Master Real Estate Course

Lesson # 10 Get The Best Financing

Objective:

• Study real estate investment financing options.

1. Buy six properties. 2. Love your tenants. You buy a property and you pay off the mortgage. Then you enjoy the income. Then your children enjoy the income. Then your grandchildren enjoy the income. Your great-grandchildren will enjoy the income. When does this end? Now, you know why real estate investing is so great because it never ends. In a hundred years, your offspring will be saying, "Thank you great-great-great-great grandpa or grandma!" Start your family dynasty. This is beyond the comprehension of average people. You can do this. You deserve this.

Background:

One of the primary reasons for investing in real estate is leverage - using other people's money to buy larger properties or more properties than you could purchase independently. Financing is using other people's money. Through a combination of first and second mortgages, you will probably be able to leverage most transactions to 75% - 90% of the purchase price.

The same technique you have used to find and evaluate the property, you will use to finance the property. The technique is preparation.

Banks or loan companies shouldn't intimidate you. The business of the bank is to lend money. The bank has to lend money to survive. The bank is going to lend money.

Today, there are many financing options from many different loan and mortgaging sources. You are the customers. You should be treated with respect. If you find a good lending officer, he or she should be added to your Mastermind Alliance. You are establishing a long-term positive relationship with your lender. Also, remember, that after you own a property, you can have it reappraised and based on a higher appraisal, borrow even more money for repairs or other investments.

Like all businesses, the bank wants to minimize its risk while maximizing its profits. To assess its risk, the bank will evaluate you as a creditor and the property as collateral. Your objective is to present yourself and the property your are financing in the best possible light. Look for:

   1. A bank which holds a mortgage on other property you own
   2. A bank where you have existing accounts
   3. The bank which is presently on the property you're buying
   4. A bank where your Super Agent can call ahead to a friend on your behalf
   5. A bank where someone else from your Mastermind Alliance can call ahead for you
   6. A bank that you've researched on the Internet.
   7. A bank that has lent money on your type of property in your specific area in the past

When you go to the bank, you'll fill out a mortgage loan application. This is a standardized form used to describe yourself and the property. Again, you've done a lot of preparation so you can add something to this standardized procedure. Give the mortgage loan officer a copy of your Personal Financial Statement. The Personal Financial Statement is your net worth sheet typed on a separate piece of paper. It is your financial resume. Like any resume, make it look good. For the property information section, give them a copy of the listing sheet. These are both small points, but they do separate you from the average applicant. You've done the work. Make sure you get the edge.

Don't be discouraged if, on occasion, your application is rejected, but do ask for a reason. Go to the next bank on your list and start over. If several banks turn you down, you'll at least know how your own credit must be improved before you will qualify for a mortgage. If you are being rejected because of problems with the property, then you will have reasons to renegotiate your deal with the seller.

Be aware. Too many novice investors get caught up worrying about interest rates and terms. Interest rates and terms are important if you are securing a property to hold for 10 - 30 years. Interest rates are not so important if you are buying a property to flip in six months.

If your goal is to secure six core properties to hold for the long term, lock in the best fixed-interest rate. Otherwise, remember the deal.

If you have negotiated a good deal or have found a diamond in the rough, your objective should be to close as soon as possible and not risk losing the deal because you want to wait a few weeks or a month to see if you can get a 7.5% interest rate rather than an 8.25% interest rate. Don't wait. Close the deal.

Remember the deal. Would you rather have a $300,000 property, which you are buying for $300,000 with a 5% loan or a $300,000 property, which you are buying for $250,000 with a 6% loan? Close the deal. Get the property. After you own the property, what happens if you don't like your initial financing? You do your calculations and if the numbers work, you refinance. Simple.

Where should you borrow? Any legitimate source is a consideration. Whether you borrow from a bank or a mortgage company or your credit union is not particularly important. The important differentiation is made between most lenders who sell their mortgages on the secondary mortgage market, and the fewer number of lenders who hold their mortgages for investment. Most mortgage lenders sell their loans so that their funds are replenished and they can make more loans. If a lender doesn't sell its loans, its money supply is limited. Lenders who sell their mortgages are subject to the requirements of the buyers of those loans. Since most mortgages are sold to buyers with similar requirements, most banks and mortgage companies have minimal discretion when negotiating loan terms. The bottom line is that if you are dealing with lenders who sell their mortgages, the rate and terms are often not negotiable. If there is a lender or lenders in your area who retain their loans for investment, naturally the opportunity for dialogue increases. Such lenders may be more willing to consider creative financing and secondary financing.

