I was recently interviewed by Patrick Dague of http://www.getinvestorsnow.com/ on the topic of getting and developing private lenders for your real estate investment business. Patrick is doing some great stuff and highly encourage you to go to his site and get his free report titled “SEVEN THINGS YOU NEED TO KNOW TO GET INVESTORS FOR REAL ESTATE “.

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Posted by Peter Vekselman

When you buy from the wholesale market, you dont need to sell at retail to make a profit. You can sell to someone else that buys wholesale and still make a decent profit. The real estate wholesale market is not unlike any other wholesale market. In the supply chain from manufacturing to retail there are several wholesale transactions where each wholesaler makes a profit and leaves enough in the deal for the next person in the chain to profit.

The manufacturer creates the product and sells it to a national distributor that transports it to major distribution points across the country. The regional distributor sells wholesale to major retail stores and to other smaller business. Companies like Costco and Sams Club often buy from regional distributors and sell wholesale to other business that finally sell the products at the retail price. Its not unusual for there to be four wholesale transactions before the product is sold at the retail level.

There probably wont be four wholesale deals in the local real estate market but there can easily be three. A wholesale birddog that is earnestly scouting the market for the best deals. This is the investor that locks a house up under contract with no intention of making any repairs or improvements to the property. Nor do they intent to hold it or rent it. They want to turn around and sell it to a rehabber or landlord. Preferably without putting any of their own money into the deal. They want to purchase an option to buy from the distressed seller at the very lowest cost in the wholesale chain no earnest money, no obligation to buy. Then they want to assign their interest to another buyer.

Some wholesalers try to move the property directly to the retail market but that has several complications. First, the property has to be marketed as retail costly and time consuming. Second, most retail buyers dont understand complex real estate deals where the title is not coming from the person they are buying from. You could easily go through four or five willing buyers that back out when they see the complexity of the deal.

A quick sale not involving the investment of cash is more likely if it is purchased by another wholesale buyer that understands complex sales. Thats where rehabbers and landlords or another investor wanting to hold the property for a retail sale comes in. This is why a wholesaler needs a network of other wholesalers. Just like a national distributor sells again and again to the same regional distributors, the first person in the real estate wholesale chain sells to the same wholesale buyers again and again. And as a wholesaler, you leave profit in the deal for the next person in the supply chain.

The key is that each person in the chain needs to add value. The first wholesaler in the chain ads value by bird-dogging the best deals for sale. That becomes their specialty. The rehabber is busy working on or overseeing multiple remodeling projects and misses many of the opportunities that come and go on the market every day. And the landlord is busy dealing with tenants and doing maintenance work.

There is a place in the real estate wholesale chain for someone that is out bird-dogging deals. Just like the national distribution model, each segment of the real estate wholesaling handles a different volume of deals. The bird dog needs to close on five or six deals each month, passing them into the network, and taking a smaller cut on each. A good rehabber might be able to take one deal each month and a landlord probably will only take on one additional property every year or two.

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By Les Christie, CNNMOney staff writer

NEW YORK (CNNMoney.com) — Bipolar is what comes to mind when diagnosing the post – home buyer tax credit market. There are two separate forces pulling it in opposite directions, and experts aren’t yet sure which path the market will take.

On one hand, sales and prices are rising, indicating recovery. On the other hand, so are interest rates and repossessions, which most certainly do not. And then there are the millions of foreclosures that need to be sold but haven’t yet been listed — so-called shadow inventory — that could derail a real recovery if they hit the market in floods.

The prognosis? Negative short term but turning positive by the end of 2010.

“In the short run, I see a mini-collapse,” said Richard DeKaser, an independent housing market analyst and founder of Woodley Park Research who correctly predicted a downturn back in 2005 when he was chief economist for National City Corp.
How to buy a foreclosure

One of market’s biggest hurdles is getting beyond the lapse of the $8,000 homebuyer tax credit. Thanks to the incentive, buyers scrambled to beat the April 30 deadline, pushing new home sales up nearly 30% in March.

But that just borrowed buyers from later months. And now we face the hangover effect.

“In the months immediately following the expiration of the tax credit, we expect measurably lower sales,” said Lawrence Yun, chief economist for the National Association of Realtors (NAR).

Industry insiders believe the hangover is worthwhile, however, because the credit helped stabilize housing when it most needed help. Home prices have been steadier in recent months, recently experiencing their first year-over-year rise in more than three years.

Still, there are some strong negatives dragging on the market.

1. Interest rates have been intermittently creeping up. Although nobody expects 6% until at least 2011, the days of 4.5% mortgages are behind us.

2. Bank repossessions are on track to surpass a million homes in 2010. But at least foreclosure filings fell in April, the first time since RealtyTrac began reporting.

