Professional Documents
Culture Documents
This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal or other expert assistance is required, the services of a competent professional should be sought.
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Set goals Understand the principles of a good deal Review classified ads Read real estate magazines Drive through neighborhoods Be organized Be prepared Convey a professional image Tell associates, friends and peers Review telephone scripts Draft a contract or agreement of sale form Understand contracts and agreements Call 10 to 20 sellers Recruit a Realtor or title company Visit the courthouse Inspect the property Prepare the offer Present the offer to the seller Develop a database of buyers Maximize your credit Take your banker to lunch Check out the money available classifieds Build your team Look in the For Rent classifieds Attend an auction Explore advanced real estate strategies
Introduction
Real estate is an outstanding investment, one that historically has increased in value more than the rate of inflation. Real estate also provides numerous tax benefits, a good source of cash flow and a tax shelter through depreciation. As long as inflation eats up the purchasing power of the dollar, people will continue to invest in real estate as a hedge against inflation. This phenomena, coupled with an ever-increasing population, will add to the future demand for real estate. You have made a wise decision in purchasing this program. Our real estate program contains powerful, proven strategies and resource material designed to give you the experience of seasoned real estate investors. This booklet, 25 Steps to Becoming a Successful Real Estate Investor, will help jump-start your venture into real estate investing and guide you in the right direction using a simple step-by-step approach. Completing each of the steps will put you well on your way to financial success through real estate investing. Take advantage of our consulting program. Our consultants are real estate professionals with years of experience conducting real estate transactions. Tap into their experience and expertise. Its now time to embark on a new and exciting journey to achieve your financial goals through real estate investing. We are proud that you have chosen our real estate investing program to guide you down the road to financial freedom. There will be many forks and curvesperhaps even some potholes along the waybut if you review our material on a regular basis and work with our consultants, you will be well on your way to success. We wish you the best in your journey to reach your financial goals through real estate investing and look forward to receiving your personal success stories. Lets get started! James J. Francis
Goals
The first step is to define your motivations for wanting to become involved in real estate investing. Are you looking to create long-term investments? Do you want to become financially independent? Are you going to work on this part-time until you can replace or surpass your present level of income or are you going to jump into this full-time? Whatever your aspirations, you will need to establish a clear-cut direction to achieve your objectives through the use of goals. Goals are milestones on the road to accomplishment. Studies have shown that the most successful people are the ones who have clearly defined goals with detailed action plans. Written goals are a powerful means of reaching personal dreams. Your success is actually the progressive, timely achievement of your stated goals. Defining what you are after is 50% of the battle. Before you proceed any further with this program, sit down and take the time to list what your goals in real estate are going to be, using the forms provided. The more specific your goal, the more quickly you will be able to identify, locate, create, and implement the use of the necessary resources for its achievement. Always focus on the results you want to achieve, not the process. Focusing on the results helps to create your road map. To be effective, goals must be SMART: Specific: I want to be successful in real estate is a wish, not a goal. For it to be a goal, you must define exactly what successful is for you.
Measurable:
days.
Action-Oriented:
establish momentum.
Realistic:
unrealistic.
Goals must stretch you out of your comfort zone, but not be
Timely:
Target completion dates should be included with every goal statement. I will complete_________ by January 1, 2002.
In the space provided, write down two or three of your real estate investing goals. Then create an action plan by listing specific steps that will need to be completed in order for you to reach those goals. For example: Goal: I will purchase my first FSBO (For Sale by Owner) investment property Target Completion Date: Two months from todays date Action Steps: 1. I will identify 50 potential FSBO properties from newspaper classified ads. 2. Before the weekend, I will narrow the list by half using the ABC rating system I learned in the 25 Steps to Becoming a Successful Real Estate Investor guide. 3. I will contact 20 FSBO owners by phone this week. Real Estate Goals
Goal: __________________________________________________________________ Target Completion Date: ___________________________________________________ Action Steps: 1. __________________________________________________________________ 2. __________________________________________________________________ 3. __________________________________________________________________
Goal: __________________________________________________________________ Target Completion Date: ___________________________________________________ Action Steps: 1. __________________________________________________________________ 2. __________________________________________________________________ 3. __________________________________________________________________
Goal: __________________________________________________________________ Target Completion Date: ___________________________________________________ Action Steps: 1. __________________________________________________________________ 2. __________________________________________________________________ 3. __________________________________________________________________ 5
The speed with which you are able to achieve your goals is directly related to how clearly and how often you are able to visualize your goals. Your subconscious mind works to make your mental pictures consistent with the outer world. You move toward the things you think about, whether you want to or not. Your outward thought process directly affects your outward reality. Visualization is the process of creating a mental picture of what you want to happen as if it has already happened. Visualizing a goal is like giving a direct order to your mind to apply its full power to the goals accomplishment. The greater the detail and clarity of your thought pictures and the more often you picture what you want, the more quickly you are likely to see results and to overcome the apparent obstacles between where you are and where you want to be. To help you see success, place your Top-10 Goals where you will see them every day. Make visualizing your goals a regular habit.
