Jeff Ball & Remi Darby - Having an Agent Who Listens is Vital to the Process

I met first time buyer, Jeff, when he was Executive Director of TOSA (The Other Side Arts) a non-profit arts organization he created.  Jeff, a photographer (http://jeffballphotography.com/), & his partner Remy, writer & assistant to Mondo (Project Runway runner up) had been working with a real estate agent but to no avail.  Jeff shared, "She isn't hearing us and doesn't get what we are trying to do."  Approximately 25% of my creative clients come to me after working with another agent who "doesn't get" them.  What Jeff & Remy wanted was a way to Live & Work from home.  As a photographer, Jeff needed a space he could achieve black out conditions in but would have natural light when he wanted.  They also wanted higher ceilings, a place for guests, 3 beds, 2 baths & wood floors - all for under $115K.  

We found their home our first day out!  A turn of the century ranch-style farm house in the E-OP Arts neighborhood that had been added onto.  That owner had dug a basement under the addition that was perfect for Jeff's photo studio!  The original house had 1 bed/1bath attached to a living room with walls covered in the pressed tin ceiling panels you see in old Victorians - very funky, charming, uniqueness that Jeff & Remy loved.  The addition held 2 additional bedrooms: a master bed & bath plus an additional room for Remy's writing office.  An extra benefit - the back yard gate opened out to the bike path that runs along the Platte River Greenway.  And it was in their price range!    

The 4 Stages Of Wealth Building As A Homeowner

One of the primary objectives of owning a home is to let the home appreciate over time and become a pillar of a family’s financial strength.

But before we can discuss “wealth”, we need to identify the stages to get there.

Stage 1

Having “Emergency Cash” is the first stage. It’s having $5-7,000 liquid for life’s inconveniences (the boiler breaking down, the car needing work, etc). When faced with the inevitable challenges that arise, many people are forced to run to their credit cards to make it through. They become stuck with high interest rate, non-tax deductible borrowing.

Stage 2

The second stage is the elimination of “Bad Debt”. We define “Bad Debt” as any debt whose interest is not tax deductible. Obviously, those high interest rate credit cards must be the first to go. But we also want to divest ourselves of the borrowing associated with car loans, boat loans, student loans, and personal loans because it typically can be done cheaper.

Stage 3

Shockingly, when you arrive at stage three, you will be considered in the Top 5% of Americans in terms of financial security. Stage three is accomplished when you have 3-6 months of your total expenses in reserves. The average homeowner (who is logically financially better off than the non-homeowner) has less than one month’s expenses in reserve! When life shows them more than a minor inconvenience (like a job loss, an illness/disability, or worse), most people are in a panic situation. With 3-6 month’s reserves, you will have time to weigh options and make better choices.

Stage 4

True financial security is attained when you become “Debt Free”. But not without debt. We consider our clients “Debt Free” when they have enough liquid assets to pay off whatever mortgage they have outstanding. Wealth building almost requires utilizing the tax benefits of having a mortgage in combination with strategies that utilize The 3 Miracles of Money…

The 3 Miracles of Money

1.       Compound Interest – The impact of money left to grow upon itself can be dramatic. If you had $1 on Monday and you could double it every day ($2 on Tuesday, $4 on Wednesday, etc.), by the end of 20 days, you would have $1,048,576.00!!! Now, you can’t double your cash every day, not even every year, but the concept holds true…..compounding interest is a good thing!

2.      Tax Free Growth – The ability to accumulate assets without giving Uncle Sam a third of it (in the form of Federal and State Income Taxes) is how the $1 became $1 million. If the growth was taxed at 33% ($1 on Monday gave you $1.67 on Tuesday – instead of $2- and so on), your $1 would only grow to $28,466.20 after 20 days!!! THAT IS NOT A TYPO! You would have “lost” over $1 million.

