the getting complete guide to started day 1 finding & analyzing deals day 2 choosing a profit...
TRANSCRIPT
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The
GettingComplete Guide to
StartedDay 1
Finding & Analyzing Deals
Day 2
Choosing A Profit Strategy
Day 3
Putting It All Together
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Day 2
Choosing A Profit Strategy
Contracts
From Contract to Closing Table
• Wholesale
• Rehabbing
• Rentals
Managing Exit Strategies
Business Entities
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At the end of this session, you will be able to:
1. Define Types of Contracts2. Identify essential elements of a
written contract3. Explain how to complete a
contract4. Summarize the ways to present
an offer
GOALS
Day 2 – Choosing A Profit Strategy
Contracts
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Types of Contracts
Day 2 – Choosing A Profit Strategy
Contracts
Purchase & Sale – Standard Contract
Installment Contract – Title does not pass
until conditions are met
Option Contract – Set for a fixed period,
consideration, specified price
Listing Agreement – Between seller and
broker
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Essential Elements
Day 2 – Choosing A Profit Strategy
Contracts
• Competent parties• Offer and acceptance• Consideration• Legality of object• In writing and signed
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Important Points
Day 2 – Choosing A Profit Strategy
Contracts
• Buyer’s Name• Seller’s Name• Property Address/Legal
Description• Sale Price/Deposit• Time for Acceptance• Financing• Assignability
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Important Points
Day 2 – Choosing A Profit Strategy
Contracts
• Closing Date
• Inspection• Title• Escrow• Seller’s Disclosure• Addendums• Escape Clauses
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Ways to Present An Offer
Day 2 – Choosing A Profit Strategy
Contracts
1. Verbal – “would you”
2. Letter of Intent – non binding
3. Written Contract – binding
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A-B-C Offer
Day 2 – Choosing A Profit Strategy
Contracts
All Cash [Wholesale Offer]
100% Seller Finance [Retail]
Creative Option Solution [Lease Option, Combo]
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What we covered this session:
1. Types of Contracts2. Essential elements of a written
contract3. How to complete a contract4. Ways to present an offer
SESSION REVIEW
Day 1 - Finding & Analyzing Deals
Contracts
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Day 2
Choosing A Profit Strategy
Contracts
From Contract to Closing Table
• Wholesale
• Rehabbing
• Rentals
Managing Exit Strategies
Business Entities
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At the end of this session, you will be able to:
1. Define Key Closing Terms2. Name the Team Members3. Define Key Action Items4. List Closing Documents5. Read A Settlement Statement
GOALS
Day 2 – Choosing A Profit Strategy
Contract to Closing Table
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Day 2 – Choosing A Profit Strategy
Contract to Closing Table
Key Terms
Closing Statement• A detailed cash accounting of a real estate
transaction showing all cash received, all charges and credits made and all cash paid out in the transaction.
Deed• A written instrument that, when executed and
delivered, conveys title to or an interest in real estate.
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Day 2 – Choosing A Profit Strategy
Contract to Closing Table
Key Terms
Escrow• The closing of a transaction through a third party
called an escrow agent, or escrowee, who receives
certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions.
Prorations• Expenses, either prepaid or paid in arrears, that are
divided or distributed between buyer and seller at the closing.
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Day 2 – Choosing A Profit Strategy
Contract to Closing Table
Key Terms
Survey• A pictorial depiction of land and the improvements
on it and shows boundary lines with measurements and bearings, buildings, easements, etc.
Title Evidence• Proof of ownership of property; commonly a
certificate of title, an abstract of title with lawyer's opinion, title insurance or a Torrens registration certificate.
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Day 2 – Choosing A Profit Strategy
Contract to Closing Table
Key TermsTitle Insurance
• A form of insurance contract which guarantees to indemnify an owner or mortgagee of property for damages suffered as a result of undiscovered title defects which arise later.
Title Search• The act of examining in detail the public records
relating to ownership of a parcel of land to ensure that the current owner has clear title, free of any liens, claims, mortgage or competing and adverse interests.