10-10-10 Rule
Avoid putting more than 10% down on a property. Use the power of leverage by using other peoples money so you can tie up as many properties as you can with the least investment possible. Avoid getting involved with a property that has more than a 10% annual interest rate. In the long run, this interest rate can diminish your overall return on investment. Purchase properties you plan to hold or renovate a minimum of 10% below fair market value, not the listing price.
Where Do I Start?
Most first-time real estate investors begin by acquiring single-family homes or duplexes. Strategies for investing in commercial properties or apartment complexes will be discussed later in this material. One of the best ways to discover good real estate deals for single-family homes and duplexes is to review the classified ads in your local newspaper. The majority of real estate classifieds are placed in the Saturday or Sunday editions. When you review the ads, you will need to have several colored pens or markers on hand to circle the ads you want to call.
Coding Ads: A, B or C
When you find ads with these words in them, circle them. Then use an A, B, or C rating system. The ads that show the most motivation (those having multiple words from the above list) mark with an A, those with less motivation get a B and those with just some motivation rate a C. You will use these markings to determine which ads you should call first. Stay away from ads that are long and flowery, ads that describe amenities, location or great views. These people are trying to sell their property at the full market value and probably have no intention of entertaining a low offer from you. You will often find that short, concise ads lead to good deals. Usually these are FSBOs (For Sale by Owner), and the brevity of the ad indicates that the owner has little or no extra money. 7
market that you can use for future evaluations. Work smarter, not harder, is one of the credos you should learn to live by!
Get Organized
Now is the time to get your home office and systems organized. Before you start following up on the real estate ads or contacting owners from properties you identified during your neighborhood drive-throughs, make sure your home office will accommodate your present and future needs. Below is an outline of some basic items: A desk, reading lamp and a comfortable chair (because you will hopefully be spending a good deal of time establishing your real estate business). A phone line dedicated solely to your real estate business with an answering machine or a voice mailbox with remote access. A two or four-drawer file cabinet with hanging folders and plenty of files (legal size is preferred because most contracts come on legal-sized paper). A financial calculator. This will be a necessity when you are negotiating with sellers and need to know how to change the terms of the deal to fit the needs of the seller. You can buy one of these calculators for less than $50. If you have sufficient capital, you will want to add a computer, a fax machine, and a copier to your office. If you do not have the capital to buy these initially, go back and add them to your goals list. Even though you may start out in real estate investing working part-time out of your house, it is important that you create a professional image. When dealing with homeowners of FSBO properties, an image of experience and professionalism may give you negotiating leverage. Your appraisal of the homeowners property or offer will tend to have more credibility if conveyed through a professional image. So how do you project the persona of the experienced real estate investor when you are working at it five to 10 hours a week in the extra bedroom in your house? One important means is through having professional-looking stationery and business cards. Although most seasoned real estate investors prefer to maintain a low profile, business cards for the beginning real estate investor can be a valuable tool. Your business card can provide information on how to contact you, can keep your name prominent in the minds of homeowners with whom you have spoken and can be distributed to friends, relatives and business associates for future leads and referrals.
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Telephone Scripts
If you were to visit all the properties available in your market, it would take forever. A quick telephone survey and a record form are your best tools to maximize your time and effort. Below you will find sample survey scripts and questions you should ask to get the ball rolling. Script #1 Hi, my name is ____________________. I am a real estate investor and would like to discuss your property for sale. Is now a good time? (If not, schedule a time to call back.) Im looking at several properties and just need to take a few minutes to see if your property would be of interest to me. If it is, I would put an offer on it within 24 hours. Script #2 I am a cash investor. I try to solve the problems that many sellers face. Maybe I can be of help to you, too? Is now a good time? (If not, schedule a time to call back.) The inactivity of real estate agents usually causes longer selling times for a house selling time that could drag on for months or even years. A prospective buyer would most likely have to qualify for a loan. As time goes on, it could cost you a lot of money to keep paying the mortgage and because of real estate commissions, you end up getting less for your property than you should. With Realtor commissions and closing costs your total expenses can add up to more than 15% of your asking price. For the right price, I will pay you cash and offer a quick closing for your property. Do you feel that we can work together? (Common Concerns) If the homeowner does not want to discuss the information: I dont want to waste your time or mine and Id like to put an offer on the property as soon as possible. This is a common discussion in the sale of a property . . . (ask next question). If the homeowner wants you to see the property: I would love to after I get the answers to a few more questions. If you are dealing with a FSBO (For Sale By Owner), you will need a Contract or Agreement of Sale template on which to write up your offer. Most people are intimidated by contracts, particularly when it comes to real estate. You will want to present a user-friendly, professional-looking document that solidifies and formalizes the verbal agreement. Consider having an attorney familiar with real estate law prepare a user-friendly form for you. Make sure that any form you use includes these specific items: Legal description Purchase price and method of payment Time for acceptance and effective date Title evidence Closing date Occupancy on or before date of closing Assignability Deposit of receipt
