Refreshing! Home Values First Annual Increase In Nearly Five Years


“There was a surge in real estate this spring”, I answer to the question,”How is real estate?” I’ve been asked the question many times lately and that was my response. Really the response was just a gut feeling. Until I read the following article:

The housing market has finally turned a corner. In Q2, we saw continued momentum in the housing recovery, despite of some economic turmoil, like flagging job growth numbers and sovereign debt issues in Europe. Nationally we hit a bottom in the first quarter of the year, and the Zillow Home Value Forecast shows that 67 of the 156 markets it covers will experience an increase in home values over the next 12 months. Nationally, Zillow forecasts home values will rise 1.1 percent……………………………(Click to Continue Reading Article)

My final thought summed up in one word, “Refreshing”.

 

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Published in: on July 26, 2012 at 8:05 am  Comments (2)  
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Get Closer to Your Asking Price


By Dave Miller

Is the real estate market getting stronger? Here is a graph that would support that claim. This either supports it or tells us a whole other thing. This could mean that the sellers are being more realistic with their asking price.

This graph is Lancaster County home sales for the last year. It is saying the average home is selling at 93% of the asking price vs 90% in Feb of 2012.

Published in: on July 16, 2012 at 7:35 am  Leave a Comment  
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Negotiating a Get Rich Slow Scheme


by Dave Miller

The easiest way to get rich quick is to accumulate wealth slowly. Well then, how does one accumulate wealth slowly?

First you need a plan. A solid, well thought-out, practically applicable plan.

This requires a solid plan, to preserve your precious capital, as you do not want to go backward. The retaining of capital is a key element of moving toward your goal. If you lose your initial capital you must not only gain it back but also recoup the lost time.

It must be well thought-out; you do not want to be jumping on some quick get rich band wagon that is ready to go bust.

The plan must be feasible. Over the ages three areas have proven successful; real estate, gold, and businesses. Most wealthy people own one of these three.

Don’t put all your eggs in one basket, just like your Daddy told you. But nevertheless get some baskets and fill them with eggs. Many people use that line to delay saving and investing.

The real estate basket is the topic of discussion today.

Enter John Schaub and his book Building Wealth One House at a Time.

Building Wealth One House at a Time – John Schaub

This book focuses on strategies for creating wealth through real estate by starting small – and making the right moves. Nationally known real estate expert and speaker, John Schaub, learned his craft in the best way possible–on the job, and through every kind of market. He published a great book titled Building your Wealth one House at a Time. In it he shows you how to buy homes with little money down using private or owner financing. By doing this he eliminates the whims of the banking world. The lender he says, is more concerned about getting his money back than earning high interest. In Chapter 6 he tells you to do what it takes to make the lender happy, over secure if you must.

Click this link to read an article I also wrote on keeping the your lender happy.

He recommends only single family dwellings, no fancy shmancy highfalutin projects. Just solid homes the typical family desires and can afford to live in.

The part that hit home for me was that he says buy one home a year. No more. He warns of the dangers of diving headfirst. By waiting a year to purchase your second investment property you will learn innumerable lessons before plunging in.

John uses two people to accumulate wealth; his renters and his lender or investor. His lenders allow him to buy the home and the renters pay for it. In the meantime he is accumulating wealth. Renting to long-term tenants, with financial incentives to pay on time.

By using leverage, i.e. owner financing, investors or the bank, he can purchase a home that otherwise he would have needed to walk away from. This then allows him to have a renter paying down on the mortgage. But remember, leverage is a two-edged sword. It can help you accumulate faster and it can take you down even faster. You must carefully consider the amount of leverage you are comfortable with and what makes sense in your situation.

Building Your Wealth One House at a Time is very concise yet an easy to read book. It lays out a blueprint that is easy to follow using graphs and figures.

Unique is his approach to focusing on buying houses in good-quality neighborhoods while simultaneously creating positive cash flow properties. John uses the Goldilocks theory when choosing a neighborhood: not too expensive and not too cheap. Go with a neighborhood where prices are just right.

Buy his book today. Read it. Implement a plan. Take the first (I know this is the hardest one but do it anyway) step. You will not get rich quickly but you will most definitely be headed in the right direction.

Now for the good news! John Schaub is coming to town. Well, rather to a town in New Jersey. Iselin.

