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Getting Started In Real Estate Investing – Phase 3: Entity Structure Set Up

Larry Arth — Tue, 21 Feb 2012 14:12:58 +0000

Okay, we are having fun now – if you are following along with our series about getting started in real estate investing, you now have a basic plan with some notes established and you are being purposeful! If you stumbled upon this post, you will want to read these posts first, Phase 1: Focus and Purposeful Investing and Phase 2 Finance Set Up.

Entity Structure Set Up

I know by now you are eager to start looking at property, but not so fast. We want to set you up for success. It is important to first establish your entity structure set up.

Real estate investing is an awesome vehicle to create wealth. Like anything of value, you want to protect that wealth. You want to park your new expensive car in the garage during bad weather. You want to keep your money in a bank, safety deposit box or a secure location. You do this because you want to protect it from bad things happening to it. Real Estate is no different. Real estate is an asset and like any asset you need asset protection. Part of asset protection is liability protection.

Imagine for a moment that the unforeseen would happen. Someone gets hurt on your investment property and wants to sue you. If you do not protect your family assets, a bad lawsuit can wipe them all out.

To avoid this, the seasoned investor will typically form a trust or an LLC (Limited Liability Company) and have this entity purchase the property. This protects your personal assets because a lawsuit will need to sue the property owner and the property owner in this case would be either the trust or the LLC. Indirectly this is your company, but in the eyes of the law and taxation department, the property is owned by the trust or LLC and therefore is the party subject to the lawsuit and not you. This will protect your personal assets from the lawsuit.

What exactly should I do here? The answer may be different for different people. A lot if it has to do with your personal goals and objectives. Here is where you will want to talk to your financial advisor or tax preparer. They will help you (based on your financial situation) to set up the best entity for you and your needs. Another great source here is your personal attorney. Your attorney looks out for your liability protection and therefore they may also set these up.

NOTE: an attorney who looks out for your liability protection and an accountant who looks out for your asset protection actually have two different yet parallel objectives. I always conference call (or take them out to lunch) and have them discuss this with each other. It is important that you get the best of both worlds. You want great asset and great liability protection and they can easily brainstorm what will be the best way for you to set this up.

I know, I know, you are asking yourself what is this going to cost? First of all shift the question to what is the value of this investment (thinking like an investor this step may give you a better return on your investment than any other purchase you make). The investment will vary by person and situation and complexity of the process. You may be between the $330 and $800 category. If it saves your personal assets, this entity structure set up consultation is worth every penny.

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Getting Started In Real Estate Investing – Phase 2 Financing Set Up

Larry Arth — Fri, 17 Feb 2012 14:17:02 +0000

In our continuing series, Getting Started In Real Estate Investing the Equity Builders Way, we have thus far covered having a real estate Focus, and now we are moving on to financing, or how to pay for the investment.

There are many schools of thought on how to pay for a real estate investment and you must decide what is best for you. It is imperative before looking at property that you establish how you will come up with the needed funds.

Cash: This is the most common and most lucrative way to get the best deals. Cash is king and the reason people are able to get the stellar deals they are getting is because financing options are difficult right now. So money talks louder than any person buying a property subject to financing.
Seller financing: second most common and lucrative venture. Sellers know you are leveraging the sellers financing to your benefit and as a result you get the leverage and in turn they typically will want more of a premium for the price. As the ole saying goes “it is either price or terms”. When terms are important to you then you may pay a little more for the price, but if you have the leverage of financing, it is often a great way to go. It really boils down to the returns so run the numbers (we will discuss in future post) and see what makes the most sense.
The fastest growing method of buying property is in a self-directed IRA: This is where you can actually use the money you have in certain retirement accounts to purchase the property. Most people did not know you can do this but it is done every day by seasoned investors. Simply put, you direct your IRA to make a purchase of a particular piece of real estate. The investment is held in your IRA, the cash flow and capitol gains when sold go back into your IRA. (What a great tool to build for retirement).
A bank Loan: This has been a very common one. Today with the global economy you will need a 20% down payment and good credit and as long as you have that you can get some great terms on a loan and a great price on the property (foreign investors, sorry this one is more of a challenge for you at this point in time) but it too will come back.