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Many transactions require additional conditions and terms not included in your basic forms. Extra information, conditions and terms are agreed to by adding a sheet of paper to the contract called an Addendum. In the original agreement, contract or offer you may see a note on the contract, See Addendum. The Addendum can include one clause or many. In fact, it is not uncommon to see an original typed section crossed out (line through the text) and a note saying See Addendum. This gives the contract flexibility so you can add clauses, terms and conditions to the document. Often you will see such a statement on the Addendum: Terms and Conditions: The terms and conditions of this Addendum prevail in the event of a conflict with the terms and conditions of the attached Agreement of Sale. This allows individuals to essentially negate information contained in the original document, thereby changing the conditions and terms. An Addendum can be very powerful. A well-written Addendum can provide you with an escape clause, stricter financing conditions, additional rights, less liability, liquidated damages and even more negotiation power. Your assignment in this step is to become familiar with real estate contracts and agreements. Included in this section you will find a Contract for Purchase and Sale form (Buyers version). The annotations below are numbered to correspond with specific sections of the contract and are designed to help explain portions of the contract or the information requested. If you have additional questions, call your consultant or seek the advice of a professional in your area. 1. Seller: The sellers name would be indicated in this section. If the property is held by more than one party, both names would be included. For example, a husband and wifes names would be included as John Smith & Mary Smith as Seller. 2. Buyer: The individuals or entities buying the property would have their names here. You may want to include after your name and/or assigns. This will allow you some additional rights of assignment of the agreement. 3. Legal description: The legal description of the property is not the address, but the legal description as recorded at the county courthouse. Typically it looks like this: Lot 208, Plan 4539, City of Orlando. If the information is not immediately available, it is common to include in this section To be supplied at closing or legal description to follow. You can get the legal description from the courthouse, from the homeowners document of purchase or from the title company handling the closing. 4. & 5. Street address: The exact address of the property. 6. Items included: You can ask for any items that are in the property but not affixed to it which may be included in the purchase agreement, such as stoves, refrigerators, washers, dryers, curtains, pool or patio furniture. These items and their inclusion are negotiable. 7. Purchase price: The purchase price of the property. 8. Deposit to be held: The funds you deposit as earnest money can be held by anyone. Often the seller will want to hold the funds, but you can insist on your accountant, a title company, or attorney to hold the funds. 9. Amount: The exact amount of money you will deposit with the escrow agent. Obviously you want to make this amount as small as possible, so as to not tie up your funds. Again, this is negotiable. The normal deposit is 5% of the purchase price but should never exceed $5,000. 10. Promissory Note: If you need additional funds to secure the property, you may want to consider giving a promissory note to the seller as an alternative to putting more cash down. The note is also an agreement that can be held by the escrow agent. If the mortgage is assumable, use the Payment section b (11-14). 14
11. Assumption of Mortgage: In this space indicate the party to assume the mortgage. 12. Interest rate: List the interest rate of the mortgage to be assumed. 13. Principal and Interest: Include the actual amount of the monthly payment that includes the principal and interest payment. The homeowner should be able to provide this information from their mortgage payment stubs. 14. Approximate balance: The balance of the mortgage amount should be listed in this section. The property owner may know the amount or they may have to call the mortgage company to find out the balance owed. The exact amount is not totally necessary because it will most likely change prior to closing, because the homeowner will make additional payments prior to closing. 15. Purchase Money Mortgage: This is additional financing of the property which is held by the seller. List the interest rate for the mortgage. 16. Amount: Spell out the amount to be financed through purchase money mortgage. Note other: You do not have to focus just on cash instruments to purchase a property. More than one home has been purchased through trade of goods, services and other property. You would include these other forms of payment in this section. 17. Balance at close: Any cash to be transferred to the seller at closing should be specified here. Hopefully if you have done your negotiation well this will be none or even a rebate. 7. Total: The total should be the same as the purchase price. The Payment sections must add up to the purchase price. Financing: If any of the payment is to be financed by a third party the specifics of the financing and details are spelled out in 18, 19 and 23. If the financing is not met within the time frame outlined, the contract is null and void. 18. Interest rate: Indicate the maximum interest rate that you would accept. 19. Years: For what period of time (repayment period) shall the note/mortgage be held? 20. On or Before: Do not leave your offers open. Set a specific period of time that the offer is valid and after which it is void. A period of 24, 48, or 72 hours is not considered unreasonable. Usually you would put on or before January 1,1996 at 3:00 p.m. Create a sense of urgency if you can, but realize you can always extend the offer or make another offer later. 21. & 22. Closing day, month & year: Specify the closing date. Typically it takes 60 to 90 days to close on a property. Depending on what you want to do with the property, it may be shorter or longer. Restrictions, Easements, Limitations: If there are any restrictions on the property they would be identified in this section as other. In very few cases are there restrictions but they do happen occasionally. The purpose of the property is often residential. Text: The balance of the contract/agreement is a template of standard clauses and terms to protect the buyer. Go through the contract and become familiar with the terminology and specific clauses. This sample contract definitely favors the buyer. If you use a sellers contract, realize that the contract may be structured to protect the seller, not you, the buyer. Review contracts in detail. When it is time to sell the property you will want to use a different contract, one that favors the seller of the property (you). Acquiring Approvals: Specifies the exact nature of the use of the property. It is usually residential but may be for rental or some other objective. Provides another measure of security that you can get out of the contract if these conditions are not met. Special Clauses: This section is where you may have added clauses to the contract. Most of the time you will find Subject to addendum or See addendum. Witnesses & Execution: The buyers and sellers signatures must be included to approve the agreement. If there is more than one owner, get both signatures. Also, the signature of the escrow agent for the deposit must be included (this could be the seller or whomever receives the escrow deposit). 15
Brokerage Fee: A detailed breakdown and obligation of the brokerage fees to be paid to a broker can be part of the contract (if you are using a broker). Include this paragraph if appropriate. Addendum: This is your opportunity to add as many clauses to the contract as you would like to serve as a guide for the asset transfer. Spell out the specifics of the negotiation and agreement in the addendum. Make sure you have escape clauses in case you cannot purchase the property or cannot find another buyer in time. Ask for more concessions. After you have completed the contract and addendum, fax it to your consultant for review. This is essential! Especially in the beginning, you should not present a contract without first discussing it with your consultant. Your consultant will recommend any changes to make your contract stronger, and will answer any questions you may have.