John is presenting a one day class called “negotiating secrets of a Professional Buyer”. Saturday June 23 2012 from 9:00 to 4:00pm. You can register here: http://www.eventbrite.com/event/3199047437 I plan on being there so I hope see a few of you there. If anyone is interested in carpooling from Lancaster County just call me. Cell number 717-656-0749. Currently four of us are heading there. Join us.

A quote from John’s site:

John has survived, prospered, and helped his students to make money in every market since 1975. Come learn how to recognize which opportunities are right for you today and for the next five years at this most interesting time in our history. Get ready for an exciting and profitable future!

You can subscribe to my blog on the right side bar for farther updates. If you do so, you will receive a copy of my blog as soon as I post it thus saving you time by not needing to check back.

Owner Financing is Legal Again – PA Allows Owner-Occupied Residential Mortgages


by Dave Miller

What was illegal has been reverted; you can once again borrow money from your rich uncle to buy your house. In Pennsylvania, you can participate in private financing deals again.

Our government in its normal state of exaggeration and misappropriation deemed it necessary to make a law regarding mortgages. This was after Wall Street, Fannie and Freddie all really screwed up in the mortgage world. True to form our government went into complete overkill and enacted the S.A.F.E. Mortgage Licensing Act of 2008. This Act states that an individual who takes a mortgage application and negotiates a residential loan is breaking the law.

This meant that if you asked your rich uncle to loan you $200,000 to buy your house, you were a law-breaker. If you asked the seller to keep money in the house you were buying, that was breaking the law. Residential mortgages were a strict no-no. This was only being regulated for about a year but was creating quite the uproar.

Our government had enacted this law saying they were protecting the people. What they missed was that the people weren’t asking for protection. Besides this law actually did the opposite. When the people wanted money they went to the banks, and the banks were not in the lending mood so they didn’t lend. In times past the people would ask friends, family or the seller for assistance. This kept the bankers in check until their statesmen cronies helped then out by making it illegal.

I’ll try to break this down:

Secure and Fair Enforcement for Mortgage Licensing Act 2008. I’m most certain it’s not fair and secure but they picked the title, not me.

The key here is “loan originator”. They define it as anyone that takes, offers, or negotiates a residential mortgage.

This applies to “residential mortgage loans”. Owner occupied or as they state “personal, family, or household use” is prohibited.

As far as I can tell, commercial mortgages and private loans or any other non-owner-occuppied residential mortgages are legal.

Owner occupied real estate with a mortgage is what is at stake here.

Now the good news.

This month the Pennsylvania Department of Banking has released a letter to clarify what a “mortgage originator” is. Here are the highlighted areas of the letter with my comments:

As a general matter, the Department will begin interpreting the provisions of the existing MLA regarding the definition of “mortgage originator” to the extent possible in a manner consistent with the HUD Regulation.

Comment: the department is interpreting the definition of “mortgage originator”

the Department will not take exception to an individual making or brokering three (3) or less mortgage loans in a calendar year without being licensed as a mortgage originator,

Comment: the department does not view someone as a “mortgage originator” if he is involved in less than 3 residential owner-occupied mortgages.

sellers of dwellings or residential real estate by means of an installment sales contract who engage in such business in a commercial context and habitually and repeatedly are required to be licensed as mortgage lenders and have their employees appropriately licensed as mortgage originators under the MLA.

Comment: installment sales are mortgages.

You can read the entire letter: Click here

 Now I’m not a lawyer or anything close to it so don’t take my word for it. Ask an attorney that can bill you $225 an hour. I spent around 5 hours researching this subject, it’s too bad I can’t bill at that rate.

So here is my take:

You can once again be involved in owner-occupied residential mortgages as long you do not exceed 3 per year. So go ahead and borrow from your rich uncle to buy your home.

Related Blogs:

Choose What You Want To Learn in Real Estate


We, at Shepherd Real Estate LLC, are offering a few FREE classes this fall.

Our class-room style lectures are structured around real estate investing. The Shepherd Team consists of professionals in Lancaster, PA with experience in real estate. We are investors ourselves and want to help you succeed in your endeavors. The Shepherd Team has a wealth of knowledge to share. In house we have an attorney, a CPA and Realtors all ready to help you.

 We need your help in deciding which classes to offer. Our goal is to give you what is of most value to you. We are conducting a survey to choose to the topics.

