The Beginner's Guide to Real Estate Investing

GARY W. ELDRED, PHD, has invested successfully in real estate for more than twenty-five years and has served on the graduate business school faculty at Stanford University and the University of Virginia. He cohosts a nationally broadcast radio show on investing and frequently makes presentations at seminars throughout North America. He is also the author of 106 Mortgage Secrets All Borrowers Must Learn—But Lenders Don’t Tell and Trump University Real Estate 101, both from Wiley.

About This Book xi

Part One: Mindset + Knowledge = Wealth 1

Chapter 1 Start Now 3

Just Say No to Excuses 3

You Must Believe It to See It 7

Set Goals Now 12

Chapter 2 Multiple Paths to Building Wealth 19

Appreciation in Market Values 19

Inflation 21

Cash Flows 24

Mortgage Payoff (Amortization) 24

Buy at a Bargain Price 25

Create Value with Property Improvements 26

Improve the Neighborhood and the Neighbors 27

Convert the Use 28

Manage and Market Your Properties More Profitably 30

Protect Your Profits from the IRS (Tax Shelter) 30

Discounted Notes, Tax Liens, Tax Deeds, and Realty Stocks 34

Part Two: How to Raise Money 37

Chapter 3 Strengthen Your Credit Power 39

Consistency: Fast Track or Flake 39

Character Counts 40

Credit Scores Count Most 42

Summing Up 51

Chapter 4 How to Invest Using Little (or None) of Your Own Cash 52

Why Low-Cash Deals Magnify Your Returns 52

Minimize Your Down Payment with Owner-Occupant Financing 56

Don’t Overlook FHA 59

Discover FHA’s Best Kept Secret: The 203(k) Program 62

Too Many Vets Pass Up VA Loans 63

Even Fannie and Freddie Accept Little- or Nothing-Down Loans 65

Summing Up 66

Chapter 5 Avoid Banks, Seek Seller Financing 68

How to Persuade the Sellers 69

What Type of Seller Financing? 71

Try a Contract-for-Deed 74

Assume a Low-Interest-Rate Mortgage 77

“Assume” a Nonassumable Mortgage 80

Chapter 6 Five More Techniques to Finance Your Investments 84

Wraparounds Benefit Buyers and Sellers 84

Lease Options 85

Lease-Purchase Agreements 91

Master-Lease an Apartment Building 92

Chapter 7 How to Come Up with the Cash to Close 96

Cash Out Some of Your Current Home’s Equity 96

Bring in Partners 97

Second Mortgages 99

Personal Savings 100

Sell Unnecessary Assets 100

Easy Money—Hard Terms 101

Use Credit Cards 105

Personal Loans 105

Sweat Equity (Creating Value through Improvements) 105

Eliminate Your Down Payment with Pledged Collateral 106

Student Loans 107

Use Creative Finance 107

Chapter 8 Here’s How to Qualify 109

Be Wary of Prequalifying (and Preapproval) 109

You Can Make Your Qualifying Ratios Look Better 111

The Application Itself Contains Many Clues to Your Integrity 121

No Preset Qualifying Income Applies to Commercial Properties 122

Part Three: How to Invest for Maximum Gain 127

Chapter 9 Twenty-Seven Ways to Find or Create Below-Market Deals 129

Why Properties Sell for Less (or More) than Their Market Value 129

Don’t Dilly-Dally with Due Diligence 135

How to Find Bargain Sellers 137

Chapter 10 Make Money with Foreclosures and REOs 143

The Stages of Foreclosure 143

Approach Owners with Empathy: Step One 145

Some Investors Profit from the Foreclosure Auction: Step Two 148

The Benefits of Buying REOs: Step Three 151

Chapter 11 More Sources of Bargains 156

Federal Government Auctions 156

Sheriff Sales 157

Buy from Foreclosure Speculators 157

Probate and Estate Sales 157

Private Auctions 159

Short Sale Bargains 162

Chapter 12 Run Numbers Like a Pro 169

Monitor the Construction Cycle 170

How to Profit from the Construction Cycle 170

Per-Unit Measures 173

Gross Rent Multipliers (GRMs) 175

Capitalized Value 176

Cash Flow Returns 181

Create Your Own Appreciation 183

Chapter 13 Greatly Increase the Value of Your Investment Property 184

Search for Competitive Advantage 185

First, Verify Actual Rent Collections, Not Merely Rental Rates 186

Talk with Tenants 187

Set Your Rents with Market Savvy 188

Your Apartment Checklist 189

Give the Interior a Martha Stewart Makeover 190

Safety, Security, and Convenience 193

Rightsize the Rooms 194

Create More Storage 195

Check Noise Levels 197

Overall Livability 198

Chapter 14 Twenty-One More Ways to Push Up the Value of Your Properties 199

Create Strikingly Attractive Curb Appeal 199

Collect More than Rent 202

Convert a Garage, Attic, or Basement 203

Create an Accessory Apartment 204

Create a Special Purpose Use 205

Change the Use of a Property 205

Cut Operating Expenses 208

Gentrification and Other Value Plays 210

Part Four: Onward and Upward to Build Wealth 217

Chapter 15 Win What You Want through Negotiation 219

How to Define Win-Win 219

Know Thyself 222

Know the Property and Neighborhood 222

Know the Sellers 223

Establish Favorable Benchmarks 225

Tit for Tat 226

Get Seller Concessions Early 226

Come Ready to Buy 227

Ask for More than You Expect 227

Establish Credibility 228

Never Offer to Split the Difference 229

List Your BATNAs 230

Negotiate for Yourself 231

Leave Something on the Table 233

Chapter 16 Write Your Purchase Offer 235

No Single Contract Form 235

Draft Clauses with Understanding 236

Summing Up 246

Chapter 17 Craft Your Lease to Increase Profits 247

Achieve Competitive Advantage 247

Craft Your Rental Agreement 248

Landlording: Pros and Cons 260

Chapter 18 The 12 Secrets of Successful Landlording 262

The Good News 262

Hired Management versus Self-Management 263

Before You Buy, Verify, Verify, Verify 267

Prepare the Property for Rental 269

Craft a Winning Value Proposition 270

Attract Topflight Tenants 271

Set Up a Flawless Move-In Policy 275

Retain Topflight Residents 276

Strong Market? Raise Rents 277

Prepare for Special Problems 279

Maintain the Property 280

Process Move-Outs Smoothly 280

Persistently Seek Ways to Increase Your Cash Flow 282

Keep Trading Up 283

Internet Appendix 285

Index 291