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purchase money mortgages, if any; other: _______________________ provided, however, that none of the foregoing shall prevent use of the property for the purpose of_______________. Vlll. OCCUPANCY: Seller represents that there are no parties in occupancy other than Seller, but if Property is intended to be rented or occupied beyond closing, the fact and terms thereof shall be stated herein, and the tenant(s) shall be disclosed pursuant to Paragraph XVII. Seller agrees to deliver occupancy of Property at time of closing unless otherwise specified below. IX. ASSIGNABILITY: Buyer may assign this Contract. X. TYPEWRITTEN OR HANDWRITTEN PROVISIONS: Typewritten or handwritten provisions inserted herein or attached hereto as Addenda shall control all printed provisions in conflict therewith. Xl. EVIDENCE OF TITLE: Within twenty days from the date hereof, Seller, at Sellers sole cost and expense, shall cause a title insurance company mutually acceptable to the Parties to issue and deliver to Buyer an ALTA Form B title commitment accompanied by one copy of all documents affecting the Property, and which constitute exceptions to the Title Commitment. Buyer shall give Seller written notice on or before twenty days from the date of receipt of the Title Commitment, if the condition of title as set forth in such Title Commitment and survey is not satisfactory in Buyers sole discretion. In the event that the condition of title is not acceptable, Buyer shall state which exceptions to the Title Commitment are unacceptable Seller shall, at its sole cost and expense promptly undertake and use its best efforts to eliminate or modify all unacceptable matters to the reasonable satisfaction of Buyer. In the event Seller is unable with the exercise of due diligence to satisfy said objections within thirty days after said notice, Buyer may, at its option: (i) extend the time period for Seller to satisfy said objections, (ii) accept title subject to the objections raised by Buyer, without an adjustment in the purchase price, in which event said objections shall be deemed to be waived for all purposes, or (iii) rescind this Agreement, whereupon the deposit described herein shall be returned to Buyer and this Agreement shall be of no further force and effect. Xll. EXISTING MORTGAGES TO BE ASSUMED: Seller shall furnish to Buyer within twenty days from execution hereof a statement from all mortgagee(s) setting forth principal balance, method of payment, interest rate and whether the mortgage(s) is in good standing. If a mortgage requires approval of the Buyer by the mortgagee in order to avoid default, or for assumption by the Buyer of said mortgage, and: a) the mortgagee does not approve the Buyer, the Buyer may rescind the contract, or b) the mortgagee requires an increase in the interest rate or charges a fee for any reason in excess of $500.00, the Buyer may rescind the Contract unless Seller elects to pay such increase or excess. Seller and Buyer each shall pay 50% of any such fee. Buyer shall use reasonable diligence to obtain approval. The amount of any escrow deposits held by mortgagee shall be credited to Seller. Xlll. PURCHASE MONEY MORTGAGES: The purchase money note and mortgage, if any, shall provide for a thirty day grace period in the event of default if it is a first mortgage and a fifteen day grace period in the event of default if a second mortgage; shall provide for right of prepayment in whole or in part without penalty; shall be assumable and shall not provide for acceleration or interest adjustment in event of resale of the Property. Said mortgage shall require the owner of the encumbered Property to keep all prior liens and encumbrances in good standing. XIV. CURRENT SURVEY: Within fifteen days from the date hereof, Seller, at Sellers sole cost and expense, shall furnish a current survey of the Property prepared and certified by a duly registered Land Surveyor. The survey as to the Property shall: a) Set forth an accurate legal description; and b) Locate all existing easements and rights-of-way (setting forth the book and page number of the recorded instruments creating the same), alleys, streets, and: c) Show any encroachments; and d) Show all existing improvements (such as buildings, power lines, fences, etc. ); and 18
e) Show all dedicated public streets provided access and whether such access is paved to the property line; and f) Show the location of any easements necessary for the furnishing of off-site improvements; and g) Be certified to the Seller, the Buyer, the Title Company and any lender that may be involved in the transaction. In the event the survey or the recertification thereof shows any encroachments of any improvements upon, from, or onto the Property, or on or between any building set-back line, a property line, or any easement, except those acceptable to Buyer, in Buyers sole discretion, said encroachment shall be treated in the same manner as a title defect under the procedure set forth of notice thereof with seller to pay cost of correction. XV. TERMITES: The Buyer, within time allowed for delivery of evidence of title and examination thereof, or no later than ten days prior to closing, whichever date occurs last, may have the improvements inspected at Buyers expense by a certified pest control operator to determine whether there is any visible active termite infestation or visible existing damage from termite infestation in the improvements. If Buyer is informed of either or both of the foregoing, Buyer will have ten days from date of notice thereof