Please click through to the survey to make your choice.

Click here to take the survey.

Your response will help us pick the best topics.

Here is a breakdown of the options:

  • Investment Analysis

Crunching the numbers

  • Building your Power Team

Realtor, attorney, insurance agent, consultant, property manager

  • Assets Protection

Entities, insurance

  • Improving Cashflow

Proper management for better cashflow

  • Taxation of Real Property

Structuring your investments to avoid excess taxes

Click here to take the survey.

Thank you for taking the time to complete the survey.

Email me if you want to be notified when we schedule these FREE classes. They will be held at a location to be announced in the Lancaster PA area.

realstreet@frontiernet.net

Legal Profiling


by Dave Miller

Lately we read about profiling in a negative sense.  Police officers are getting a bad rap for doing their job.

Cops concentrate on the most likely suspects, narrowing their focus. The world calls this profiling. If a group of people have a history of crime they watch them closer. The reason they profile is obvious. It works. They do what gets results. Why wouldn’t they? Well, some agency decided it’s discrimination.

As an investor you are not regulated on profiling. Not yet, thankfully. So be discriminatory.

Create a profile of the type of property you a searching for. Base your criteria for the most likely profit making enterprises. Focus on this profile. Don’t waste time and energy on avenues that do not meet your criteria.

In real estate you hear of many ways to make money. National speakers make a lot of money telling you of a hundred different ways to capitalize on real estate deals. They open your mind to new ideas by getting you to think outside the box. This is good. You need to be open-minded. But select a strategy that fits you.

Your goal should be to narrow down your search and methods to a few options that fit your personality. Don’t try to be someone or something you aren’t. If you base your strategy on the results of others only, you are likely to burn out. And probably be unsuccessful.

Nevertheless, I do believe in following the lead of successful people. But do so only after you analyze yourself. Figure out what motivates you. What makes you tick? After you have found your niche, and only then, get the best mentor, with experience in that field, you can find.

Now start profiling. Narrow your search and let it rip.

This applies to not only to real estate. Business and charity are among many other areas of life in which this should be applied.

You will be much more successful once you have found your sweet spot in life.

Find it.

 Related Posts:

Real Mistakes by Real Investors, and How You Can Avoid Them (Part One)


by Dave Miller

In the real estate world investors tend to make the same mistakes over and over again. Then after a time they learn and either stop investing or stop making the mistakes. When they stop making the mistakes yet continue to invest, then the dividends start coming in.

Yet new investors emerge into the market place making the same mistakes their predecessors did.

You have a choice; to make the mistakes yourself or to learn from other people. I say, learn from other people’s experiences. It’s cheaper than way.

#1. Ignoring Risk Management

   Investments consist of two sides; risk vs. reward. Yet many tend to skip the risk element. Buying and hoping for the best. “Hoping for the best” is not risk management. You must carefully weigh the risk-to-reward ratio. All investments have risk, there is no such thing as a risk-free investment. Even if the risk is only your time or your money being tied up. You therefore risk your time or money on this project while it could be used on another possibly better deal, losing chance of a greater return.

  Loss of capital can come in various forms; capital loss (devaluation), loss of greater gains, loss of additional capital (lawsuits),i.e.

Here are few ways to reduce risks:

  • Purchase your property in a LLC
  • Discuss the purchase with a trusted attorney
  • Know the market
  • Get liability insurance

This list could be ten pages long, yet I will stop with this. Encircle yourself with trusted and experienced advisors. Ask questions. Weigh your options. Call or email with questions, call 717-951-0201 or realstreet@frontiernet.net , I will gladly give you a free 15 minute consultation. (Consider the risk first, losing 15 minutes vs. gaining 15 minutes of knowledge)

#2. Over Leveraging

Investors love the way leverage increases the return on the investment. Yet they forget it is a two-edged sword. Leverage magnifies both profits and losses. Investors tend to use too much leverage and use it too long in their careers.

Am I advocating no leverage? No.

Investors should use leverage early in their careers, making sure they can cover the payments with alternative means, and move towards more secure loan-to-value ratios later in their career, making the net worth they achieved more secure.

#3. Picking the Wrong Strategy

Pick a strategy that matches your strengths. Not everyone is cut out to raise the rent on eighty-five year old ladies or evict 6’ 5’’ drug thugs. If you don’t know how to fix a roof and are scared of heights then stay off the roof.