Historically there have been a number of other creative financing methods as well. As they require massive diligence and are not really prevalent in today’s economy, we will save them for later posts as they become more widely accepted again.

On the aspect of paying for a property, we also consider leverage. Leverage, of course, is the ability to borrow money. This borrowed money actually gets invested and gains returns such as cash flow and capitol growth (appreciation). Pretty cool concept when you can gain benefits from money that was simply borrowed.

Using leverage to buy real estate investment property is a beautiful thing. It has made many people millionaires. Unfortunately it has also brought a lot of people to their knees. Leverage is a massively powerful tool. As with any powerful tool, it needs to be respected and properly used. When used properly it can and will make you wealthy. When used quickly and haphazardly it can cause accidents.

When the real estate market is at its suspected bottom and has really nowhere to go other than up, leverage, even in a higher capacity, can be very powerful. When leverage is used in high capacity in a real estate market that is not at the bottom, it may become more dangerous. Let me explain.

Many people in 2003 to 2006 here in the U.S. were using leverage at the rate of 95 to 100% of the value of the properties they were buying. Because these people were not diligent in their research into best locations (Post: coming up in phase 4) they borrowed most of the money to acquire their investment property. When the bubble burst, property values dropped and they were stuck owing massive mortgages on properties that no longer had the value. In other words, they are now upside down on their mortgages. They got out of real estate investing all together as they now have a negative taste towards real estate. “Luckily, you are reading this now and becoming purposeful so this will not happen to you”.

Moral of the story, use leverage wisely. The better positioned the market is to grow, the safer the use of leverage is. The more balanced a market becomes, the less leverage you want to use.

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Florida Real Estate Investing Tips

Larry Arth — Wed, 15 Feb 2012 14:59:19 +0000

My Florida real estate investing tips may surprise you a bit – even though I am a hard boiled, numbers driven investor, this location of choice real estate investing opportunity is near and dear to my heart!

I say it every day: “Live where you wish and invest where it is best.”

My Wife and I moved to Florida a little over 8 years ago and we do love it here. I believe every person who has a desire to, should own real estate in Florida. Fortunately the new lower price points brought on by the bubble and global economy has given new opportunities that many thought were gone forever. The rapid price increase that was happening in the early 2000’s was a sure dream buster in many people’s eyes.

Many people use Florida as a place to own a second home or vacation property and there are many awesome reasons to do so. Anywhere you live in Florida you are within about an hours drive to some kind of beaches. We have some of the best golfing, best weather and more entertainment options than probably any area in the country and possibly the world.

There are many reasons people have to invest here in Florida. Based on the numerous phone calls and conversations I have daily, I thought I would share a few tips to consider when making your Florida real estate investment:

Know exactly what you want to get from your investment or purchase before looking at any Florida investment property for sale. Most people decide they want to invest in Florida for the great attractions it offers and then start immediately start shopping houses. They find a great house only later to learn the best place for them to live is actually in another area of the state.
Start by making a list of what you will do with the property and, if it is a second home, what do you like to do, what attribute does the immediate location need to provide to make you happy. Consider things like activities, lifestyles, do you want close proximity to airports, beaches, golfing, etc. The more you know about what you want the easier it is to find the right property. All decision makers should be involved in this process.

Now, armed with this info, you can better determine where within the state of Florida will accommodate your wishes. But you are only at the beginning, next the investment aspect.

If this is a home you will retire to in the long term, the investment aspect may not be so important. But, if you plan to liquidate someday, you will want to focus on the value play. With your specific areas identified, you must now determine which of those areas can sustain growth the best.

For example:

Metro areas where employment is growing will have a much higher probability of generating higher returns on resale. So do your diligence on job growth.
Population growth.
Areas that are the most undervalued (these areas have the furthest to grow).
Areas that are not highly consumed by investors. These areas become more volatile during economic uncertainties.
Areas that have enough population to generate enough job diversity to sustain economic security during hard times.
Homes with 3 bedrooms and 2 baths are the largest demand and represent the best capitol growth when selling.