within which to have all damages, whether visible or not, inspected and estimated by a licensed building or general contractor. Seller shall pay valid costs for treatment and repair of all damage up to 1 % of Purchase Price. Should such costs exceed that amount, Buyer shall have the option of canceling Contract within five days after receipt of contractors repair estimate by giving written notice to Seller, or Buyer may elect to proceed with the transaction, in which event Buyer shall receive a credit at closing of an amount equal to 1 % of said Purchase Price. <Termites> shall be deemed to include all wood destroying organisms. XVI. INGRESS AND EGRESS: Seller warrants that there is ingress and egress to the Property sufficient for the intended use as described in Paragraph Vll hereof the title to which is in accordance with Paragraph Xl above. XVII. LEASES: Seller shall, not less than fifteen days prior to closing, furnish to Buyer copies of all written leases and estoppel letters from each tenant (if any) specifying the nature and duration of said tenants occupancy, rental rates and advanced rent and security deposits paid by tenant. In the event Seller is unable to obtain such letter from each tenant, the same information shall be furnished by Seller to Buyer within said time period in the form of a Sellers affidavit, and Buyer may thereafter contact tenants to confirm such information. Seller shall deliver and assign all original, leases to Buyer at closing. XVIII. LIENS: Seller shall, both as to the Property and personally being sold hereunder, furnish to Buyer at time of closing an affidavit attesting to the absence, unless otherwise provided for herein, of any financing statements, claims of lien or potential lienors known to Seller and further attesting that there have been no improvements to the Property for ninety days immediately preceding date of closing. If the property has been improved within said time, Seller shall deliver releases or waivers of all mechanics liens, executed by general contractors, subcontractors, suppliers, and materialmen, in addition to Sellers lien affidavit setting forth the names of all such general contractors, subcontractors, suppliers and materialmen and further reciting that, in fact, all bills for work to the Property which could serve as a basis for a mechanics lien have been paid or will be paid at closing XIX. PLACE OF CLOSING: Closing shall be held in the county wherein the Property is located, at the office of the attorney or other closing agent designated by Buyer; provided, however, that if a portion of the purchase price is to be derived from an institutional mortgagee, the requirements of said mortgagee as to time of day, place and procedures for closing, and for disbursement of mortgage process, shall control, anything in this contract to the contrary notwithstanding. XX. TIME: Time is of the essence of this Contract. Any reference herein to time periods of less than six days shall in the computation thereof, exclude Saturdays, Sundays and legal holidays, and 19
any time period provided for herein which shall end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next business day. XXI. DOCUMENTS FOR CLOSING: Seller shall furnish, at his(her) cost, the deed, closing statement, mechanics lien affidavit, assignments of leases, and any corrective instruments that may be required in connection with perfecting the title. Buyer shall furnish mortgage, mortgage note, security agreement, and financing statement. XXII. EXPENSES: State documentary stamps which are required to be affixed to the instrument of conveyance, intangible tax on and recording of purchase money mortgage to Seller, and cost of recording any corrective instruments shall be paid by Seller. Documentary stamps to be affixed to the note or notes secured by the purchase money mortgage, cost of recording the deed and financing statements shall be paid by Buyer. XXIII. PRORATION OF TAXES: Taxes for the year of the closing shall be prorated to the date of closing. If the closing shall occur before the tax rate is fixed for the then current year, the apportionment of taxes shall be upon the basis of the tax rate of the preceding year applied to the latest assessed valuation. Subsequent to the closing, when the tax rate is fixed for the year in which the closing occurs, Seller and Buyer agree to adjust the proration of taxes and, if necessary, to refund or pay, as the case may be, an amount necessary to effect such adjustments. This provision shall survive closing. XXIV. PERSONAL PROPERTY INSPECTION, REPAIR: Seller warrants that all major appliances, heating, cooling, electrical, plumbing systems, and machinery are in good working order and free of any defects. Said warranty shall survive the closing. XXV. RISK OF LOSS: If the improvements are damaged by fire or other casualty prior to closing, and the costs of restoring same does not exceed 3% of the assessed valuation of the improvements so damaged, cost of restoration shall be an obligation of the Seller and closing shall proceed pursuant to the terms of Contract with costs therefor escrowed at closing. In the event the cost of repair or restoration exceeds 3% of the assessed valuation of the improvements so damaged, Buyer shall have the option of either taking the Property as is, together with either the said 3% or any insurance proceeds payable by virtue of such loss or damage, or of canceling the Contract and receiving return of deposit(s) made hereunder. XXVI. MAINTENANCE: Notwithstanding the provisions of Paragraph XXIV, between Effective Date and