Pre-qualified is not pre-approved. Pre-qualification for a mortgage is a simple procedure that can be done in a few minutes, even online. It is a good faith estimate. It doesn't mean much. Pre-approval means that an applicant has supplied all of his or her relevant financial information to a lender and that the lender has already verified this information and has approved the applicant for a mortgage subject only to a satisfactory appraisal of a property. Smart agents and smart sellers will know the difference between the two. This will account for approximately 20% of real estate agents and property sellers.

The Lender's Appraiser

Is the property worth what you are paying for it? At least is the property worth considerably more than the amount you are borrowing? In other words, if, for any reason, you default on the loan, can the lender foreclose and get its money back, including legal fees? The person who is responsible for making sure that the lender's interests are protected from a valuation perspective is the lender's appraiser. The appraiser works for the lender but it is you, the borrower, who normally pays the appraisal fee. This fee may amount to several hundred dollars and may be non-refundable even if you don't get the loan. You'd be wise to know this in advance. Since you are paying the tab, in a small minority of cases, the lender may allow you to choose the appraisal firm or request a particular firm. You can ask.

You are THE expert on value in your small specific investment area and NOT the appraiser. The appraiser works in a much larger geographical area. This is no time to be shy. Attend the appraisal. Be ready to answer questions and counter objections. Since you are an investment expert, you know what you are buying. You know that all of your deals are good deals. There should be no problem with the appraisal. Make sure that there is no problem.

If you are dealing with a smaller local bank or a private lender, you will probably find that they routinely hire the same appraisal firm. Should this be your situation, you can start relationship building with the appraiser(s) from that firm. You will find that different appraisers take different approaches to their jobs. As with real estate agents, there is a range of professionalism found among real estate appraisers.

Some are compulsive note takers who will need hours and hours of time. They will insist that every lock is opened and every closet checked. They will ask a seemingly endless series of questions that don't seem to have any relevance to estimating the value of the property. They will seem suspicious of everything and everyone. You will tell them the rents, but they will still want to see leases.

Some appraisers spend hours measuring everything and making drawings. Some appraisers seem obsessed with the plumbing and must turn on every faucet to check for water pressure and leaks. Some will take dozens of photos. Some will turn their noses up at "how other people live."

On the flip side, you will find appraisers that are cavalier in their approach. They can inspect a six family house in less than twenty minutes. "OK, there's a basement, an attic, you said that there are three one-bedrooms, two studios and a two-bedroom apartment. That's fine. I don't have to see the inside of the apartments. I've been doing this job for 20 years. I'm all set. Where can I get a good cup of coffee around here?"

Some appraisers will show up in fur coats and others wear work boots. Whoever they are, whatever they are, how they choose to do their job is their business and not yours. Your business is to get the loan, and you don't get the loan without a favorable appraisal. This means that you are prepared to go along with the program whether the program takes thirty minutes or three hours. This appraiser could be the biggest jerk you've ever met. You still smile. You are cooperative. Focus on the loan approval.

Some appraisers will act indignant if you try to show them a list of comparable sales and some will act indignant if you don't have the list. Obviously, it is better to have the list and not need the list then to not have the list and be asked for it. The comparable sales list is the sales record of similar properties in the recent past. If you are buying a six-family house in a specific investment area, it is possible that there haven't been any sales of other six-families in the last six months. Then, you go to four-families or eights or threes or twos. You go back a year or eighteen months. You come up with some kind of comparative price justification for your purchase. Your list should support your sales price. If some of the sales prices don't work to your advantage, don't include them on your list. When you are building your list of comparables, your objective is to get the appraiser thinking, "Yes, I can see why this guy is buying this property for $300,000. It's a good deal."

During the appraisal process, the odds are in your favor. Keep in mind that the bank wants to lend the money. Therefore, the bank wants a favorable appraisal. If an appraiser kills one deal after another, he will not be rehired.

If you are following the advice in the Master Real Estate course, you will be well aware of comparables in your area. Especially during your portfolio-building years, sales price information should be tracked and kept reasonably current. You won't be very good at finding good deals if you don't know what constitutes a good deal. For example, you must be aware of sales anomalies. If you are paying $300,000 for a six-family and two recent six-families have sold for $200,000 and $240,000, you might be in trouble with an appraiser who is just looking at a computer-generated listing of addresses. The computer-generated comparable sales list is not going to say that the $240,000 price was for a six-family in very poor condition or that the $200,000 price was for a sale from a parent to a child. It is your job to know what the appraiser is going to find when she does her comparable sales investigation. If there are surprises, be sure to mention them before the fact. Don't be timid about making your case.