3.      Leverage and Arbitrage – If you can put up a minimum of cash and take title to a significant asset (like a down payment on a home….the smaller the down payment the better), you can leverage that cash investment to large returns. At the same time, if you can take the cash that you don’t bury in home equity and effectuate a spread between your “after tax cost of money” (mortgage payment) and your investment options (hopefully, in a tax free environment), you can gain the exponential growth that creates wealth.

Special thanks to Dave Cook for providing this information.  

Want to know more about home ownership?  Call me, Laura at 303-726-1051.

Earn While You Learn

Investing in real estate is one of the most powerful ways to earn money while you learn how to make more money.  When you consider the cost of higher education today and then factor in the chances of gainful employment once you’ve completed that $40,000+ education the amount needed to get into real estate investing begins to look pretty sweet.  Our current success story, Matt A. saw the opportunity and jumped on it.  His journey was not all roses.  I asked Matt what he came up against and what he learned from the bumps in his investing road.

"In addition to what you can get out of books like Your Castle Real Estate’s “Investor’s Guide” & Gary Keller’s “Millionaire RE Investor”, I’ve learned several things that don’t come in the books.  How to listen to my gut, who I need on my team and when to listen to them, the importance of controlling fix-up costs & remaining flexible, and the one that saved my butt - having multiple exit strategies.

“The first several months were about learning how to look at property – first on paper and then while walking through the houses.  Looking at property on paper can be deceiving.  The pictures often times make the homes look really nice.  But then we’d get to the house and realize it was a total shambles.  Pictures can lie.  You had told me I’d need to look at 100 homes on paper & then go see 10 to write one offer.  It’s tricky because there are so many variables.   But after seeing several dozen properties those variables became less intimidating & more familiar.

"The biggie is location.  But I found that even in the less desirable areas there can be pockets that are great.  With my first three deals we were in three different areas: North Aurora, Montebello & South Denver.  Each area had its own set of influencing factors.  Now I know that it’s important (at least in my case) to choose an area and learn all I can about it: avg. price point, quality of schools, acceptable level of fix-up.  And perhaps the most important – do the inspections before you close!”

Ah Yes, I remember.  Would you like to share that story?

“Sure.  We’d just closed on the 3^rd flip and one of those “too good to pass up” deals came to our attention.  It was back in the east Denver/north Aurora area that I really liked, a 2 bed/1 bath for $70K.  I knew the area was running low on properties under $100K and we’d had some down time between a couple of the earlier deals which I didn’t want to do again.  Having my money sit in the bank wasn’t getting me any closer to my goal.  If we wanted the house we needed to close in 48 hours to save the house from its foreclosure sale.  So I jumped on it.  The comps were showing resale in the $140K range.  That’s $70K in wiggle room – how could I loose, right?

“So we closed Tennyson on a Tuesday & bought Willow on Thursday.  Then we did the sewer scope.  (insert the sounds of fate here- “dun, dun, dun, dun” in a descending scale)  And of course it was trashed so I had to replace it to the tune of $5000.  Then we decided it really needed a garage - $11,000.  By the time we got it fixed & back on the market it was mere days before the tax credit expired and I had little room to reduce the price and still make some money on the deal. 

"We had the house on the market for 6 months with very few showings when you and other investors I know started talking about keeping the place as a rental, re-financing to pull out equity and picking up a couple of other rental properties.  This was the “remain flexible & multiple exit strategies” lessons in practice and it lead to my best buy to date."

We’ll save that story for the next Success Stories installment.  In the meantime, if you’d like a FREE copy of the Your Castle Real Estate “Investor Guide” give me a call – 303-726-1051 or shoot me an email at ludmilla303@msn.com

Finding the Right Real Estate Agent for Investing

Building Your Real Estate Investing Team

“Where no counsel is, the people fall; but in the multitude of counselors there is safety.”
                        -- Proverbs, 11:14

“The important thing to recognize is that it takes a team, and the team ought to get credit for the wins and the losses. Successes have many fathers, failures have none.”
                       -- Philip Caldwell

The most successful people always have a great team helping them.  You’ll need to find a Mortgage Broker, Real Estate Agent, Inspector, Appraiser, Insurance Broker, Contractor and CPA.  You may also need the support of an Attorney and a Property Manager.  Today my focus is on finding the right real estate agent.