The short of it is, if this is not your primary residence, look at it like an investment. Shopping for the property should not happen until you and your fellow decision maker identify exactly what you want, and how it will sustain itself in the long term.

Happy investing!

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Getting Started In Real Estate Investing – Phase 1 Focus

Larry Arth — Fri, 10 Feb 2012 14:40:14 +0000

As part of our continuing series, Getting Started In Real Estate Investing, today’s post is Phase 1, Getting Focused.

Getting focused sounds simple and laugh if you wish, (many already skipped to the next phase) but this is the first phase and the one that is most often missed, skipped or ignored.

If you read this first phase through in its entirety, you will be more successful than probably 90 percent of investors out there. I am going to share something very special with you new investors, something NO-ONE ever talks about! (They may keep this a secret because they know if you do not understand this part, you may never succeed and that leaves more of the great investment properties for them.) Whatever the reason, I know from 35 years of real estate investing, the number one category of education that is missing from most every bit of real estate knowledge is the phase of Focus: Purposeful Planning.

Start by thinking like an investor, and for many of you this may be thinking opposite of what is the popular belief.

Most people know the concept of investing is to “buy low and sell high”. Yet the majority of people do the opposite, why? Because they tend to do what everyone else is doing. When everyone and their brother is buying, they want to buy. Thinking like a real estate investor, if everyone is buying, it is actually a sellers’ market and you cannot possibly make good sustainable money in a seller’s market.

As the saying goes, “you want to get in the lane where few people are traveling”. This feels uncomfortable, but as another saying goes, “it is lonely at the top” (I wish I knew who to quote for these fine comments because they make great sense). Seasoned investors know they have little competition because by the time everyone else figures this out, they will have already made the best deals. Go where others fear to tread and you will find the riches.

OK, stop sweating because phase two will make this much easier than your anxiety filled stomach is now feeling.

Finding Real Estate Investing Focus

The first thing to do is take the emotion out of your decisions. People buy the home they live in with emotion, but You MUST purchase your investment properties with LOGIC.

So you will want to sit down and make some notes:

why are you wanting to invest?
what do you want to get out of the investment? (and don’t say “I just want anything that will make money”, this to me makes the same sound as someone running their fingernails down a chalk board, uugghh)

Do as a seasoned investor does, create a plan. You MUST know what you want long term out of your real estate investments.

Is it cash flow and what do you want the cash flow for? (hint: it should be to reinvest and build a big portfolio, but hey this is your plan) OR
Are you looking for long term capital Growth (my personal favorite) OR
Maybe you want the lifestyle investment where you can own property in a beach front or golfing or mountain community and visit it from time to time, meanwhile having someone pay for the mortgage and expenses

Take your time on this and write it down.

Things to consider for your plan:

What is your investment strategy?
What type of properties do you wish to invest in? (single family homes, multi unit buildings, etc.)
How long do you plan to hold the investment?
What are you most planning to get from your investment?
How do you wish to take ownership to the property (Trust, LLC, etc.)
Which markets interest you the most and why?
How much do you currently have allocated to invest?
What are your Source of Funds?
What type of returns are you realistically expecting to receive?
What would you like to accomplish in the next 5 years with your real estate investments?
What are your exit strategies?
Additional items of importance to you?
Additional items of importance to you?
Additional items of importance to you?

Seriously, take your time on this and once you’re done you can read the next post which will be about entity structure and finance set up.

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Getting Started in Real Estate Investing The Equity Builders Way

Larry Arth — Thu, 09 Feb 2012 14:42:24 +0000

Getting started in real estate investing can be confusing and frustrating. It seems like everyone knows more than you and wants to prove it by making you feel dumb. On the other hand, we love working with new real estate investors, showing them the ropes and the “right” way to judge properties and investments!

Did you know that in the U.S., 51% of all real estate investors are new to real estate investing? So wipe the sweat from your brow and relax because you are not alone. Yes, there are others who have also discovered that if you want to make a shift in your family’s financial prosperity, you can do one of two things… You can either read in the papers over the next decade about all the wealth that was created in real estate investing OR you can get educated and be one of those people that are being written about.

We get real estate questions from new investors every day (no, this is not a metaphor). Everyday people ask “how do I get started?”