Remember the big picture. You are the player. You are the investor. You are the one who stands to make the big bucks. Except for those in your Mastermind Alliance, the loan officer, the real estate agent, the appraiser, the property inspector and all the others in the cast of characters are all minor players who will disappear after you pass papers. But, on the path to riches, at some point, you need all of them. You smile. You are cooperative. You get the job done.

It is important that at some point during the appraisal tour of the subject property that you discreetly or not so discreetly mention your purchase price. Be absolutely sure that the appraiser knows that you are paying $300,000 for the property or whatever the price is. Make absolutely sure that the appraiser knows you are asking for a $240,000 mortgage.

In the perfect world, the amount that you are paying for the property and the amount that you are financing should have no bearing at all on the appraiser's estimate of value.

Again, in the real world, the appraiser should be aware of the figure that will kill the deal. Remember that lenders are in business to lend money. Lenders want to lend money. Lenders advertise for borrowers. Lenders want the appraisal to be favorable. Lenders do not want to hire appraisers who kill all their deals. Of course, appraisers are also aware of their role, which is to be reasonable. Unreasonable appraisers don't get much work. For this reason, even if the appraiser on your deal seems like a frustrated Sherlock Holmes who is wasting your time taking a microscopic view of things, practice patience and come out a winner. The odds are excellent that the appraiser also wants the deal to proceed. The appraiser has little to gain by killing your deal.

You pay for the bank appraisal, but the appraiser works for the interest of the bank. However, it is in the interest of the bank to lend you money. The bank makes money by lending you money. Act and dress professionally. Think of the appraiser as a facilitator and not an adversary.

During the tour, be Mr. or Ms. Positive. If you are going to put in new kitchens and baths or carpeting or heating systems, say so. If the apartment market is tight in your area, say so. If rents are going up, say so. Keep saying positive things. Technically, your comments on the market and your plans should have no bearing on the appraisal. Personally, they probably will. Remember, you are an expert on your specific investment area. Speak up. The appraiser probably does appraisals in a much, much larger area where values can vary dramatically. Speak up. Make your case.

Near the end of the appraisal tour as farewell pleasantries are being exchanged, don't be shy about asking the appraiser if she sees any problems with her valuation of the property. You may get a straight answer. You will probably get less than a complete OK, but at least some kind of feedback that will indicate if there is a serious problem. The only serious problem for you is an appraisal below the number you need.

In general, for all parties, you and the lender and the appraiser, the appraisal process should be a formality. After all, you are an expert on value and your intentions certainly aren't to overpay. However, if you have a gut feeling that the appraisal isn't going to go your way, speak to your loan officer about your options. Can you give the appraiser more information? Can you pay for another appraisal? Perhaps, you have a firm that would be acceptable to the bank that you have used in the past. If this is the case, you should have made these arrangements earlier. Can you challenge the appraisal? Do you have any recourse except going to another bank?

Even if you are rejected and have to go to another bank, this is a small bump on the long road. Yes, you may lose a few weeks and a few hundred dollars. Failure is a stepping-stone to success. Complete the mission. Get the property.

NEVER lie to a lender. This is unethical and illegal. This is fraud and could land you in jail. You are a warrior. No real estate deal is worth your honor. There are always new deals for active investors willing to look for them.

Before The Appraisal

As we have discussed, the appraisal process is very important but should be routine. Every effort should be made to accommodate the appraiser. Before the appraisal, you must select the best person to represent your interests during the appraisal tour. This will almost always be you. You are the one paying for the appraisal and the one with the most to gain or lose. You decide who does the talking. You don't want everyone offering opinions and comments to the appraiser.

You are the commanding general and you want to control the tour. If the seller's agent is a chatty know nothing, tell her to be quiet and that you will be the one primarily responsible for answering the appraiser's questions.

If you need a question answered, you will ask her directly for an answer. This calls for your leadership. This calls for your having made in advance an assessment of the skills and attitudes of the personnel involved in the deal before the appraisal begins.

During the appraisal tour, you also don't need an army of semi-interested people walking through the apartments and making comments.

Tenants are always nervous when a property is being sold. They think that they will have to move at worst, or pay a higher rent at best. Until the tenants know you for the wonderful person that you are, there is no reason to presume that they are on your side and that they want your deal to proceed. Whether it is true or not, your prospective tenants perceive you as a rich person just trying to get richer at their expense. If the tenants seem reasonable, explain the appraisal process to them in advance. You want the tenants to smile and say nothing. You certainly want to give the tenants 24-hour notice to tidy up. If the tenants seem antagonistic, explain to the appraiser in advance to expect open hostility from tenants who shortly will be relocating.