3. More than a quarter of borrowers are “underwater,” meaning they owe more than their homes are worth.

4. “Strategic defaults” — where underwater homeowners walkway even when they can still afford to pay — accounted for 31% of all foreclosures in March, according to a recent study.
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But there is one factor that has experts really scared: homes that are ready to be sold but haven’t been put on the market. Right now, there could be more than 4.5 million homes in “shadow inventory,” according to a recent report by Barclays Capital.

This so-called shadow inventory is a recent phenomenon. In the past, inventory was either tight or it wasn’t. But now, with home prices so low and so many foreclosures on the market, both homeowners and banks have been waiting to put properties on the market.

“These sidelined sellers closely watch the market for signs of a possible turnaround and rush in if there’s a hint of good news,” said Leslie Appleton-Young, chief economist for the California Association of Realtors.

But as more sellers put their homes up for sale, supplies increase, which will depress prices again. Rinse and repeat ad infinitum.

That vicious cycle could cause prices to bounce up and down for years. “I see a saw tooth bottom,” Humphries said. “Prices go up; inventory rises, which sends prices down again. That plays out for three to five years of no appreciation. … Without price appreciation, it leaves more homeowners in negative equity. That’s toxic. Any setback, like a job loss, they go into foreclosure.” To top of page

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Today’s investment markets offer investors a wide variety of options. One of the most rewarding opportunities is real estate investing, which can produce a very good income stream. If you choose to become a real estate investor, you will enjoy several benefits not associated with other types of investment.

First of all, investing in real estate has the enormous benefit of financial leverage. Even if you borrow the money for your real estate investing from a bank you can often get into a deal with a 10% to 20% down payment which means your returns are instantly magnified due to the fact that you are earning on the bank’s 80% – 90% contribution as well.

As an example, let’s assume you have $10,000 to invest and you get 10% return on your investment regardless of the vehicle. If you put it into the stock market you will buy $10,000 worth of shares and after 12 months your investment is worth $11,000. If you put that same money into real estate with a 90% loan you earn 10% on the full $100,000 investment and finish with $110,000.

So your $10,000 has been doubled in the real estate investment above whereas it only produced an extra $1,000 in the stock market. Why? Because your lender’s money has been working for you too. This is the power of leverage and is one of the biggest advantages of real estate investing. And yet there are even more reasons to become a real estate investor as you will see.

Another incredible reason to begin investing in real estate is the tax benefits. One of the best tax breaks of real estate investing is the REQUIRED depreciation by the IRS on the property. This represents a “paper loss” when in most cases the property (including the land) is actually appreciating. So in essence you pay taxes on a reported profit figure that is significantly lower than your actual earnings – very nice.

Perhaps an even better tax benefit is the 1031 exchange as defined by section 1031 of the Internal Revenue Code. Essentially this allows investors to delay paying any capital gains taxes when a property is sold as long as the proceeds are reinvested in an appropriate property. The government is basically encouraging investors to stay in the market with this fantastic incentive.

One final benefit of investing in real estate worth mentioning here is the flexibility of sale contracts. Unlike the stock market you can get very creative with your offers. You can exchange virtually anything for a property instead of cash which can mean greater returns and some spectacular win-win arrangements.

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Two Types of Lists

Let’s talk about the list. The list is important. We’ve talked about two kinds of lists. One would be a group of houses in a particular area that you would designate. Two would be a demographic – what type of person – meaning people where the tax bill goes to a different address than the home address.

Those are two types of lists that you can acquire. They’re certainly not the limit. There are dozens of other ways you can slice and dice this. You could get homes worth a million dollars or more. You could get homes worth $100,000 or less. You could get multi-family properties. You could say, “All I want is multi-family properties.” You can get businesses if you want. Invest in shops and retail things of that nature. However you want to do it, whatever list you want.

Ways to Find Lists

What I would suggest is there are a couple of different ways you can get lists. You can go out to a list broker. There are two that I recommend. First is Info-USA and the second is Melissa-Data. Both are national list brokers.

I suspect that if you went to both of them and asked for the identical list you’d find that they’d be relatively close in cost. I don’t know that for certain, but they compete head-to-head all the time so I’d gather that their prices are fairly close.

I would suggest you pick one of these, pick which one you like best, and go with it. It’s always best once you’ve identified one of them that you get used to their website. Spend some time and get used to things.

You can call them on the phone or do it over the web. Tell them what you’re looking for. They will call you or give you an estimate of how many people would be on the list.

That amount may be too many and you may need to use a smaller space or a smaller area. That’s up to you guys. If you’re looking for a list of 1,000 people and the first criteria you give them comes back with 5,000, then you may have to shrink down your criteria. You can play with that.