To begin, the two most important members of your team will be your mortgage broker and your real estate agent.  Outstanding residential mortgage brokers and real estate agents rarely achieve even modest success with investors.  Insist on full-time professionals that specialize in working with investors so you can maximize your track record of success.

Interview and Check References when searching for a real estate agent

Bear in mind that the perfect agent with A+ answers on every question likely does not exist, and if they do, they will be so busy that they might not have time for more clients. Be willing to compromise. It’s rare that you can find the 100% perfect agent.  The search and thought process for investments should be highly numbers-driven - residential agents are mainly focused on the emotional appeal of a home and how well it fits their client's lifestyle.

Here are some sample questions:
  - Are you a Full Time Real Estate Agent or do you do other things? If so, what else do you do?
  - How many transactions did you complete in the last twelve months?
  - Tell me about the mix of clients – what types of clients did you work with and what sorts of deals did you do?
  - Do you work on a team? If you are sick or on vacation, who will be helping me?
  - What happens if I’m not satisfied? Can I get out of the contract? How long is the contract?
  - Describe the investment you are considering. What properties do you suggest I consider? What have you seen other investors like me do? What specific returns did they achieve?
  - How would we work together? What is your “Process”?
  - Could I get some references of two or three investors you have recently assisted?
Call them up and ask them …
     • How comfortable they were working with the agent?
     • How knowledgeable did seem?
     • How responsive they were in answering questions and returning phone calls?
     • What did not work for you in the relationship?

I encourage you to interview a few real estate agents before making a final decision to sign a buyer’s agency contract.  Make sure you have a clause to cancel if you are not satisfied.  Commit to working with one agent after your due diligence period so they will bring you the best deals.  Non-committal buyers only see left-over deals after preferred clients have picked over them.

If you are thinking about investing in real estate I recommend “The 2011 Guide To Colorado Real Estate Investing” by Lon Welsh. For your FREE copy give me a call (303-726-1051).

Easy Money

My father died 2 weeks ago & his memorial service was this past weekend. When the pomp & circumstance was complete, my siblings and I spent a few hours pouring over photographs & other memorabilia, telling old stories and for the most part laughing about the adventures and mishaps of our youth.

During our dance down memory lane I uncovered a frame that held 5 stock-transaction receipts near the top of the frame, a short poem in the center and the calculations of what could have been at the bottom. The stock receipts showed the sale of 2000 shares of Pizza Hut stock over a period of 1 year - 1975, my sophomore year of high school. Sale of 300 shares, sale of 500 shares, and so on. The last 700 shares were sold on 6/26/75 and settled on 7/3/75.

The poem goes like this:

There once was a young man named Dick
Who sold his Pepsico stock too quick
Making money had been easy
His attitude was breezy
He thought he was really slick

From this sale a lesson was learned
Easy money should never be spurned
Dick bellowed and blew
But from then on he knew
Keep good stock and you'll never be burned

And at the bottom were the split dates:
07/21/75 - 3 for 2 = 3,000 shares
11/07/77 - 1.55 for 1 = 4,650 shares
05/07/86 - 3 for 1 = 13,950 shares
08/10/90 - 3 for 1 = 41,850 shares

Dad figured those original 2000 shares would be worth about $5M today had he held onto them. What did he get in return? New siding on the house, a groovy little sports car and a 10-day family vacation to Los Angels.

My father left me many things, among them; a commitment to honesty, a thousand great memories, 4 fantastic siblings, a small gold pinkie ring with the classic 70's smiley face (the symbol of his life's guiding principle, "Think Happy Thoughts"), a very small amount of money, and this 8.5"x11" frame with a powerful reminder of what's possible when we use our cash to buy assets and then leave the assets to work their magic.