Be careful when owners are trying to deceive their tenants about the sale. Deception is a cowardly approach that often backfires. To not upset tenants, some owners will want you to pose as an insurance person or contractor. Tenants aren't stupid. Honesty is the best policy. You may be willing to play a role in this play, but few appraisers will. Why should they lie if a tenant asks whom they are? It is best to secure the cooperation of the tenants in advance. Tell them the truth and ask them to stay quiet. Being honest always means that tenants should know that if the dishwasher doesn't work, the appraiser isn't going to fix it.

Go through a pre-appraisal tour drill. Make sure that keys work. If you are buying a 34-unit building, ask the appraiser in advance how many units they'll want to see. Have the seller or the seller's agent speak to those tenants or make sure that if they aren't home, they know that you'll be in their apartment. Make sure that there are lights in the hallways, basement, attic and other common areas. Make sure that the common areas, laundry room, etc. are clean. Make sure that you know where the electrical panel and heating units are located and that access to them isn't blocked. Make sure that the lawn is mowed. This is all the common sense advance work that an experienced investor would do to ensure a smooth appraisal.

Going through the pre-appraisal drill is probably a lot of unnecessary work. Checking a parachute for the sixth time is also probably overkill. A warrior does it any way. This IS the difference between average and special.

Seller Financing:

Seller financing can make a good deal great or, at least, a good deal possible. In most residential owner-occupied transactions, your downpayment can be as little as 5%. In a non owner-occupied investment purchase, the required downpayment can be 20%, 25% and sometimes even 30%. Hopefully, as an investor, you can lower this downpayment requirement with some financial assistance from the seller, a purchase money mortgage. When a seller gives you, the buyer, a second mortgage, it is called a purchase money mortgage. The more commonly used term is simply a second. While most first mortgages are written for a term of 15-30 years, many seconds are written for 1-10 years.

On every deal, you can ask in your offer if the seller will participate in the financing. If the answer is positive, you may be able to save your downpayment funds for your next deal. You don't know if you don't ask! Also, this is your deal. You may not want to make a small downpayment but would prefer lower monthly payments by making a downpayment of 25% or more. You choose.

If the average property you intend to purchase is $200,000 and you need a 25% downpayment, you need $50,000. However, if the seller will lend you 15% or $30,000, then you only need $20,000. Most investment property real estate sales involve some form of seller participation in the financing, so ask. If you can borrow 90% of the purchase price through first and second mortgages and if there is still a positive cash flow, then you probably have a very good deal. If your financial burden is so heavy that the cash flow is negative and you have to keep putting more money into the property each month, then, even though you have appreciation, amortization and tax benefits, owning investment real estate can get very old very quickly.

To ensure a positive cash flow, seconds are often written with payments figured on a longer-term schedule than the actual term of the second. In other words, the actual term of the second may be 3 years, but figured as if the term were 30 years. With such a loan structure, a large balloon payment would be due after three years. If a loan is completely paid at the end of a term, it is called a self-liquidating loan. If monies are due at the end of the loan, it is called a balloon loan.

When you purchase a property using a short-term second with a balloon payment, your acquisition planning will include the steps you will take to retire this loan as soon as possible. Is the property worth more than you are paying for it? Normally, before you buy, you cannot borrow based on your estimate of value, but only on your negotiated purchase price. However, after you own the property, you are now the owner and you can go back to your lender or another lender and borrow again based on your estimate of the property's value. In other words, you may pay $250,000 for a property that you feel is worth $300,000. To buy this property, you can only borrow based on the $250,000 acquisition price. However, after you own the property, you are free to say that the value of the property is $300,000 and get a new mortgage based on this amount, presuming that the property appraises at this amount. You might ask, if the property is worth $300,000 and I am paying $250,000, why wouldn't the initial appraisal come back at $300,000? This could happen, but rarely does. Usually the appraisal comes back at or near the purchase price.

Another presumption is that as a new owner you will be doing things that will enhance the value of the property. You may add new kitchen and baths. You may convert the heating systems. You may just raise the rents. In any event, value increases and presents an opportunity to refinance and retire the second mortgage.

Now, is a good time to meditate on the Warrior Mindset that opens every mission. For you, financing is a temporary state. You will borrow money to acquire real estate and then you will immediately begin repaying those loans. In fifteen to twenty years, you will own the property "in fee" which means free of debt. You and the generations to follow will collect ever-increasing amounts of rent from your tenants. This is how rich people live. You will be the rich people.