Aligning your strengths with your strategy requires honesty. Rather than focusing on how someone else did it, look at yourself and your potential. If you are not a sales person but rather Mr. Fixer-upper then outsource the sales aspect and focus on fixing.

#4. Overstating Returns

Hunters and fishermen tend to exaggerate, telling tales that captivate their wide-eyed audience. Real estate investors tell even wilder tales. Telling friends they made $5,000 on a wholesale deal yet forgetting to mention they spent $12,000 on some guru telling them how.

Whether working with partners that hold an equity position or private money investors, you need to gain their trust. For this deal and for the next. If you overstate the returns and then fall short of your promises you risk losing a partner. But if you honestly and accurately state your expected returns and then supersede them, you win.

#5.Overimproving Properties

There is no profit in fixing something. The profit is in the added value of the improvement. If it costs you $5,000 to build a garage that increases the property value by $5,000, you have not added value. Make sure the improvement adds value beyond the cost.

The profit is in the purchase price. Not in the improvements. Improvements cost money, paying less does not.

Many investors pay too much for fixer-uppers. Don’t be one of them. Make your money on the buy.

Avoid trying to squeeze every penny out of the deal when you can close the deal with a decent profit. A certain dollar today is better than an unsure dollar tomorrow. Here is an example of a property I could have made more money on but chose not to (Click Here). Get the fast buck not the last buck.

#6. Waiting Till April 15th to Check If You Turned a Profit

April 15th is when you report your profits to the IRS, not when you see if you had a profit. In real estate numbers are everything. If you lost money on a deal you need to know that NOW! Not after three more deals like it. Run the numbers. Have your accountant involved in your planning.

Quotable Quote:

There’s blind luck, dumb luck and then there’s get up every morning at 5:30 and sweat the details luck. Few people actually stumble into wealth. It takes persistence, tenacity and a tireless work ethic. In the end, luck has little to do with success. It takes experience and hard work. Pure and simple. –  Smith Barney

Get Rich Slow Scheme


by Dave Miller

The easiest way to get rich quick is to accumulate wealth slowly. Well then, how does one accumulate wealth slowly?

First you need a plan. A solid, well thought-out, practically applicable plan.

This plan must be solid, to preserve your precious capital, as you do not want to go backward. The retaining of capital is a key element of moving toward your goal. If you lose your initial capital you must not only gain it back but also recoup the lost time.

It must be well thought-out; you do not want to be jumping on some quick get rich band wagon that is ready to go bust.

The plan must be feasible. Over the ages three areas have proven successful; real estate, gold, and businesses. Most wealthy people own one of these three.

Don’t put all your eggs in one basket, just like your Daddy told you. But nevertheless get some baskets and fill them with eggs. Many people use that line to delay saving and investing. Procrastination kills.

The real estate basket is the topic of discussion today.

Enter John Schaub and his book Building Wealth One House at a Time.

John Schaub

Building Wealth One House at a Time - John Schaub

This book focuses on strategies for creating wealth through real estate by starting small – and making the right moves. Nationally known real estate expert and speaker, John Schaub, learned his craft in the best way possible–on the job, and through every kind of market. He published a great book titled Building your Wealth one House at a Time. In it he shows you how to buy homes with little money down using private or owner financing. By doing this he eliminates the whims of the banking world. The lender he says, is more concerned about getting his money back than earning high interest. In Chapter 6 he tells you to do what it takes to make the lender happy, over secure if you must.

Click this link to read an article I also wrote on keeping the your lender happy.

He recommends only single family dwellings, no fancy shmancy highfalutin projects. Just solid homes the typical family desires and can afford to live in.

The part that hit home for me was that he says buy one home a year. No more. He warns of the dangers of diving headfirst. By waiting a year to purchase your second investment property you will learn innumerable lessons before plunging in.

John uses two people to accumulate wealth; his renters and his lender or investor. His lenders allow him to purchase the home and the renters pay for it. In the meantime he is accumulating wealth. Renting to long-term tenants, with financial incentives to pay on time.

By using leverage, i.e. owner financing, investors or the bank, he can purchase a home that otherwise he would have needed to walk away from. This then allows him to have a renter paying down on the mortgage. But remember, leverage is a two-edged sword. It can help you accumulate faster and it can take you down even faster. You must carefully consider the amount of leverage you are comfortable with and what makes sense in your situation.