We need to break this down into multiple phases, because if you truly want to succeed you need to 100% embrace these phases and the steps within them.

Yes, my big pet peeve is when people spend more time doing diligence on the vacation they are about to go on or the new appliance they are about to purchase than about learning and understanding real estate investing, (just ask the thousands of so called real estate investors who lost everything) because they just jumped into it without focus and preparation. So we are going to take this slow and concise.

Please do yourself a HUGE favor and read this “Getting Started In Real Estate Investing” series slowly, think about it and embrace it (after all it will take you a lot less time to read it than it took me to write it), I am doing this because I care about your success so if you too care about your success this should be easy reading.

Here are the phases of the process…coming up in the next few weeks!

Getting Started In Real Estate Investing – Phase 1 Focus
Getting Started In Real Estate Investing – Phase 2 Financing Set Up (How to Pay for the Investment)
Getting Started In Real Estate Investing – Phase 3 Entity structure
Getting Started In Real Estate Investing – Phase 4 Location due diligence
Getting Started In Real Estate Investing – Phase 5 Build your power team
Getting Started In Real Estate Investing – Phase 6 Property due diligence
Getting Started In Real Estate Investing – Phase 7 Acquisition and re-duplicate the process

Stay on the right real estate investing track!

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Real Estate Notes for Sale

Larry Arth — Tue, 07 Feb 2012 13:32:11 +0000

Buying Real Estate Notes for sale can be a very prosperous investment.

There are different types of notes and often the question arises about how they work.

Here are probably the two most common types of notes…

The note purchased from a lender

These require some real estate investing knowledge and diligence to create the right structure.

They require you have the ability to create the opportunity when you purchase the note. At the time you purchase there is often an occupant with a financial hardship and you need to contend with this non paying occupant first.
Most times you need to deal with home renovations to the property. The challenge is you may not have a good understanding of the condition of the property as you purchase the note. This means it is very difficult to be a purposeful investor, if you cannot assess the expense up front, it is a lot like investing in a slot machine, you are rolling the dice in hopes of a great payout.
The financial reward of the note investment relies on your ability to create the opportunity. These notes are great for the seasoned investors who understands the many nuances of real estate deals and negotiations. They can be very lucrative for the diligent mind. The risk levels are higher if you do not know what you are doing and the rewards can be higher as well.

Then there is the 50% equity Share Cash flowing notes

Properties are purchased and rehabbed
Properties are tenanted and cash flowing
Properties are managed by the person who owns the property (the best invested interest to a value play)
Properties are located in emerging markets (the best ability to create capitol growth)
Notes are typically 20% below appraised value giving you great capitol growth potential
A nice fixed rate of return generates consistent cash flow month after month

Cash flowing Notes with 50% equity share are great investment vehicles for the out of area or overseas investor. There are literally no management headaches, no lost cash flow due to tenant issues or repair issues.

Where Do You Find Real Estate Notes For Sale?

We KNOW that the biggest problem investors have is finding current, active notes that are available for sale RIGHT NOW. Our list is updated weekly and has ONLY currently listed Real Estate notes for sale.

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Using the US Housing Crisis To Get the Best Investment Properties – Part 2

Larry Arth — Tue, 10 Jan 2012 14:02:27 +0000

In our previous post, How The Housing Market Crisis Affected US Investment Properties – Part 1, we talked about the back story to the US Housing Crisis. Today we are going to look at how real estate investors are using the US housing crisis to get the best investment properties.

Here is what the savvy real estate investors are doing:

Having A Plan – Start with a real estate investing plan in place and find a real estate power team that can help them execute the plan.

Set Up Proper Financial Structures – Entity structures are set up (such as a trust or LLC) for asset protection and liability protection by working with national and, or international tax accountants to make sure that their homeland laws do not create a double taxation issue with the US tax laws.

Understand Cash Is King – The domestic currency of many of the foreign countries, when converted to US dollars provides massive leverage. Using currency exchange facilitators to maximize the conversion of their dollars to U.S. Dollars by purchasing exchange rates when the dollar exchange is at its peak and then they can lock that exchange rate in for as much as two years. This gives them even more leverage.