Honesty Is The Best Policy

Again, lying on a mortgage application is not a small deception. It is not a gray area. It is fraud. People have gone to jail for this crime. If you are buying a property under the pretext that it will be your primary residence when in fact the property is solely for investment, this is wrong. If you are buying a property with a second mortgage, you must make the first mortgage lender aware of this fact. This may or may not pose a problem. Ask. The first mortgage lender does not want you putting further liens on the property, which will reduce your equity stake and consequently may reduce your interest in the management of the property.

Can you move out of a primary residence and turn it into an investment property? Yes. Find out when and how from your primary lender. Can you put a second or third mortgage on your property after you own the property? Yes. Find out when and how from your primary lender. The primary lender does not have the right to rule your life, but he does have a right to protect his investment. Ignorance is not an excuse for breaking the law. Ask questions before problems arise.

The Investment Advantages
of an Equity Line of Credit

Stock market investors have to be always alert, rushing for daily newspapers with ears always open for the latest gossip. In the stock market, act fast, buy and sell on a moment's notice or you may win or lose. Thankfully, real estate investing is not conducted in as frenzied an atmosphere. As a real estate investor, you have time to contemplate, plan, and structure your buying and selling to suit your advantage. Still, an active real estate investor wishes to have access to ready capital to hold a deal during the evaluation process. A new financing option, the equity line of credit, is an ideal instrument to accomplish this objective.

A special type of second mortgage

The equity line of credit is a special type of second mortgage given to a homeowner. In a traditional second mortgage arrangement, a specific amount of money is borrowed and repayment begins immediately. For instance, in anticipation of making a real estate investment, you may decide to borrow $50,000 as a second mortgage against your home equity. You receive the $50,000 and begin paying interest on this debt, although it may be some weeks or months before you actually need the money, in whole or part, to secure and close your investment purchase. In this traditional second mortgage arrangement, you are borrowing early. Also, since you may not have a specific purchase in mind when you borrow, the $50,000 you borrow may turn out to be more or less than the actual cash requirements of the investment transaction. If you borrow too little, you have to look for additional financing. If you borrow too much, you are paying for money you don't need.

The equity line of credit solves all of these problems.

Amount of credit

Many banks are now offering equity lines of credit to homeowners at up to 80% of appraised value, less the existing first mortgage. For instance, let's assume your home is worth $200,000 and your existing first mortgage is $60,000.

Given the above situation, presuming you can show sufficient income to cover repayment, you could qualify for a $100,000 equity line of credit.

Repayment

With an equity line of credit, you are given a checkbook with a balance up to your credit limit - in our example, $100,000. You write checks for offers, down payments, and improvements, as you deem necessary, up to your limit. The single exception is that checks must usually be for $500 or more. You pay interest on only the exact amount you borrow starting when you actually borrow by writing the checks. If you need $32,786.25 to purchase an investment property, you borrow $32,786.25, no more or less. An additional benefit of the equity line of credit is that you would still be $67,213.75 from your $100,000 limit. You would have this amount of "pre-qualified" credit at your disposal without the necessity of another loan application and approval.

Fees and rates

By today's standards, banking application/processing fees associated with equity lines of credit are very modest, usually averaging only two or three hundred dollars. Rates, often tied to one or one-and-a-half points over the Prime Rate, are another attraction to investment borrowers.

Flexibility

Equity lines of credit offer new flexible financing options to active investors. Why not make an appointment with your investment agent to discuss specific offerings by lending institutions in your investment area? Then, you can sit back and relax, knowing that you have a ready access to capital to secure your next profitable real estate purchase.

Your Credit Score

As a warrior investor, it is very important; especially as you begin to wheel and deal that you maintain your credit score. This begins by knowing your score and knowing any and all ways that your score can be improved. It also means checking for errors. There are services, such as http://www.myfico.com which for a nominal fee will give you your scores from the three major credit reporting agencies and advise you on ways to improve your score. The three reporting services also offer credit advisory suggestions. The credit reporting companies are required to offer you a free annual credit report. You can receive these free reports online at http://www.annualcreditreport.com or call them at 877-322-8228.

The three major credit reporting agencies are:

Equifax              Equifax.com    800-685-1111

Experian    Experian.com     888-397-3742

Trans Union Transunion.com  800-888-4213

Your credit is a very important asset. Do not compromise your credit by co-signing on any types of loans for friends or family members. Explain that real estate investing is your business and that you can not co-sign on loans. If you feel sorry for someone who can't qualify for credit, lend them a hundred dollars. Do not co-sign.