Closing Date, all personal property on the premises and real property, including lawn, shrubbery and pool, if any, shall be maintained by Seller in the condition they existed as of Effective Date, ordinary wear and tear excepted, and Buyer or Buyers designee will be permitted access for inspection prior to closing in order to confirm compliance with this standard. XXVII. PROCEEDS OF SALE AND CLOSING PROCEDURE: The deed shall be recorded upon clearance of funds and evidence of title continued at Buyers expense, to show title in Buyer, without any encumbrances or change which would render Sellers title unmarketable from the date of the last evidence, and the cash proceeds of sale shall be held in escrow by Sellers attorney or by such other escrow agent as may be mutually agreed upon for a period of not longer than five days from and after closing date. If Sellers title is rendered unmarketable, Buyer shall within said five day period, notify Seller in writing of the defect and Seller shall have thirty days from date of receipt of such notification to cure said defect. In the event Seller fails to timely cure said defect, all monies paid hereunder shall, upon written demand therefor and within five days thereafter, be returned to Buyer and, simultaneously with such repayment, Buyer shall vacate the Property and reconvey same to the Seller by special warranty deed. In the event Buyer fails to make timely demand for refund, he shall take title as is, waiving all rights against Seller as to such intervening defect except as may be available to Buyer by virtue of warranties, if any, contained in deed. XXVIII. ESCROW: Any escrow agent receiving funds is authorized and agrees by acceptance thereof to promptly deposit and to hold same in escrow and to disburse same subject to clearance 20
thereof in accordance with terms and conditions of Contract. Failure of clearance of funds shall not excuse performance by the Buyer. XXIX. ATTORNEY FEES AND COSTS: In connection with any litigation including appellate proceedings arising out of this Contract, the prevailing party shall be entitled to recover reasonable attorneys fees and costs. XXX.(a) DEFAULT BY SELLER: In the event that Seller should fail to consummate the transaction contemplated herein for any reason, except Buyers default; (i) Buyer may enforce specific performance of this Agreement in a court of competent jurisdiction and in such action shall have the right to recover damages suffered by Buyer by reason of the delay in the acquisition of the Property, or (ii) may bring suit for damages for breach of this Agreement, in which event, the deposit made hereunder shall be forthwith returned to Buyer, or (iii) declare a default, demand and receive the return of the deposit. All rights, powers, options or remedies afforded to Buyer either hereunder or by law shall be cumulative and not alternative and the exercise of one right, power, option or remedy shall not bar other rights, powers, options or remedies allowed herein or by law. XXX.(b) DEFAULT BY BUYER: In the event Buyer should fail to consummate the transaction contemplated herein for any reason, except default by Seller or the failure of Seller to satisfy any of the conditions to Buyers obligations, as set forth herein, Seller shall be entitled to retain the earnest money deposit, such sum being agreed upon as liquidated damages for the failure of Buyer to perform the duties and obligations imposed upon it by the terms and provisions of this Agreement and because of the difficulty, inconvenience and uncertainty of ascertaining actual damages, and no other damages, rights or remedies shall in any case be collectible, enforceable or available to Seller other than as provided in this Section, and Seller agrees to accept and take said deposit as Sellers total damages and relief hereunder in such event. XXXI. MEMORANDUM OF CONTRACT RECORDABLE, PERSONS BOUND AND NOTICE: Upon the expiration of the inspection period described in paragraph XXXVI, if Buyer has elected to proceed with purchase of the property, the parties shall cause to be recorded, at Buyers option and expense, in the public records of the county in which the property is located, an executed Memorandum of Contract as attached hereto. This Contract shall bind and inure to the benefit of the Parties hereto and their successors in interest. Whenever the context permits, singular shall include plural and one gender shall include all Notice given by or to the attorney for either party shall be as effective as if given by or to said party. XXXII. PRORATIONS AND INSURANCE: Taxes, assessments, rent, interest, insurance and other expenses and revenue of the Property shall be prorated as of date of closing. Buyer shall have the option of taking over any existing policies of insurance on the Property, if assumable, in which event premiums shall be prorated. The cash at closing shall be increased or decreased as may be required by said prorations. All references in Contract to prorations as of date of closing will be deemed <date of occupancy> if occupancy occurs prior to closing, unless otherwise provided for herein. XXXIII. CONVEYANCE: Seller shall convey title to the Property by statutory warranty deed subject only to matters contained in Paragraph Vll hereof and those otherwise accepted by Buyer. Personal property shall, at the request of Buyer, be conveyed by an absolute bill of sale with warranty of title, subject to such liens as may be otherwise provided for herein. XXXIV. UTILITIES: Seller shall, at no expense to Seller, actively work with Buyer to assist Buyer in obtaining electricity, water, sewage, storm drainage, and other utility services for development of the Property. XXXV. ENGINEERING PLANS AND STUDIES: Upon the execution hereof, Seller shall furnish to Buyer all engineering plans, drawings, surveys, artists renderings and economic and financial studies which Seller has, if any, relating to the Property, and all such information may be used by Buyer in such manner as it desires; provided that in the event Buyer fails to purchase the 21