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Day 2 – Choosing A Profit Strategy
Contract to Closing Table
Parties Involved• Real Estate Brokers• Attorney• Escrow Agent• Loan Officer• Appraiser• Insurance Agents• Lenders
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Day 2 – Choosing A Profit Strategy
Contract to Closing Table
Key Action Items• Choose Closing Date/Agent• Order/Examine Title• Notify Seller of Defects• Accept/Reject Title• Obtain Survey• Inspections• Review Leases• Obtain Insurance
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Day 2 – Choosing A Profit Strategy
Contract to Closing Table
Closing Documents• Affidavits• Bill of Sale• Deed• Insurance Policies• Satisfaction of Liens• Mortgages • Pest Control Report
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Day 2 – Choosing A Profit Strategy
Contract to Closing Table
Closing Documents• Tax Receipts• Survey• Warranties• Utility Bills • Leases• Service Contracts• Title
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Day 2 – Choosing A Profit Strategy
Contract to Closing Table
Settlement Statement• Buyer debits and expenses• Seller debits and expenses• Credits due to buyer• Credits due seller• Net balances
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What we covered this session:
1. Key Closing Terms2. Team Members3. Key Action Items4. Closing Documents5. How to Read A Settlement
Statement
SESSION REVIEW
Day 1 - Finding & Analyzing Deals
Contracts
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Day 2
Choosing A Profit Strategy
Contracts
From Contract to Closing Table
• Wholesale
• Rehabbing
• Rentals
Managing Exit Strategies
Business Entities
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At the end of this session, you will:
1. Be able to compare exit strategies & decide best option
2. Understand how to manage- Wholesales
- Rehabs - Rentals
GOALS
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
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Determine Exit Strategy
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
• Quick Turn (Wholesale) • How much profit for you? The rehabber?
• Rehab• Risk vs. Profit
• Rental
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Summary of Strategies
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Wholesale Rehab Hold
Strategy Quick flip Fix n’ Flip Hold
Income Quick cash 3-6 months Cash flow
Potential $ $ $$$ $ + wealth
Credit Req. None Some Some
Up front $ Very Little v. little some v. little some
$ Needed for: Consideration
Rehab + Holding Emergencies
Risk Factor Very Low Low Low-Mid
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Day 2
Choosing A Profit Strategy
Contracts
From Contract to Closing Table
• Wholesale
• Rehabbing
• Rentals
Managing Exit Strategies
Business Entities
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At the end of this session, you will be able to:
1. Describe how to assign a contract
2. Explain a simultaneous close3. Summarize the wholesale
process
Wholesaling GOALS
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Process 1. Seller and Buyer sign contract
2. Buyer submits deposit (escrow)
3. Buyer assigns contract to New Buyer
4. New Buyer replaces Original Buyer’s deposit
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Process
5. New Buyer takes over existing contract terms
6. New Buyer obtains funding and closes
7. Seller and Original Buyer get paid
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Example
1. Seller and Buyer agree on contract for property• Purchase price = $100,000
2. Contract is assignable3. Original Buyer assigns contract rights
to New Buyer• Cost = $5,000 from New Buyer
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Example
4.New Buyer purchases property for $105,000
5.Seller gets $100,0006.Original Buyer gets $5,000
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Important Documents
• Purchase & Sale Agreement- Seller- Original Buyer
• Assignment of Contract- Original Buyer- New Buyer
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Considerations
• Purchase 60-70% of market value
• Escape clauses
• Release from liability
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Protecting Yourself
• Make sure property is under contract
• Always get a copy of original contract
• Ensure you are working with original buyer
• Wholesaler should make less than rehabber
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Protecting Yourself
• Lender approval?
• FHA: 90-day rule
• Avoid multiple title transfers
• Avoid double and triple assignments
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Simultaneous Close
• Two closings take place
• Contract is not assignable
• Must take title to property
• Title seasoning
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Creative Assignments!!!
• Include assignment fee in second closing
• Use creative financing techniques (trusts)
• Seller can become the hard money lender
• Take possession of property Then Sell!