In the Master Success Course, you will learn the value of frugal living. You are a warrior. You practice self-discipline. Frugality and self-discipline are not the same as self-denial. You will work hard and you deserve to live well. However, since you work hard, you will appreciate a dollar and you will not spend that money foolishly. You can be extravagant in one or two areas but not on everything. You can splurge once in a while but not all the time. You will teach your family the same lessons.

No matter how much money you make, you can lose all of that money and more if your are stupid.

Story:

Jimmy Loves a Drink

Jimmy was the head mechanic for a large auto dealership. He made almost two hundred thousand dollars a year. He bought real estate. He had a nice family.

Jimmy was a drinker who became a problem drinker. He lost his driver's license once, twice, three times.  He was put on probation at work once, twice, three times. His downward spiral continued. He was arrested for D.U.I. again and again. He went to jail for weekends and then weeks and then months. He lost his job. He lost his family.

Jimmy's slide forced his wife to get a job. Having had it pretty easy in the good old days, she now resented her situation.

My office rented Jimmy's apartments and increasingly took over property management responsibilities. Over a three-year period, the wife sold off the properties in order to keep her large beautiful house. Then came the divorce.  There were three properties left.

In the settlement, Jimmy got a two-family house. The wife got the large family home and a very nice six-family house. I took over management of the six-family. The first month, I made of list of work that needed to be done. It was nothing major but routine maintenance. The wife balked that she did not have the time, the money or the inclination to worry about the six-family house.

Just one month after the divorce, she had a new man and was moving on with her life. She said, "I owe $250,000 just get me out of this." I said, "The house is worth $450,000, you can't sell it for $250,000."

A very costly week later, I called the wife to sign the listing contract. What happened when I called her?

A local contractor was doing a small repair at the wife's house. She mentioned to him the six-family and the price. It was a no-brainer. He had that deal signed and sealed immediately. He made several hundred thousand dollars for that little house call. It was the Anderson deal all over again.

The wife couldn't have been more clear that she didn't want the burden of the six-family and that she wanted to move on with her life. She spoke. I didn't listen.

I saw Jimmy a while later. I don't know what recovery step he was on but he was very contrite and blaming himself for every thing. Of course, he wasn't the only stupid one. I had to take some of the blame for letting another deal slip through my fingers.

Listen to the client. Listen to the client. Listen to the client.

Courage is a Master of Success trait. Average people around you will be happy to tell you what you can't do. Smile and proceed anyway. Your own weaker side will tempt you to buy a new car or truck and other things that you don't need. Save for investment anyway. Rejected offers will make you rethink your commitment but you will make more offers anyway.

Denis Waitley's 12 Success Secrets

Motivational Speaker

1. The drive to win embraces a burning desire to change.

2. Pay the price. Be willing to do what others won't try.

3. Believe in the champion within.

4. Strive for self-knowledge and truth.

5. Visualize victory.

6. Convert stress into energy and power.

7. Get in the zone. Concentrate totally.

8. Hang in when the going gets tough.

9. Be coachable. Be open to suggestions for improvement.

10. Be a team player.

11. Improve your leadership by empowering others.

12. Be known for greatest on the field and off.

Library

Realty Bluebook   Robert de Heer

How I turned $1,000 into Five Million in Real Estate, William Nickerson

How to Build a Real Estate Empire         Marcel Arsenault

Property Management 101

If you are leasing a condominium, be sure that the condominium rules and regulations are including as an addendum to the lease.

Common areas in condominiums must be kept common. Personalization and customization of common areas must be prohibited. The little old lady who wants to plant a garden in the common areas must be told, "Sorry, no."

If everyone wants to change the rules, change the rules. Once the rules are bent, the entire complex can go down fast.

Running for condominium board trustee is a thankless and often demanding voluntary task.

If you are a landlord or a condo resident, give a generous holiday tip to the building maintenance staff.

Operational Limitations:

On occasion, your mortgage application may be rejected. This may have everything to do with you. This may have nothing to do with you and everything with the lender's underwriting criteria or currently ability to lend money. Rejection happens to everyone and is a part of doing business.

Masters of Success don't like surprise. Know the building and the tenants before the appraisal tour. At the appraisal, ask the appraiser if he or she sees any problems to your loan approval. Be prepared to counter objections. Be prepared with comparable sales information.

Yes, some people are impulsive. Yes, some people do not act in their own self-interest. This is who they are. Listen to what clients and sellers are saying to you. Be fair, be honorable but be decisive.