You can also go out to Google and search “list brokers.” I’m sure there are dozens of others that would show up.

I invite you to learn more about Real Estate Investing and become a member of our FREE weekly tele-seminar class where we teach tips and strategy on how to grow your real estate investing business and how to raise Private Money by going to http://www.realestatewealthtoday.com/TuesdayTipsSignUp.html.

Mike Lautensack is a full-time real estate entrepreneur, coach and mentor in Philadelphia, PA and creator of the Private Lending Presentation Kit. This powerful done-for-you kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your real estate business. To learn more about this kit and receive your FREE eBook go to Real Estate Investing.

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Real Estate Investing In a Down Market Timing may be everything, but is now the right time to invest in real estate, given the steep declines seen in the housing marketing in recent months? Some real estate investment professionals seem to think so. In fact, the smart investors are buying, buying, buying properties right now. Why? “First, let’s define what we mean by “investing,” says real estate mentor a [...]Real Estate Investing In a Down Market

Timing may be everything, but is now the right time to invest in real estate, given the steep declines seen in the housing marketing in recent months? Some real estate investment professionals seem to think so. In fact, the smart investors are buying, buying, buying properties right now. Why?

“First, let’s define what we mean by “investing,” says real estate mentor and author Minh Pham, whose popular real estate seminars pack convention rooms with novice real estate investors eager to learn how to make money with real estate. “Are you intending to be a knowledgeable, well-educated buyer of under-priced properties and stay in the real estate market for the long term in order to see excellent returns? Or are you looking for a get-rich-quick’ scheme? If so, my real estate seminars are not for you.”

Pham explains that buying a cheap property in the hopes of immediately reselling for a lot more than you paid is speculating, not investing. And speculating is as risky as buying a lottery ticket. No credible real estate investment coach will teach you how to speculate, because there is no way to guarantee profits.

But that doesn’t mean you can’t start seeing profits in a fairly short space of time – you just need to know what you are doing.

Becoming a successful real estate investor involves getting educated, doing excellent research, and putting together a well-thought-out strategy. This may seem like homework to some, but for those who have done it the financial rewards are more than making up for the time spent learning.

“Can you make money in real estate in a down economy? Absolutely. Can you do it without knowing what you are doing? Absolutely not,” says Pham. “Worst case scenario, you could lose thousands of dollars and end up being very disillusioned, as many people are right now as a result of not really understanding what they were doing. There are rules to any game, and if you don’t take the time the learn them you could lose your money.”

According to Pham and other real estate investing experts, in order to be successful it’s important to learn how to make money in both up’ and down’ markets. You need survival strategies for when the economy is bad, and know how to win in a competitive market when the economy is booming. “Don’t fear the competition – embrace it,” advises Pham. “If you see a lot of investors competing for deals, then know you’re not the only one that sees the potential for profit. There are more than enough good deals to go around. At any given time there are hundreds of properties for sale in local market niches, enough for every savvy investor to make the profits they’re looking for.

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o you think the real estate market is finally starting to go up and NOW is the time to start investing. Well you may be right but here is the hard part: how do you pay for your investments. This is THE issue that makes or breaks your ability to be a real estate investor. Prices are down as much as 30% in some areas and opportunities are available in every neighborhood, but without money you cannot take advantage of these great prices.

Unless you are going to owner-occupy a property, you will be required to bring 30% to 50% as a down payment to closing. Do you have that kind of cash? The days of 5% to 10% down payments are gone. This is the new realty of todays real estate market.

Additionally, most of the great deals today involve distressed properties that may need work. This work also cost money and you have to be prepared to fund these extra costs. These may included small repairs, fresh paint throughout, new kitchens or bathrooms or new carpets. All these cost money.

If you want to buy a $100,000 deal you will need $30k to $50k upfront. Then you will need at least $10k to fix up the house with fresh paint, carpet and small repairs. Can you afford this?

So now that you know how much you will need to purchase your real estate investment the question is how you are going to finance this amount. Here are a few options in the current market:

* Traditional financing: Local and national banks, as well as mortgage brokers, are still going to be the best source for large-sum and long-term lending on anything four units and under. Expect to pay around 25% down, but interest rates should continue to be well under 7% for the foreseeable future. Make sure you talk to at least one mortgage broker and as many small local banks as possible before settling on a lender.

* Lines of credit: Pulling out equity from your home or other investments should be done with caution, but is a great way to free up funds. Many investors buy and repair properties with cash from a line of credit, with the intent of financing the finished product six months or so after purchase. You should always check with your lender before taking this route, but it can be a great path to affording multiple properties in a short period of time.

