount to much. That will be determined by your negotiation skills.

10. Buy it Cheap Enough where you Could Flip it and Come out on Top

Flipping property is the most expensive way to sell real estate. Between purchase costs, the renovation, holding and marketing costs, and the costs associated with selling any property, profit can disappear pretty quickly. And we haven’t even talked about the tax consequences!

If you analyze a property and you could flip it and come out on top, that’s a safe bet.

11. Hire a Good Accountant

Knowing the bottom line in every deal you do is vitally important. If you are set up properly, an accountant can provide you with a wealth of valuable information so that you know how to maximize the returns from your portfolio.

12. Buy Properties with More Than 1 Bathroom

One bathroom houses have always taken us longer to fill with a tenant than houses with more. If you are looking at buying a 1 bathroom house, look for a way to at least add a half bath. You’ll be kicking yourself when your 1 bath house is sitting vacant for months at a time if you don’t.

Two or more baths is ideal and makes for a much more marketable house.

13. Utilize Technology

The Internet and technology are changing the way business is done at a faster rate than at any other time in history. Staying current and knowledgeable on the applications of technology to real estate will put you ahead of the old timers that are stuck in their ways.

You will be minimizing your risk of getting left behind by utilizing technology in your business.

14. Get a Professional Opinion of Value

This could be from a real estate agent, an appraiser, or some other knowledgeable real estate pro.

Check out this post for some tips on valuing property.

15. Be Able to Survive the Worst Case Scenario

This could correlate to many different scenarios.

For Example: Let’s say you find out there’s $15K worth of water and structural damage on one of your rentals, the tenant stops paying you rent and you start the eviction process, and it takes you 6 months to get it fixed and rented out again . . .

Could you Survive?

16. Use a Good Closing Attorney or Title Company

A good attorney or title company could save you many thousands of dollars and headaches. If you are looking for someone that is creative real estate friendly, I would suggest asking people in your local real estate investing association. Referrals have always provided much more value to our company than pulling out the phone book.

17. You are NOT the Owner . . . You Work for the Owner

As soon as someone knows that you are the decision maker in relation to a property you own, you have given up a valuable position of leverage. Whether it’s with tenants, contractors, or buyers, you’re best off if you “have to consult with your partner” or “have to run it by the owners.”

18. Have Sellers/Tenants Sign a Lead Based Paint Disclosure

I’ve never had any problems in any of our properties with lead based paint but many people have. This is a standard form used for most real estate transactions.

19. Learn How to Evaluate Property on Your Own

Knowing how to evaluate a property on your own gives you an advantage. You do not have to rely on someone else’s opinion, and you’re not on their time. By doing your own evaluations, you will be able to know quickly if you’ve got a deal on your hands. And time is of the essence when working with motivated sellers.

Click on the link in #14 if you want further info on this one.

20. Don’t Quit Your Day Job . . . Yet

Relying on monetizing your real estate deals for your sole source of income can be quite challenging. If you have a good income and your doing deals to make extra money and build wealth, you will be in a great position to do so.

21. Learn Creative Deal Structuring Strategies

Creative deal structuring spans from doing subject to deals, to structuring owner financing notes payable over time, to using the little know concept of substitution of collateral, to bringing in private investors to fund your deals, and the list could go on and on. You can be as creative as you want in the contracting, financing, renovating, and selling phases.

Ask yourself continually, “What’s another way that we could structure this deal?”

22. Have Multiple Exit Strategies

DO NOT enter a deal if you only have one way out of it! Why do you think so many of the speculators that bought preconstruction deals when the market peaked are losing their investments to foreclosure. They banked on one thing and one thing only . . . Appreciation! So the market fell out and so did they.

Check out the post, Real Estate Investment Financing Strategies : What is Your Exit Strategy for more info.

23. Do What Experienced Investors Tell You to Do

Maybe it’s built into human nature to not want to listen to people and to forge our own path and make our own decisions. Well, if you’re just getting started, fight this tendency!

It is much cheaper to learn from the mistakes of others rather from the school of hard knocks! Do exactly what successful investors tell you to do.

24. Define Your Niche

This will skyrocket your chances of success as a creative real estate investor. You will make it much harder when starting out by buying a couple properties in the hood, a few nice houses in nice neighborhoods, multi-family property, a beach front condo, and a mobile home park. You get my drift anyway.

My company’s niche is single family homes in nice areas, in good condition, with an ARV between $150K-$175K. Depending on where you are located in the country that price range may sound like a war zone to you, but it all depends where you live. Here in Charleston, South Carolina, there are many areas within a 30 minute drive that fit into our niche.