Jargon:

Collateral - An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Commitment Letter - A formal offer by a lender stating the terms under which it agrees to lend money to a homebuyer. Also known as a "loan commitment."

Deed of trust - The document used in some states instead of a mortgage; title is conveyed to a trustee.

Inflation - An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.

Joint Tenancy - A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Line Of Credit - An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Mortgage Banker - A company that originates mortgages exclusively for resale in the secondary mortgage market.

Principal - The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Real Property - Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

Refinance Transaction - The process of paying off one loan with the proceeds from a new loan using the same property as security.

Rehabilitation Mortgage - mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.

Question and Answers

If I go with a "no principal" type mortgage, I'll be able to buy a much larger property. But with this mortgage, I'll never own the property free and clear. Therefore, should I stay away from this kind of loan?

With a "no principal" mortgage, you have the option of making payments against the principal or not. So, you actually have the best of both worlds. You can reduce your mortgage debt in chunks as your funds allow. And, in time, own the property "in fee" which means free and clear of debt.

You want to identify good deals and then be ready to capitalize on them. Whatever mortgage option allows you acquire a good property at a good price is fine. After you own a property, if you want to refinance, you refinance. Find the deals. Close the deals.

Should I concentrate on one type of property?

For the six permanent properties in your portfolio, you want extraordinary properties in extraordinary condition in extraordinary locations. You want the best for yourself and your tenants. The best could be condos or single-family houses or multi-families. You decide.

To raise investment capital to further your acquisition program and reduce your mortgage debt, you must buy and resell. You need to buy at a price that will allow you to resell at a profit.

Which is the better deal? The million-dollar mansion that you buy for one million dollars or the run down house that is worth two hundred thousand that you can buy for one hundred and sixty thousand?

A friend of mine who has owned several properties tells me that I should never choose a mortgage if I have to pay points, do you agree?

My advice is to first focus on value and then to make the deal happen. If you find a property worth $350,000 that has been listed for $280,000 or that you make an excellent deal through your offers, you don't want to delay. You want to get that deal on paper.

A point equals one percent. If you are asked to pay two points to get a mortgage and the mortgage is $250,000 then the points would equal five thousand dollars. Of course, you'd rather go with a mortgage where there are no points or one point or a half point but if this is your only mortgage option at the time, you accept this as a cost of doing business. Would you pay five thousand in costs to buy a property with seventy thousand in equity? Yes, of course, you would.

Again, do your research and see if you can get pre-approved for a mortgage without points. When you are an active investor, deals will appear and you will want to be ready to act. Your Super Agent will put your name at or near the top of his or her call list for this reason. You are a man or woman of action. You can make a decision and make a deal happen.

My grandmother owns a two-family house and my wife and I live in the second unit as her tenants. We haven't talked about it but I think at some point she would be willing to sell us the house. I hope at a good price. Since prices are rising in my area, I'd like to make her an offer now. Is there a good way to do this?

Yes, start talking. Be open, fair and honest with your grandmother. Give her the information that she needs to make an informed decision. Begin by telling her of your interest in purchasing the house. Then, make the deal as win/win as possible. Will your grandmother remain as your tenant? Can you offer her a below market rent in exchange for a favorable price?

She might be interested in a life estate. A life estate is a lease, which would guarantee that for the rest of her life she could rent her unit at a favorable rent or even no rent. You will have to sit down and do the math, being fair to both parties.

Since you will be open, fair and honest, you structure this deal to everyone's benefit. This approach should enable you to circumvent any family politics if there are other grandchildren or heirs.

Which real estate books do you recommend?

I recommend all of them. Go to the library and real all the real estate books in their collection. Research real estate books on Amazon.com and then buy used books from their online vendors. Knowledge is power. Reading is your best source for knowledge.

In any real estate deal, tens and hundreds of thousands of dollars can be at stake and one small idea may tip a deal in your favor or give you a new profit idea.

Go back to your Action Principle #86, "Read, Read, Read." You are encouraged to always bring a book with you. Why not have modest goals of reading five pages from a real estate investment book each day? Every year, you'd be reading over seventeen hundred pages or about six books. Who is doing this? Who is making this effort? The answer is very few people, but again, reading and research are the types of activities that are beginning to separate you from the rear echelon wannabes. Then, when you go into deals worth hundreds of thousands of dollars, you can do so with confidence. Knowledge is power.

I am really getting into real estate and may decide to make it my career. Is real estate a good career option?

Technology is rapidly changing the real estate profession. In the old days, a real estate agent's power came access to information that he had and you didn't. However, today, with the Internet and wireless communication, this has all changed.