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
Finding Buyers
• Newspaper - “We Buy Houses” - “Place Ads seeking buyers
• Flyers
• Real Estate Auctions
• Real Estate Investor Associations
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Wholesaling
Day 1 - Finding & Analyzing Deals
Managing Exit Strategies
7 Steps to Wholesaling
1. Negotiate at 60-70% of FMV2. Set closing date of 30 to 90 days3. Insert and/or assigns in purchase contract4. Contingency clauses (Escape clauses)5. Find a Buyer6. Assign the contract and collect
assignment7. Inform seller of change
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At the end of this session, you have learned how to:
1. Describe an assignment ofcontract
2. Explain a simultaneous close3. Summarize the wholesale
process
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
SESSION REVIEW
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Day 2
Choosing A Profit Strategy
Contracts
From Contract to Closing Table
Wholesale
• Rehabbing
• Rentals
Managing Exit Strategies
Business Entities
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At the end of this session, you will be able to:
1. Describe the five major rehab categories
2. Explain how to estimate rehab costs
3. Understand how to manage a rehab from start to finish
Rehabbing GOALS
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
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1. Electrical2. Plumbing/drainage3. Structural/foundation4. Roofing5. HVAC: Heating, Venting, A/C
* Permit required * Use a contractor (professional)
Where to Spend Rehab $
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
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• Kitchen
• Bathrooms
• Curb appeal
Where to Spend Rehab $
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
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• Roofing: per 1010 square or 100 sq. ft.
• Carpet and tile: per sq. ft.• Vinyl/wood/laminate: yard
(sq. ft. 9 yds)• Electrical/plumbing: time &
material ($50 – $150/hr)
Understanding Rehab Pricing
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
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• Kitchen cabinetry: per lineal foot (lf); $100 – $500
• Trim/baseboards: $2 – $3 per lf• HVAC (heating/air): per ton• Door/window: per unit installed
Understanding Rehab Pricing
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
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• Drywall: per board• Painting: per sq. ft.• Fencing: per lf• Siding: per sq. ft. or lf
Understanding Rehab Pricing
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
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1. Find the property2. Make offer3. Get signed contract4. Important dates memo5. Estimate Repairs6. Set up professional inspection7. Put together project overview
Managing Your Rehab – Step by Step
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
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8. Secure financing9. Prepare contractor agreements10. Set up insurance11. Prepare budget12. Closing13. Utilities14. Put sign out
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
Managing Your Rehab – Step by Step
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
Managing Your Rehab – Step by Step15. Schedule repairs16. Post call sheet for workers17. Photos18. Advertising/Marketing19. Cost analysis20. Cost Summary21. Document with photos
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At the end of this session, you have learned how to:
1. Describe the five major rehab categories
2. Explain how to estimate rehab costs
3. Understand how to manage a rehab from start to finish
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
SESSION REVIEW
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Day 2
Choosing A Profit Strategy
Contracts
From Contract to Closing Table
Wholesale
Rehabbing
• Rentals
Managing Exit Strategies
Business Entities
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
At the end of this session, you will be able to:
1. Understand Due Diligence Process2. Discuss obligations to the tenants3. Fill vacant units4. Understand tenant selection process5. Collecting rents6. Keeping Tenants
Landlording GOALS
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
• Tenants with leases- Focus on the future- Planning- Controlling “Bad Seeds”- Opportunity for creative financing- Raising rents (at turnover)- Update tenant information- Attorney Review
Obligations to Tenants
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
• Tenants without leases- Liabilities- Following Rules- Communication breakdown- Financial performance- Getting rid of “bad seeds”- Creative financing
Obligations to Tenants
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
• Handle vacancy history- Maintenance/repairs- Are rents market rates- Property management or lack of
Managing Vacancies
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
• Maintenance- Use checklist- Focus on visible items- Focus on mechanical items- Final Walkthrough- Touch up paint/replace carpet- Add safety items
- smoke detectors, GFCI switches, etc.
Remodeling Vacant Units
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
• Marketing to Fill Vacant Units- Signs- Advertisements- Direct Mail- Flyers- Government Programs
Renting Vacant Units
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
Screening• 60% of all property owners rent on looks• 56% never do a background check• Put a system in place
- Voicemail System- Drive by- Prequalification questions- Minimum standards- Fair Housing Standards
Selecting your tenants
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
Step by Step Policies & Procedures1. Make sure property is EMPTY2. Pre-screen with phone system3. Show property all at once4. Get application signed5. Get application fee from renter6. Verify all of the applicant info7. Place is not rented until deposit check is in
hand
Selecting your tenants
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
• Clearly define when, where and how• Discount for early rent• Monthly pet charge v. deposit• Evictions
- MUST have P&P
• Unpaid damages- What will tenants be responsible for?- Minimum damages
- liens on personal property
Collecting Rents
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Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
1. “Why are you moving?”2. Send letters
- “sorry to hear you’ll be leaving”