25. Write Small Earnest Money Checks

Between $10 and $100 is customary for our company. Most real estate professionals (agents) typically do 1% of the purchase price. But we’re creative real estate investors so we do things a little different.

26. Use Sandwich Least Options

I first learned about this concept through Peter Conti and David Finkel’s book, Making Big Money in Real Estate without Tenants, Banks, or Rehab Projects.

This has never been my style since you don’t get the deed but there seems to be people doing it successfully. And this technique definitely limits risk.

27. Bring in a Financial Partner

My first year investing we found an excellent financial partner. An additional bonus was that he had been doing renovations himself for years. He would put up a loan for 80% of the ARV, and we partnered with him on the deal. He not only financed the deal for us but also managed the renovation. It was an excellent set up for us as beginning real estate investors, and it was also a great way for him to leverage his way into more deals. A true Win-Win relationship.

28. Hire Qualified Contractors

This can be challenging when just getting started but not impossible. Here’s three tips to help you out:

1. Don’t accept the cheapest bid.
2. Get referrals from other investors.
3. Don’t pay for work yet to be completed (a material draw is OK but you may want to buy and deliver yourself).

29. Process Tenants Credit Applications

You shouldn’t expect every tenant to have stellar credit because if you do, you will have a major vacancy problem. At least, that’s been my experience. For awhile, we qualified our potential lease option tenants strictly by down payment and didn’t even pull their credit, but we have changed that now.

A credit report can tell you a lot about someone if you know how to read it. And if you don’t, get a mortgage broker to show you how.

30. Use an Investor Friendly Purchase and Sale Agreement

As a creative real estate investor, you want to make sure that you are well protected. Make sure your purchase and sale is rock solid and very investor friendly.

The best contracts that I’ve ever come across are Louis Browns. And no, I’m not making any money if you click through and buy any of his stuff. I’m telling you it’s the best because it is.

31. Lease Option Your Property

There are some big differences between a standard tenant renting from you and having a tenant buyer in one of your properties. Lease options are our primary exit strategy with our properties for many reasons.

Check out 3 Reasons Why Lease Options are Our Primary Real Estate Investment Selling Strategy.

And for some marketing tips, 10 Great Ways to Find Lease Option Tenant Buyers.

32. Limit the Cash You Tie Up in Your Properties

Less Cash in Deal = Greater Return on Investment

More Cash in Deal = Greater Risk

33. Find a Great Property Manager

It can be a great experience to manage your first few properties on your own but property managers are worth their weight in gold. We manage all of our lease options and have a couple different property managers handle our rentals. Typically, you can expect to pay 10% of the gross rent to property managers. We pay one of ours 8% and the other 10%.

34. Secure Financing that Works with Your Exit Strategy

I’ve written an entire post on the subject here so no need to be redundant.

Check it out, Real Estate Investment Financing Strategies : What is Your Exit Strategy

35. Negotiate Seller Financing

First off, NEVER use the terms “seller financing” or “owner financing” when negotiating with homeowners.

Check this out, Real Estate Investment Financing Strategies : How to Get Seller Financing

This is just a small primer to the subject. My business partner, Dusty Keefe, is the man when it comes to negotiating seller financing. You may not have noticed it yet but we just added an “Ask the Expert” page on the site. If you’ve got any burning questions, let us know.

36. Stay Abreast of Real Estate Law

By networking with local investors you will most likely here about any new legislation that would affect your business model. You can also ask your accountant to update you when they hear about new laws.

37. Buy Property in a Modest Price Range

This may seem vague but I will use an extreme to illistrate.

For Example: If you get a good deal on a 1.5M luxury home and buy it for 1M, that’s great and all but be careful. Consider the worst possible scenario. When you are dealing with properties in higher price ranges, you have a much smaller pool of buyers and your equity spread can disappear in a hurry.

38. Learn as Much as You Can About the Things You Delegate

When you hire out work that you do not know how to perform yourself, you stand a chance to get taken advantage of especially when you are a beginner.

Writing this reminded me of the first 5 or 6 heating and air estimates that we got from various contractors our first year investing. Every house that we bought “needed” an whole new unit. Didn’t matter who we asked or what the unit looked like. We finally wised up and learned some things about heat and air units.

39. Have an Asset Protection Strategy

There are many different approaches advocated across the industry. We are partial to using land trusts to protect our assets.

If a tenant ever slips and falls at a property we own and goes to an attorney to seek out their options, they will reluctantly find out that the only thing the trust owns is that one house. Unless the tenant has a lot of money they want to blow, the attorney wouldn’t have any reason to take the case.