US Lending Is Stagnant – The reason that home prices are so low is that a smaller percentage of people can actually get a loan for purchasing a US property. Foreign real estate investors are leveraging anything they can in their homeland to create the cash. Many just have cash, others have secured lines of credit to their homes or businesses.

Picking The Best Locations To Invest – Experienced real estate investors understand the importance of investing in the best locations. They do their diligence to make sure WHERE they invest within the US has the best markets to maximize their rate of return. Also that the market they choose is able to sustain the rate of returns they seek.

Effortless Equity – One of the keys to succeeding at US real estate investing is to find turnkey properties that are sold at below retail prices which gives immediate equity value from day one.

Property Management – It is vital to make sure that the turnkey property provider also provides excellent property management.

Affordable Financing – Smart investors position themselves to acquire US credit so that as the financial markets rebound, they will be able to qualify for US financing.

Forward Thinking – As this financing comes available, they plan to put some mortgages on their properties to further leverage their cash and purchase more properties.

We work with foreign and domestic real estate investors every day, putting these plans in place and making the connections to find turnkey properties with solid finacials and ongoing property management support. If you would like to find out more about the investment properties we represent or how real estate investing works in the US, give us a call today! +1 727-808-8735

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How The Housing Market Crisis Affected US Investment Properties – Part 1

Larry Arth — Fri, 06 Jan 2012 14:49:47 +0000

Using the US housing crisis to get the best real estate investment properties can seem a little mercenary, BUT since it is happening, our best option is to capitalize on the opportunities we see in front of us now!

In Part 1 of this series, we will look at How The Housing Market Crisis Affected US Investment Properties:

Foreign real estate investors from all over the world love investing in the US real estate market. The Number 1 reason is that US real estate is deemed to be one of the safest investments in the world. As was shown at this years World Real Estate Investing Summit, US real estate continues to be one of the most highly sought after commodities around. Our population grows at a rate of 1 new (net) person every 10 seconds. Everyone who lives here wants to stay here and many people from all over the world wish they could live here.

Buying property in the US is as simple as identifying the right location and property and agreeing to the purchase contract. If indeed you have money to purchase a US real estate investment property and agree on the terms of a contract, you are good to go. Very few if any other countries have the simplicity to own real estate as the US does.

About 10 years ago the government and the finance industry wanted to make it possible for as many people as possible to own a home. This was a great concept but one that would later prove to be a disaster. In order to allow as many people as possible to get a home loan the lending standards were reduced to almost nothing. Many loans (nicknamed Liars Loans) were utilized and the process allowed most everyone who asked for a loan to get one.

What this ultimately did was created a large demand for homes. Everyone was buying homes and many were buying a second home. Investors were buying 10 to 20 homes and up. With little to no standards to qualify for a loan, the banks were lending money to people who could never sustain the payments they were committing to. Along came the A.R.M (Adjustable Rate Mortgage). These loans allowed you to get into the property very cheaply and after a year or two, the payment would rise as the interest rates went up. All these purchases obviously created a supply and demand imbalance for homes that were for sale, resulting in very rapid escalation in values.

Then the bubble burst. Home values started to decrease and now we are here, years later with a much deflated real estate market. In many parts of the country, the value actually reduced to home prices in the late 1990s to early 2000, eclipsing the increase and going even further down. In my opinion, most markets have over corrected.

Why the over correction? In its simplest form the finance industry has taken such a hit by borrowers who have defaulted on their mortgages that they are busy trying to liquidate their bad loans and are scared to finance money again. Lenders have done a complete turnaround from the height of the real estate boom days. They went from very loose lending standards to lending standards that are so tight many people who would normally qualify for a loan are not currently able to qualify to borrow money.

What this does to home prices is forces them to be reduced to the point that people can come in and pay cash for them. As fewer and fewer people have the means to purchase with cash, the supply of buyers is reduced which reduces the value of the homes. Homes are more affordable now than they have been for the past 15 years based on income to housing expense ratios.

Tune in next week for Part 2 of this series, Using the US Housing Crisis To Get the Best Investment Properties.