3. Offer free gift to say- carpet cleaning, ceiling fans, landscaping, etc.
4. Repair/Appliance policies5. Timely response for all repairs
- All in writing- 3 day guarantee- repair line
Keeping tenants
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At the end of this session, you have learned how to:
• Understand Due Diligence Process• Discuss obligations to the tenants• Fill vacant units• Understand tenant selection process• Collecting rents• Keeping Tenants
Day 2 – Choosing A Profit Strategy
Managing Exit Strategies
SESSION REVIEW
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Day 2
Choosing A Profit Strategy
Contracts
From Contract to Closing Table
Wholesale
Rehabbing
Rentals
Managing Exit Strategies
Business Entities
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Day 2 – Choosing A Profit Strategy
Understanding Business Entities
At the end of this session, you will be able to:
Summarize key characteristics of:• Sole proprietorship• Partnerships• S corporation• C corporation• Limited Liability Company
GOALS
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Advantages- Easy to set up - Inexpensive
- Few regulatory Requirements- Many states don’t have fees- No separate income tax filing
Sole Proprietorship
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
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Disadvantages- Owner personally responsible for
debts - No legal protection- Taxed as self employed- Personal assets exposed
Sole Proprietorship
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
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Advantages- Easy to set up - Inexpensive
- Few regulatory Requirements- Losses reported on owner’s tax returns- Flexibility in establishing
responsibilities of partners
Partnerships
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
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Disadvantages- Personally responsible for debts of the partnership- Partners responsible for all
business-related actions of all other
partners
Partnerships
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
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1. Insurance- Umbrella Liability- Builder’s Risk
2. Create a business entity- Twin Brother- Collection of documents
Develop layers of protection
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
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• Requires paperwork with secretary of state
• Pay Federal Income Taxes• Separate Checking Account• Shares of Stock• Minutes and Meetings• Pays it’s own taxes
C Corporation
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
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C Corporation
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
Advantages- Not personally liable for debts of
corporation- Ownership transferable through
stock- Unlimited life beyond owners- Tax benefits
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C Corporation
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
Disadvantages- Possible double taxation- More expensive to form than sole proprietorships and partnerships- More paperwork
- Schedule C- Minutes & Meetings- Annual Reports
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• Requires paperwork with secretary of state
- one checkbox different on the form!
• Does not pay federal taxes – “FLOW THROUGH” on Schedule K-1
• Better if you are taking disbursements• Same paperwork as C - Corporation
S Corporation
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
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S Corporation
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
Advantages- Avoidance of double taxation- Shareholders not personally responsible for liabilities of
corporation- All other advantages of C
Corporation apply to S
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S Corporation
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
Disadvantages- Can only have 1 class of stock- Shareholders limited to 75 shares- Shareholders must be individuals, estates, or qualified trusts- Shareholders cannot be non-
resident aliens
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• Requires paperwork with secretary of state
• Protection of partnerships mixed with benefits of partnerships
• Best of tax codes and protectionary features
• Flow through• Better tax codes for passive income
Limited Liability Company
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
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• Members decide on management• Disbursements determined by
agreement• IRA can be a member of LLC• Can form a 401K
Limited Liability Company
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
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Limited Liability Company
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
Advantages- Pass-through taxation- Members not held personally liable- No restrictions on number of
owners (members)- Flexibility in structuring
management of company- Less paperwork
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Limited Liability Company
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
Disadvantages- More paperwork than general
partnership- Ownerships harder to transfer than with corporation
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At the end of this session, you have learned how to:
• Summarize key characteristics of:- Sole proprietorship- Partnerships- S corporation- C corporation- Limited Liability Company
Day 2 – Choosing A Profit Strategy
Understanding Business Entities
SESSION REVIEW
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Day 2
Choosing A Profit Strategy
Contracts
From Contract to Closing Table
Wholesale
Rehabbing
Rentals
Managing Exit Strategies
Business Entities
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The
GettingComplete Guide to
StartedDay 1
Finding & Analyzing Deals
Day 2
Choosing A Profit Strategy
Day 3
Putting It All Together