Read up on these two posts below for more info:

Utilizing Land Trusts for Asset Protection as a Real Estate Investor Part 1

Utilizing Land Trusts for Asset Protection as a Real Estate Investor Part 2

40. Bring in a Credit Partner

Don’t have good credit, just find someone who does. You can provide the expertise, time, labor and management in exchange for someone else’s good credit.

41. Find a Mortgage Broker You Can Trust

I hate when you barely get it out of your mouth to a mortgage broker about a potential loan, and they are already telling you that they can get it done. All that I want is someone who will honestly give me a breakdown of what the options are and the likelihood of each.

With the mortgage industry changing the way it has lately, I can sympathize with them a little bit, but this has been going on as long as I’ve been in the business. Find a mortgage broker that levels with you and doesn’t promise the world.

42. Stay on the Real Estate Investing Sidelines, Don’t Invest, and Cling to Social Security

Not something I suggest but it would reduce your risk as an creative real estate investor. Real estate investing is definitely not for everyone. This is evidenced by how many people get in and barely get back out.

It amazes me the number of individuals I’ve seen “give it a try” over the years. By not committing to their real estate success, they are committing to its failure.

43. Use a Rock Solid Lease Agreement

As a landlord, you deserve to be protected to the utmost and that’s what a rock solid lease will do. I already told you who I think has the best paperwork in the business so if you missed it, you’ll just have to read the post again.

44. Know How to Protect a Deal while it’s Under Contract

In a recent post I stated, “If you do not know the secret to protecting deals you’ve contracted, it is not a matter of whether or not you will lose a deal to another investor, it’s a matter of when.”

Check it out, How I’ve Made Hundreds of Thousands of Dollars with this Creative Real Estate Investing Secret.

45. Be Flexible and Open Minded

You will especially need to adhere to this tip if you didn’t follow #8. Soooo, prepare to be flexible. A close minded person will not see the abundance of opportunity throughout the market. By opening your mind to an infinite amount of possibilities, you stand to profit from an array of areas throughout your business.

Remember: It’s risky to be rigid to a specific plan or way to go about business. Couple that with close mindedness and you no longer have any options.

46. Buy Property Way Under Value

This may sound like common sense but don’t forget about how many speculators entered the market during its peak and based their decision solely on potential appreciation.

Check out Our Buying Criteria.

47. Have a Well Connected Attorney on the Team

We have been in court plenty of times for evictions but have fortunately steered clear of lawsuits. People are so quick to file suit for anything these days.

I remember reading about a survey that was done at the turn of the 19th century and again several years ago. They asked people the question, “If you were to get rich, how would you do so.” At the turn of the century, the number one response was to build a business. Recently, it was to sue someone.

In other words, get a good attorney!

48. Give Yourself an Out in Your Purchase and Sale

This is very simple. Write in the special stipulations, “Subject to partner’s approval.” No one ever said that your partner had to be a person. Maybe your partner is your dog and if you end up not feeling good the deal, neither does Fido.

49. Commit to Being a Lifelong Student of Creative Real Estate Investing.

In addition to books, seminars, and courses, there are a tremendous amount of resources on the web.

Here is a short list of a few websites that I check out regularly:

RealEstateInvestor.com

BiggerPockets

theREIbrain

TheCreativeInvestor

Bryan Ellis FreeRealEstateTraining

JP Moses Real Estate Investing Tips Blog

Scott Roemermann’s REI Blog

50. Get a Great Agent on the Team

A good real estate agent can bring a lot of value to the table. I have always been all about delegating everything that I possibly can to professionals. I consider myself to be a professional investor . . . not a professional real estate salesperson. I do not want to do what they do.

And like Robert Kiyosaki says, “Don’t be like most people who want to stiff people who offer their services to you in the asset column and overpay people that serve you in the expense column.“

You get what you pay for and that’s why you should pay the professionals that serve you well.

51. Call Tenants References on Their Application

Even though people typically put down friends and family as references, you would be surprised. Call their references and you’ll save yourself many headaches. It’s an easy thing to do so just do it.

52. Buy Property where the Rental Rates Support Your PITI Payment

Going back to that worst case scenario thing again, if you have to hold a problem property, at least the rental rates support your monthly payment.

53. Have the Property Inspected

This could mean getting it inspected by a general contractor, home inspector, pest control company, etc. There are plenty of real estate investors that buy property site unseen, but I don’t recommend this strategy if you want to minimize risk.

54. If you Plan to Flip a Property, Have the Ability to Hold it if Need Be

If you are financially able to hold any property you buy indefinitely, you’re in a great position. This may not always be possible but it will greatly minimize your risk.