* Hard money lender: If you are looking for short-term money to leverage a property while you do repairs, this remains a viable option. Interest rates and fees are generally higher and hard money is currently less available than in years past, but if you develop a successful relationship with a hard-money lender it can really add a lot of flexibility to what kinds of projects you can take on.

* Private lending: Technically, most hard money lenders are private, but I am referring to the type of money that comes from a less seasoned source. Someone like a family member, friend, or even an acquaintance with the desire to invest their money. This kind of money relies mostly on your own personal network, but if you can find a backer with deep pockets, you can both benefit greatly. Since you are generally not competing with other investors for these funds, this money can be more reliable and flexible as well.

* Partnership: In many ways a partnership is a more formal and permanent form of private funding. Instead of just borrowing money under certain terms from someone, they actually have a stake in the property itself. Whether you split profits 50/50 or 75/25, if you need help with managing your investments and/or paying for them, finding a partner can be a great way to open up your options.

As the real estate market continues to improve more and more people will start to come back into the market and as a result prices will start to go back up. Now is the time to get into this market before that happens. These future price increases should be your equity. But you need to get over the financing hurdle.

If you would like more information on this topic or to learn more real estate investing tips, ideals or “real world” investing strategies please go to my blog at http://www.learnrealestateinvestingblog.com/.

Mike Lautensack is a full-time real estate entrepreneur, coach and mentor in Philadelphia, PA and creator of the Private Lending Presentation Kit. This powerful done-for-you kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your real estate business. To learn more about this kit and receive your FREE eBook go to Real Estate Investing Blog.

Have you ever thought that with a little help from a experienced coach might help your real estate investing business take off? Consider a mini-coaching session by going to http://www.realestatewealthtoday.com/MiniCoaching.html

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After watching prices fall for years, people are asking, “Is real estate a good investment now?” Of course, like most classes of investments there are opportunities even in the worst of times. Even as the stock market crashes some stocks go up in price, after all, and even while some people lost money buying houses in the last few years, some made money. The better question, then, is “Which real estate investments are best right now?

Perhaps the worst kind of real estate investing is the purely speculative bets on rising prices. This is what we saw all over Tucson Arizona up until we moved from there in June of 2006. Homes had been appreciating at 20% annually for several years. many people began to buy them even if after rent was collected they lost $500 or $600 per month. After all, you might not mind paying out $7,000 in negative cash flow on a $200,000 house if you get to sell it for $240,000 a year later.

As we left town the bubble was about to burst. The fact that 11% of all houses sold were to speculative investors should have been a clue that much of the demand that drove prices higher was artificial. This kind of “buy and hope prices go up fast” investing is dangerous in the best of times.
Making Real Estate A Good Investment

On the other hand, if you were to buy a fixer upper at the top of the market, you could have made money even as prices fell. For example, suppose you bought a house that would be worth $200,000 when prepared, and because it was trashed you only paid $130,000. If all of your repair costs, holding costs and other expenses came to just $35,000 , you might have been looking at a $35,000 profit. Now, if prices fell by 10% and you could only get $180,000 for the home, you would still make $15,000.

Fixing and flipping a house can be a good real estate investment much of the time, even in a weak market. The key here is to buy right and move fast. Time cost money not only because of the interest, utilities and other expenses you’re paying, but also because of falling prices.

Another way to make real estate a good investment now is to invest in properties that produce positive cash flow. If you are making money with it every month it doesn’t necessarily matter whether the sales value of a house goes up or down. Let’s look at a simple example to show how important cash flow is. Suppose you buy a home for $100,000 with a $10,000 down payment, and you net (on average) $150 per month for 30 years while renters pay off your mortgage. You’ll have made $54,000. What if you bought in the one place where values dropped for thirty years and the house is worth only $60,000 now? You can pocket that too, and have made a total of $114,000 ($54,000 + $60,000) from your $10,000 investment.

What’s more, rents probably went up. Though there are some places where property values have dropped for decades, I have not heard of a place where rents didn’t rise in 20 or 30 years. Perhaps you are making $300 cash flow towards the end of the thirty years, and then when the loan is paid you are making an additional $600. Making $900 per month, or almost 11,000 annually on an original investment of $10,000 isn’t all that bad, even if the home is worth 40% less. Cash flow makes real estate a good investment even during the worst price declines.

One more thing to keep in mind, since we all would rather have cash flow and appreciation: Not all areas are the same. We bought a small home in Colorado after leaving Tucson. We closed in June of 2006, which was close to the top of the market. A month ago, in June of 2009, we sold the house for 11% more than we paid. That only meant breaking even after all the costs of the sale, but it does show that the real estate market is not the same in all places nor with all types of properties. In many areas (including here) prices fell at the high end while staying the same or even rising on the lower-priced homes.

So is real estate a good investment now? It is if you make the right kind of investments and in the right places.

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