The best agents are highly disciplined and organized, borne of self-discipline and self-organization. The best agents are optimistic, as well as pragmatic. The best agents are a lot like us – trying to buy property – and being an agent positions them to get first shot at many good deals.

My father is career Air Force and I've grown up on different bases. Some of my friends call me a nerd but I am in the eighth grade and I have already decided that I want to be a real estate billionaire. I want to live in one place and never move. I like to read and I have read the entire Master Small Business Course and Master Real Estate Course. I want to do what Andrew Martin did in the real estate story. He made mistakes but he is a good role model of someone who is going to be a big success and rich.  Is Andrew Martin a real person?

The characters in the course are fictionalized. The characters are written as role models representing my ideas of the style and attitudes a person needs to become successful.  Andrew Martin took his blows and matured in the course of his story. He learned to see life from other than just his own perspective. When he started to give more, he began to receive more.

I hope and trust that your current enthusiasm will not wane and that you will achieve your grand ambition. All property passes from old hands to young. Why not to yours? For now, stay a reader. This is the key.

Since you will be a very generous billionaire and will do many good things for society, you will be respected and have many friends.

Action Plan:

From your research, you should have a good clear idea of your mortgage options including current terms and rates.

Get copies of your credit report from all three reporting agencies. Know your score and how your score can be improved.

Get pre-approved and not just pre-qualified.

When you find a good mortgage broker, add him or her to your Mastermind Alliance.

Support:

• For property management: http://www.npma.org
• From Property Management Association: http://www.pma-dc.org
• Magazine for shopping center investors: http://www.shoppingcenterbusiness.com
• Magazine for commercial/retail investors: http://retailtrafficmag.com
• For veterans: http://www.va.gov
• For insurance: http://www.homesite.com, http://www.netquote.com, http://www.allquotesinsurance.com, http://www.insurance.info

Inspirational Insights:

Every day, you'll have opportunities to take chances and to work outside your safety net. Sure, it's a lot easier to stay in your comfort zone. In my case, business suits and real estate. But sometimes you have to take risks. When the risks pay off, that's when you reap the biggest rewards.

Donald Trump, b. 1946, Billionaire developer

He that gives good advice builds with one hand; he that gives good counsel and example builds with both.

Francis Bacon, b. 1561, English philosopher

Resolve to perform what you ought; perform without fail what you resolve.

General Stonewall Jackson, b. 1824, Confederate General

Find out where the people are going and buy the land before they get there.

Will Rogers, b. 1879, Comedian

It's kind of fun to do the impossible.

Walt Disney, b. 1901, Entertainment mogul

Older and wiser voices can always help you find the right path, if you are only willing to listen.

Jimmy Buffet, b. 1946, Singer

If everybody else is doing it one way, there's a good chance you can find your niche by going in exactly the opposite direction.

Sam Walton, b. 1918, Founder of Wal-Mart

The more faithfully you listen to the voices within you, the better you will har what is sounding outside.

Dag Hammarskjold, b. 1905, UN Secretary General

Always do you best. What you plant now, you will harvest later.

Og Mandino, b. 1923, Self-help author

In time of difficulties, we must not lose sight of our achievements.

Mao Tse-tung, b. 1893, Chinese Marxist leader

The significance of a man is not in what he attains but in what he longs to attain.

Khalil Gibran, b. 1883, Poet

Don't worry so much about your self-esteem. Worry more about your character. Integrity is its own reward.

Laura Schlessinger, b. 1947, radio psychologist

A word to the wise ain't necessary--it's the stupid ones who need the advice.

Bill Cosby, b. 1937, Comedian

Great things are accomplished by talented people who believe they will accomplish them.

Warren Bennis, b. 1925, Leadership expert

Being defeated is often only a temporary condition. Giving up is what makes it permanent.

Marilyn vos Savant, 1946, Columnist

Because your own strength is unequal to the task, do not assume that it is beyond the powers of man; but if anything is within the powers and province of man, believe that it is within your own compass also.

Marcus Aurelius, b. 121, Roman emperor

Heaven never helps the man who will not act.

Sophocles, b. 495 B.C., Greek playwright

Character--the willingness to accept responsibility for one's own life--is the source from which self-respect springs.

Joan Didion, b. 1934, American author

Timing is everything. Know when to get in and when to get out.  It is better to be 80% right than 100% wrong.

Ken Wilson, CEO of Capital Hotel Management

Always bear in mind that your own resolution to succeed is more important than any other one thing.

President Abraham Lincoln, b. 1809