If you do not currently practice these strategic concepts steps in your normal course of business, now is the time to start. These strategies can and should be used no matter what the market conditions – so, continue to use these for the rest of your real estate investing life and you will have much more success than you would ever imagine.
- Use OPM (other people’s money) to replace the money that you currently have in those properties you plan on holding. Then, especially when the market goes low, use creative financing methods for acquisitions, such as “Subject To” existing financing; private investors; IRA accounts loans, and cash from family, friends, and others. This is how I acquire properties. I can teach you to do the same.
- Leverage into every future investment property. I acquire properties for basically no money down and no credit needed. Borrowed cash is used to make up back payments on mortgages & taxes, to move tenants and/or owners to different housing, to clean up and repair/renovate. This ‘borrowed’ money may come from my own accounts or from partners; but usually it comes from outside investors.
The only warning with leveraging real estate is to ensure that the income from tenants after your rehab/renovation will cover ALL the financing involved – including the money that you personally have loaned to the project. Think of this as you structure the financing on your future creative purchases.
- Pursue lower LTVs (Loan-To-Value). Most real estate investors aim to purchase properties at about 70% LTFV(Loan-To-Future-Value). This means they are buying a property at 70% of its current ARV (After Repair Value). This method is flawed from the beginning. I would suggest that you seek properties that you are buying at 70% of its Current Value which would equate to a more realistic 50% of ARV. Read this paragraph again – then once more, until you capture it’s meaning.
How can you acquire properties so inexpensively? – Find DMFs – Distressed, Motivated, and Flexible sellers by seeking run down properties, pre-foreclosures, tax liens, law suits, probates, divorces, and using bird-dogs among other strategies. I’ve found them in every market and every geographical location – so far close to 900 that I’ve acquired as of this writing.
- Include incentives to the seller or outside investors when structuring your acquisition. Offer interest payments on seller’s equity, offer part of the net profits when you re-sell, offer JV (Joint Venture) terms to the seller or investors, take-over other debts of the seller such as automobile payments, credit card balances, etc. by using a ‘Contract for Deed’ arrangement.
- Build in as many EXIT strategies as you possibly can. Unfortunately, most investors have only one exit strategy – flip the contract, usually because they have no money or credit and are not familiar with the many other strategies. When this one strategy doesn’t pan out – everyone involved loses.
By structuring the transaction correctly you can have many choices. Ensure that you have at least 3 exit strategies – I usually structure 5-7 in my contracts. Examples are: flip the contract (wholesaling), flip the contract holding paper (mortgage), clean up then flip, lease/option, sandwich lease/option, buy fix & sell retail, buy-fix-and-sell-retail holding paper …and dozens of more strategies!
- Reverse flipping. Almost what real estate agents do, which is to find the end buyer and fill their request by finding the appropriate property. The difference is that, in your case as an investor, you put the property under contract then close simultaneously a/k/a as a double closing. The day you actually take title at a closing is the same day that you sell it, using the same escrow agent – and you walk away with the difference in prices.
Risk management should always be top priority, especially when entering a real estate recession. Start reducing your risk by utilizing sound strategic and tactical techniques as they apply to each unique property during the market transition. Then utilizing these techniques up front, in each and every acquisition thereafter, will ensure success during all future real estate cycles and evolutions.
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© Copyright 2019 Alan David Kosinski
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