Property for any reason other than Sellers default, all such information shall be returned to Seller together with any information that Purchaser may have compiled with respect to the Property. XXXVI. INSPECTION OF PROPERTY: Buyer shall have sixty (60) days from the date hereof to determine the elevation, grade, and topography of the Property and to conduct engineering and soil boring tests as the Buyer deems necessary in order to determine the usability of the Property. Buyer may in its sole and absolute discretion, give notice of termination of this Agreement at any time prior to the expiration of the sixty day inspection period, and upon such termination, all deposits held in escrow shall be returned to Buyer. XXXVII. PENDING LITIGATION: Seller warrants and represents that there are no legal actions, suits or other legal or administrative proceedings, including cases, pending or threatened or similar proceedings affecting the Property or any portion thereof, nor has Seller knowledge that any such action is presently contemplated which might or does affect the conveyance contemplated hereunder. XXXVIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES: The representations and warranties set forth in this Contract shall be continuing and shall be true and correct on and as of the closing date with the same force and effect as if made at that time, and all of such representations and warranties shall survive the closing and shall not be affected by any investigation, verification or approval by any party hereto or by anyone on behalf of any party hereto. XXXIX. ACQUIRING APPROVALS: The obligation of Buyer to close is conditioned upon Buyers having acquired all the necessary approvals and permits to use the property for ______________________________________________________________________________ XL. OTHER AGREEMENTS: No prior or present agreements or representations shall be binding upon any of the Parties hereto unless incorporated in this Contract. No modification or change in this Contract shall be valid or binding upon the Parties unless in writing, executed by the Parties to be bound thereby. XLI. SPECIAL CLAUSES: Witnesses Executed by Buyer on: ______________ Buyer Buyer Executed by Seller on:__________ Seller Seller Deposit(s) under II(a) received, if check, subject to clearance, and terms hereof are accepted. By ___________________________________________ (Escrow Agent) BROKERAGE FEE: Seller agrees to pay the registered real estate Broker named below, at time of closing, from the disbursements of the proceeds of sale, compensation in the total amount of ___________% of gross purchase price of $ __________________ for his services in effecting the sale by finding a Buyer, ready, willing and able to purchase pursuant to the foregoing Contract. In the event Buyer fails to perform and deposit(s) is retained, 50% thereof, but not exceeding the Brokers fee computed, shall be paid to the Broker as full consideration for Brokers services including costs expended by Broker, and the balance shall be paid to Seller. If the transaction shall not be closed because of refusal or failure of Seller to perform, the Seller shall pay said fee in full to Broker on demand. Seller agrees to indemnify, defend and hold Buyer harmless from and against all claims or demands with respect to any brokerage fees or agents commissions or other compensation asserted by any person or entity in connection with this agreement or the transaction contemplated herein. Broker Seller: ______________________________ Seller: ____________________________ 22
Calling Sellers
We initially said that you should not call any ads that are long and flowery and contained descriptions of the amenities of the property. However, to build your confidence in talking to sellers, we recommend that you begin your calls to sellers by calling about these ads. There is no pressure because you know you are most likely not going to proceed with the transaction. This is valuable experience in honing your skills. After you have experienced a few calls, start calling the sellers who have some motivation. Use the ABC rating system to arrive at a priority system. Call those with the letter A first, those with a B second, and, if you have time, those with a C. You should call at least 10 Sellers to complete this exercise. When you have completed this, review the Real Estate Information Sheets that you have filled in, and pick out the three best potential deals. Identify why you think they are the best. Is it the price, the terms, or a combination of the two?
In a number of cases we suggest that you work with the owner directly. The key reasons to do your own negotiations are to ensure that you are represented correctly and to reduce the cost of the transaction. However, Realtors can be a great asset if they understand what you are looking for and are prepared to work with you in the acquisition of the property. Spend time finding a good and flexible Realtor or title company that understands your plan and is prepared to work with you. Make them part of your team. They can be a key to your success.