55. Network with Local Investors

There is about a 90% chance that there is a local group of investors that meet on a regular basis in your hometown. Investors usually have one of two mindsets. There are those that think that every other investor is their competitor and then there are people like me, who think of every investor as a potential partner.

We have worked with most of the active investors in our community and get a ton out of it. We’ll pass a deal on to one of our investor friends for a wholesale fee, and then they’ll fill one of our properties with a tenant that doesn’t fit what they have available.

WIN-WIN!

56. Have Your Closing Attorney Hold the Earnest Money When Contracting Properties

Our contract specifies that earnest money can be paid by check or promissory note, both of which are held by the closing attorney of our choice. Remember, we are the ones putting everything on the line to help all of the motivated homeowners out there. Protect your interests first!

57. Buy Property That Has At Least 3 Bedrooms

2 bedroom houses have ALWAYS taken us longer to fill or sell than 3 bedrooms.

The majority of households cannot live in that small of a house. I like to always position myself so that the majority of the marketplace wants what I have, and the majority of the marketplace doesn’t want to live in a 2 bedroom house.

You can easily minimize your risk in creative real estate investing by taking this tip. If you come across a 2 bedroom that looks like a great deal, get creative and see if there is any way to add that coveted third bedroom.

58. Pay Sellers Their Equity Over Time

Does this remind you of another one of the tips that we’ve already gone over?

I hope that it does. If so, you’re on the fast track to building massive wealth through real estate.

59. Hire a Creative Real Estate Investing Coach or Mentor

I have been in several real estate investing mentoring programs since I got started and continue to educate myself on a daily basis. It’s a never ending process in my mind.

Having a mentor who has seen the ups and downs of the market and that has made the mistakes necessary to become successful is invaluable. In the real estate investing game, one mistake can mean losing tens of thousands of dollars or one tip could mean $30K in your pocket next month.

Check this out if you think that a coach could benefit you. There a many programs available on the market. Find the one that is right for you.

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Well, that’s it for the 59 “Must Know” Tips in Creative Real Estate Investing to Minimize Risk and Maximize Returns. If I missed anything, please add it to the comment section. Let’s see how many more you can come up with.

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I heard a story recently about an investor that contracted a great deal but ended up losing it because he didn’t know the insider secret that has made me hundreds of thousands of dollars since I got started.

He began his due diligence shortly after he contracted the property like he normally would, ordered a title search, and set a tentative date for closing. After further analyzing the deal, he realized everything was good to go. The attorney said the title was clear, and he had his financing lined up.

Then, the unthinkable happened! He called the seller a week prior to closing but did not get a returned call. The seller had evidently fallen off the face of the Earth. His frustration continued to mount as he continually called and visited the property to track down the owner week after week until one day, there was a car in the driveway. But it wasn’t the seller’s car.

Come to find out that the seller contacted another investor after signing the contract, got a better offer, and sold it to another investor. The investor that bought the deal said that the seller told him that he had met with other investors but assured him he hadn’t signed any paperwork.

If you do not know the secret to protecting deals you’ve contracted, it is not a matter of whether or not you will lose a deal to another investor, it’s a matter of when.

You may be saying to yourself that the seller is contractually required to sell the property to you under the agreed upon terms, and you would be right. But now you’ve got a decision to make. Do you chalk this one up as a learning experience and make sure you protect yourself next time or do you hire an attorney? And we all know who wins once attorneys get involved.

I am fortunate because I learned early on from my mentor how to protect myself to prevent situations like this from ever occurring. Since I chose to join a real estate investing mentoring program, I didn’t have to learn from the school of hard knocks.

How to Protect Yourself from Contract to Close

After you get a contract on a property, you want to file the correct paperwork so that the world will know that you have an interest in the property. This technique will cloud the title so that no one will be able to get clear title to the property without going through you. We do this to protect our interest in the deal, not to cause the seller any problems with their property.

There are two different forms that can be used to do this. One is an Affidavit and Memorandum of Purchase and Sale and the other is a Notice of Purchase and Sale. The only difference between the two is that the affidavit is signed solely by the buyer. The Notice of Purchase and Sale is signed by both the buyer and seller. The Notice is a stronger document but both require a notary. So, if you meet a seller and it is not convenient to have a notary present, you can simply use the Affidavit.

One very important thing to make sure that your form does is to cross reference the deed. This is so that when someone does a title search, you make sure that they find out that you have an interest in the property. If a title searcher doesn’t find your paperwork, it’s not going to do you any more good than having not filed it in the first place.

We have saved many deals over the years that have translated into hundreds of thousands of dollars by using this creative real estate investing technique. Put yourself in the driver’s seat by clouding a property’s title after contracting it. You’ll thank me later.

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