Building Your Wealth One House at a Time is very concise yet an easy to read book. It lays out a blueprint that is easy to follow using graphs and figures.

Unique is his approach to focusing on buying houses in good-quality neighborhoods while simultaneously creating positive cash flow properties. John uses the Goldilocks theory when choosing a neighborhood: not too expensive and not too cheap. Go with a neighborhood where prices are just right.

Buy his book today. Read it. Implement a plan. Take the first (I know this is the hardest one but do it anyway) step. You will not get rich quickly but you will most definitely be headed in the right direction.

Quotable Quote: It is hard to fail, but it is worse never to have tried to succeed. – Theodore Roosevelt

Good Things Take Time


                   

Good Things Take Time   

By Dave Miller

On Oct 16th 2007 we set up a showing to see a former doctor’s office that just came on the market. The local hospital bought out the doctor’s practice and the real estate. Real estate was not the motive nor was it something the hospital desired.  Their long-term plans rule out owning real estate other than their core buildings. So they bought out the doctor with his office and put the office on the market. The main floor was the doctor’s office which he was vacating. Upstairs was a dentist’s office, he was also vacating. So empty she stands.

The building looked to be in good repair. After researching the market we saw potential but concluded by saying “It’s empty and we are not looking for an empty building”. Therefore we let the opportunity pass us by and do not place an offer.

Time passes. The property is still on the market. We watch it from a distance.

In the process of time our Realtor changes offices and now works side by side with the listing agent. He is told the hospital is now using the building for their primary billing department. They consolidated two or three offices into this one.

Our realtor calls us with the news and I ask to see the lease. It is pitiful. The year to year lease offers a 6.7% return. This ends being good news because no one is interested in this property with such a low return.

After viewing the property again we crunch the numbers. Using a combination of existing knowledge, an accountant and our mentor, we place an offer. The offer is contingent on the standard items, i.e., inspections, zoning, financing and the like. But the one value is that we have 90 days to get a satisfactory lease or we can walk.

The hospital comes back with an upward adjustment of $15,000 in price, we accept their counter. We were not concerned about the purchase price. Why not? One may ask. This agreement is contingent on a satisfactory lease. If the purchase price goes up then the lease must increase to reflect that. We are calculating on a percentage basis, so if they want more for the property we want more for the leased space. They raised their own rent. We are buying based on cash flow so if they don’t give use a satisfactory lease – we walk. It’s that simple.

The lease agreement negotiations started with a meeting at the hospital with their Vice President, the realtors and us. They expressed heavy interest but only on the main floor. We reminded them they are currently using the basement. The VP was not aware of this and said he would investigate. Next they said that they want the main floor and one half of the basement for storage. Our attorney starts writing a lease agreement. I continue to negotiate with the hospital and things improve. I tell them our break of point and then offer them the entire basement for a few thousand dollars more. They accept. We are happy because we do not need to do any work in the basement and this gives them a larger share of the CAM costs.  We end with a better lease than we had expected.

We also ordered a building inspection. This came back reporting that the heating and cooling system had only a few years of life left. A new  system  would be around $20,000. We add in a few other repairs and estimate  the near future could bring up to $23,000 in expenses. Suddenly the venture has lost its luster.

We walk.

No bridges are burnt. We make another offer that reflects the $23,000 in possible expenses. They balk. Prices are obtained by them for a new heating and cooling system. A few weeks pass and we receive a counter. They do not accept our reduced price but are willing to replace the heating and cooling system within their tenure if needed.

Now we quibble amongst ourselves. It is still a good deal. We accept.

In the weeks that follow we wrangled together the legal work.  A limited partnership is created with a LLC as the general partner. This allows for limited liability and avoids capital stock tax.

April 1st 2010. No fooling. This is two and a half years later. We sit in the attorney’s office. Papers are signed. Both parties walk away happy. Rather six parties, the investors, two Realtors, a banker, an attorney and the sellers are all happy. Before the meeting is dispersed two new ideas are sketched with the group. Maybe in two and a half years we will all be sitting around the same table again, just maybe.

Quotable Quote; “I walk slowly, but I never walk backward.” Abraham Lincoln

Published in: on April 8, 2010 at 1:20 am  Comments (4)  
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