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Pros and Cons of Purchasing an US Investment Property Sight Unseen

Larry Arth — Wed, 04 Jan 2012 14:42:03 +0000

There are both pros and cons to purchasing US investment property sight unseen. I hesitated to write this article as it had the possibility of opening a whole can of worms (great North American colloquialism!), I then thought why not. There are many real estate investors who do this every day, so it would serve them well to consider both the pros and cons.

Let’s start with a HUGE declaimer from my end, it is ALWAYS my advice to visit an investment property BEFORE you purchase so you have complete clarity as to what you are buying. That having been said, here are my takes on the pros and cons of purchasing US investment property sight unseen:

Pros: TO PURCHASING SIGHT UNSEEN

you save money on travel expenses which improves your total ROI
you save time by not traveling

Cons: TO PURCHASING SIGHT UNSEEN

Your ROI is decreased by adding travel expenses into the mix
You do not have visual clarity to the area and the condition of the area such as density of the area and condition of neighboring homes
You are unable to see first-hand where is the path of progress in the city you purchase in
You are unable to create an eye to eye contact with the people you are buying from and those who will manage your properties

While I tried to be fair, I still unequivocally recommend visiting the property (or having your agent or representative go in person to provide a detailed report).

If a picture is worth a thousand words, I believe seeing a 3 dimensional full panoramic in-person view is worth a million words. Pictures on the internet can hide a lot of telltale signs that can indeed be identified in person. One example is that freshly painted trim on a house that makes the visual appeal look awesome but in person you may identify that it is painted over wood decay.

In a picture you look at the house and its features, but in person you can see the roads out front and the condition of the curbs and gutters. If these are in disrepair, you may find yourself with an upcoming special assessment.

I can go on and on here, but I believe the illustration is there. Trusting the people you work with is important and, though there are a lot of people that cannot be trusted, there are many that can, the challenge is clarity. What may seem as an insignificant issue to one person is sometimes a huge issue to the next person. Only you know exactly what it is that makes you comfortable, so I believe viewing the property you purchase is paramount.

If you are considering purchasing a US Investment Property sight unseen and would like to find out how to get a “feet on the ground assessment” done by a reputable Realtor, give me a call today and we can discuss your options! +1 727-808-8735

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Are Craig’s List, EBay, Classified Ads or FSBOs the Best Place to Get a Deal on Real Estate Investing?

Larry Arth — Thu, 29 Dec 2011 14:43:54 +0000

Are Craig’s List, EBay, Classified Ads or For Sale By Owners (FSBOs) the best place to get a deal on real estate investing? The answer, of course, is it depends! You may find great properties on these internet sites and you may find horror stories. The big question to ask is, “is there someone involved in the transaction that will have a fiduciary responsibility in the transaction” (meaning: is there a licensed representative here that is obligated by law to look out for my best interests). If not that person needs to be YOU. Candidly, you should always do your diligence either way to make sure you are making sound decisions.

I hear stories everyday about people who have purchased investments only to learn the property is land locked (meaning you cannot access the property because it is in the middle of someone’s land and there are no roads in or out of the newly purchased property). Other “fun” problems are the property is located next to a nuclear power plant or some other disaster area.

The point I am illustrating here is that it is imperative to do your diligence and view the property BEFORE you purchase (check out our posts Exit Strategy – Foreign Investors Should Know About The FIRPTA Laws and Real Estate Investing Exit Strategy – The Demographic Shift). Ask lots of questions and know what you’re buying. Ask why it is being sold and do your diligence to see that the exit strategy you have in mind will work and be proficient for your desires.

The double edge sword when purchasing through these venues is the seller is trying to save money by marketing it themselves. (This is understandable human nature to save money). However, when there is not a real estate professional involved in the transaction there may be a lot of unknowns. If you do not sell properties every day, do you indeed know what you need to do to sell the property?

Same thing goes for the buyer. If the buyer does not buy property everyday, do you need to know what needs to be done to make a complete purchase without surprises? Many times it is the unknown that gets people in trouble. You should do plenty of diligence and, based on the stories I hear, I always advise to hire a real estate professional of some kind. Whether it be a real estate broker, a real estate attorney or someone that can help you make sound and intelligent decisions.

Stay on the right real estate investing track!

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