Inspect Properties
Personally inspecting a property is not meant to replace an inspection by a certified inspector. The professional inspection report will be part of your offer should you decide to proceed, so use your visit to the property as a means of negotiating a better price with the seller. After determining that you want to pursue a property, call the seller back and set up a time to view the house. Arrive at the appointment on time, but not early. You do not want to appear too anxious to see the property. Take a clipboard, note pad, pen, flashlight, marble and tape measure along with you. These will be very valuable in providing you with support for your offer. Use the visit to do three things: to find any problems with the house, to let the seller know you see the problems and to get to know the seller. It is much easier to assess the sellers motivation and learn personal information when you are face-to-face with a person. Ask good questions and make sure you are a great listener. Many times, you can gather facts from the visit that will help you put the deal together, facts that you would never have gotten over the phone. Remember, like so many other encounters you have in life, this is a sales situation. Take advantage of it! Establish a relationship with the seller that will put you above any other buyers. It is not 24
unusual for one of our members to close a deal and tell us that the seller said to him/her, I would not have accepted this offer from anyone else, but you seem like the type of person who will take care of our property. You listened to our situation and structured an offer that would take care of all of our needs. This is a WIN-WIN situation, and it works!
Write an Offer
You now have gathered enough information to sit down and determine whether or not the property is attractive enough to warrant an offer. You should have obtained the comps in the surrounding area and made sure that the house you are considering is within the price range of those that have recently sold. (Refer to the chart, Evaluating A Property, on the next page.) Heres a tip buy the cheapest house in the neighborhood; it will have the greatest potential for appreciation. The highest priced properties will establish the upper end of the market and everything below will move upward accordingly. If you cannot find any comps in the area, find out the assessed value of the property by calling or visiting the tax assessors office in your city or county. Although a less accurate guide to use in preparing an offer, the assessed value, as a general rule, is usually 80-85% of the fair market value. Another alternative, when you do not have comps, is to cruise the neighborhood for other houses for sale. Find out the prices, the square footage, number of bedrooms and baths and any other amenities of similar homes in the area. Determine the price per square foot and then multiply that figure by the square footage of the home you are considering. Make sure you discount that asking price per square foot by at least 10% for a closer estimate of fair market value. When you inspect the property, determine how much work needs to be done. If you are a beginning investor, stay away from fixer-uppers. These can erode your capital very quickly and should be considered only by experienced investors. Stay away from situations like those experienced in the movie The Money Trap! Cosmetic repair work, such as painting, cleanup and landscaping, is okay. You can make up the cost of the repairs by negotiating a better price with the seller. Above all, make sure the offer you are planning to present meets the criteria for a good deal. You are using real estate as an investment to achieve your financial goals. Does the deal fit the 10/10/10 Rule, the 80% or Less Ideal, or the Return on Cash Out of Pocket criteria?. Prepare your offer using the Contract for Purchase and Sale form you have developed. No matter what form you use, make sure that you attach an addendum to it. In the addendum, you should insert any number of escape clauses that can be used to limit or totally eliminate your liability should you choose to cancel the contract. Call your consultant, and discuss the document before you present it to the seller.
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Target Property:
# of bedrms # of baths Sq. ft. Date sold # weeks on mkt. Listing price Selling price Price/ sq. ft.
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remarks or ask questions. Listen intently to what they are saying and notice how they are sitting. Are they interested in moving forward with your offer, or are they just going through the motions? If the seller(s) are ready to accept the offer GREAT! Get them to sign the contract, thank them and leave. If they are not ready, write down any and all comments from the seller(s). Do not comment on them individually because at this juncture, you may or may not know whether they are deal points (items that could potentially make or break the deal). Since timing is everything, if you are very close to finalizing the deal, negotiate the final details with the sellers and modify the offer accordingly. If it appears that the offers are far apart or if you are unclear about their counter-offer, gather up your items when the sellers are finished with their comments and express sincere disappointment that they did not accept your offer. Tell them you will have to consider their comments, and that if you want to proceed, you will be back in touch with them. By doing this, you regain control of the negotiations, and leave the seller(s) unsure about whether they can make a deal.
Develop a system for filing the information that works for you. There are a variety of database software packages available for personal computers, or you can create your own filing system. The important part with whatever system you choose is that you can quickly retrieve the information when you need it.
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Lines of Credit. Based on your personal credit history, you can establish pre-approved secured or unsecured lines of credit. Contact your bank or area lending institutions for more information. Life Insurance/Retirement Plans. An often overlooked source of capital is cash value on life insurance policies and monies in various retirement plans. You can borrow against these cash values at often a very low interest rate. Retirement plans such as 401(k)s generally have loan provisions allowing you to borrow up to 50% of the money in the plan without tax penalties.
an initial evaluation. We need to gather much more information before determining whether this is a sound investment. Calling on the other For Rent ads can generate great leads. When you call on these ads, the first question you should ask is, Would you be willing to sell the property rather than lease it? If the answer is yes, or if there is a significant pause on the other end of the phone, start asking more questions. You have probably found a motivated seller who, because of his or her tax situation, may be very amenable to considering seller financing as part of the purchase price. The seller may want to take the money over a period, because of the depreciated basis in the property, and minimize the tax consequences for the present year. If the property owner is unaware of this strategy, ask him or her to explore the situation with an accountant. You may find a seller who is more motivated than you originally thought!