Knowledge is Power

I'm working on a small 4-unit condo conversion and right now I'm collecting the information for my deal binder (all the bids and numbers, zoning ordinances, and other important information regarding the project.  In talking about this project with a potential contractor I suggested he talk with the city about the conversion to make sure that the work he is bidding is the work required by the city for the conversion.

The next day I get a call from this contractor who is concerned about the work above what I asked him to bid (he was bidding the firewall only but discovered that we need a survey, plat map, cc&rs, hoa declaration, etc. and we had to go through the planning commission and city council for approval).  I already knew these things are have bid that work.  BUT...he was also told that a new change in the building code required a pressurized sprinkler system through out the building!  So he started bidding that work as well.  This is where a little knowledge pays big!

I went in to talk with the chief building official (don't talk to the inspectors, talk to the person with the final word) about getting an inspection to make sure I've accounted for all the important changes.  In that discussion I asked him about the sprinkler requirement.  He told me the same thing he told my (potential) contractor.  However, having already had this discussion with him I had him pull out the building code and show me the definitions.  Amazingly, I was right...a town home has 2 sides exposed with no one living above or beneath!  As a town home the property falls into a different category and does NOT require a sprinkler system.  He couldn't believe it (even though we had discussed this a couple weeks ago) and had to double check with the other code book.  A few minutes later he emerges and verifies that I was indeed correct.  So in my pre-inspection he is going to discuss the "new" discovery with the inspector to make sure that he is aware of this vital point as well.  

That little bit of knowledge is going to save me thousands of dollars in upgrades and cost to change.  In fact, it is probably the difference between a successful project and not doing the deal.  In this case knowledge really is power (and a lot of money!).

Seasoned LLCs - A Great Place For Investment Equity!

For people with an unstoppable vision and desire anything is possible. And it is just a matter of time before the way will present itself. One of my friends just started a business brokering seasoned LLCs. Why is there even a market for seasoned LLCs? Because an established business can acquire financing that new business cannot. What does that mean?
A new business has no track record and the lending industy isn't very excited to take a chance on a business that is just trying to figure things out. But the same business, in 2-3 years down the raod is no longer "new." That means they have worked through the initial start-up problems and have survived so now they are worth taking a chance on (less risk). These companies can usually get SBA loans and Business Lines of Credit around $40-50K and very reasonable rates. (Keep in mind this is intended to be business debt, not commercial spending money.)
A saavy investor can purchase any number of seasoned LLCs and each LLC can get it's own line of credit up to $50,000. If they invest it with a company like ours they can take 2 LLCs ($100,000) and invest for 2 points, 12 % and 5% of the net profits. That means they can get $2,000 (for points), $12,000 (for interest for the year), and $5,000 (of the net profits) or something is the range of $17,000 return on the investment. If it costs 7% to borrow the money (or $7,000) and you make $17,000 then you have made an extra $10,000 for the year! Not bad considering that none of the invested money was actually your in the first place. And just about any one can qualify for this type of investing if they have better than average credit (680 FICO score or better).
I've been excited about this idea for a couple months now, ever since I learned about the power of seasoned LLCs. But it wasn't until this week that I discovered a consistent source of seasoned LLCs that could be purchased at will. This can be a powerful resource for investment capital for my real estate projects (based on our Foundation to Success criteria).
Consider...if each client had just one seasoned LLC with $50,000 in available credit...how many projects could be purchased? What if we combined this concept with the Equity Builder Program? Each tenant works to improve their credit to be able to purchase their own home. Once their credit is good enough to buy a home they would also be in a position to become an investing client using a seasoned LLC! If they added an additional $10,000/year in investment income, that gets pretty close to paying a reasonable mortgage payment...so once their credit is good enough they can start investing and the investments would pay for the house they just bought! And it would provide a new source for $100K investment capital on a regular basis!

Fortune Favors the Brave...It's Time to Act!

I heard Mike Watson say something that I remember as, "try to find reasons to make the deal work, not reasons why it won't work." There are so many tools in real estate that can be used to put and keep deals together. The more I work in investment real estate the more I realize that it's easy to get out of contracts and out of deals but that isn't what makes an investor wealthy. Our job is to get into contracts and into deals that make sense and then to do what it takes to make the outcome as profitable as possible (while still maintaining a win-win transaction).

Brian Tracy had a similar thought...
"Boldness is a necessary part of courage but it must be a boldness based on an intelligent assessment of the potential risks and rewards. The wonderful nature of boldness is that, properly directed, it builds the habit of courage in the person who practices it.
"Perhaps the most obvious important part of courage is the courage to step out in the face of uncertainty. Every great venture in the history of man has begun with faith and a giant leap into the unknown.
"General Douglas MacArthur said, 'There is no security in life, only opportunity.' The creed of Frederick the Great, one of history's most successful leaders was, 'Audacity, audacity-always audacity."
He continues with 2 ways to build boldness...
"First, just do it! Step out in faith! If you think some action you can take to improve your life, give it a try. You may be surprised.
"Second, when in doubt, act with audacity. Audacity may get you into trouble but even more audacity will get you out. Go for it!"

The greatest obstacle to a real estate investor is to do something. There are no guarantees in investing. But when you take an active role in creating and enhancing equity your chances for success are greatly improved. When you work with someone who has a plan for adding value, who strives for win-win transactions and opportunities, who has vision and who is willing to act with boldness (and audacity) you have a winning combination. So if the numbers work, so should you. It's time to move forward and make it happen!

Personal Opportunity

I have talked to quite a few people who are scared of this market. But there is opportunity everywhere. The majority of the people I talk to have are living in one of the greatest opportunities available, there own home! The home that you live in is one of the greatest assets you'll ever own and no matter how much the neighbor's house sold for you always know that your house is worth more! So what are you going to do about that value that your home possesses?
If there is equity in your home why don't you use it for good investments, especially if they are backed by real estate? Your home is a piece of real estate so you obviously believe that owning real estate is a good idea. But in our current market the investment that you made is currently lossing money, your equity. What would happen if you used that equity to invest in a real estate project that was guaranteed to make money in this market? What if you used that equity to buy an income producing property that would not only pay for itself but would pay off a new mortgage so that over time your net worth was consistantly increasing? How would your life change?
Obviously, increasing your net worth and cash flow do make sense so why don't more people invest their home equity in our real estate projects? The reason is that most people are scared and the fear of the unknown has a crippling effect on the decision making process. And these same people will rationalize that owning their home free and clear means that they will always have a place to live even if all their other investments don't work out. Unfortuneatly those people are only partly correct. Picture this: a person invests $500,000-$600,000 to own an investment that has a value of about $200,000; then this person has the opportunity to pay an additional $2,000 a year (in taxes) and $200 a month (in utilities) plus additional monies in maintenance for the privilege of keeping this asset. OR Picture this: a person borrows some money from their home and buys an income property; this property pays them monthly to own the property, over time the property pays its self off so that it is owned free and clear, and the income from the property pays all expenses and pays you for your faithful service and foresight; you now own a $200,000 property that pays you $2,000 a month and pays the expenses.
I hope that I can help more people see the value of investing using their home equity. Home equity, just left in the property, is subject to the ups and downs and whims of our market. But home equity that is used for investment is guaranteed to pay forever. Those who understand this simple idea will still own their homes, will still get any market appreciation but will also gain the value of the cash flow and increased net worth from investing their home equity.