Find out the value of the property – Many people use only on-line research for this purpose. This is a mistake because without physically inspecting a property you will neither be able to make a comparison with neighborhood properties nor will you be able to get a feel of the neighborhood and the property as well which is vital for assessing its real value. Prices of properties sold in the neighborhood serve as benchmarks for property value in the locality. Make a record of the prices of run down properties and improved ones as well all that are sold in the vicinity.  The local county office, tax assessor’s office, offices of real estate brokers and appraisers are some of the places you can visit to gather this information. After assimilating all information you can do a CMA or comparative market analysis of property values.

Prepare a cost estimate – After you have the necessary information on actual property values in the neighborhood, make an estimate of costs involved to see if you can make a profit from the deal. The costs involved will include acquisition costs i.e. the price paid to the owner, documentation and other costs involved in transfer of title, taxes, origination fees and all other related costs. Added to this would be the costs involved in repairing the property.

Repair costs include all expenses needed to improve the overall condition of the property. By physically inspecting the property you can collect ideas about what repairs need to be made. You can cross check the correctness of your own repair estimate by asking for quotes from contractors for the repairs. You will also need to take other costs into account like a title search, home inspection, survey, certificate of occupancy, etc. for preparing a realistic estimate. Finally, do not forget to consider the holding costs. Holding costs are those costs that you will have to pay while you are renovating the property, such as mortgage payments, utilities, taxes, insurance, etc.

Over time, by concentrating on a few neighborhoods, you will develop the ability to quickly estimate the property value and repair costs so that you can make quick determinations of feasibility, so that you do not waste too much time on unprofitable projects.

Check project feasibility – If you want your investment to be profitable you must ensure that it is feasible. To evaluate feasibility take the current value of the unimproved property and add all costs of improvement along with other incidental costs and the amount of estimated interest. This will give your the overall project cost. Now add your expected profits to this figure. If the cost of comparable improved homes in the neighborhood is lower than your total, the feasibility factor is negative and it is advisable that you simply forget about this particular project.

Fix the cut-off level in the purchase price – The price paid for acquiring the property is vital. To determine what the highest price payable take your expected sale price for the property and deduct the costs of repairs/renovations and all other expenditure involved in the project along with your profit margins from it. What you have as the remainder is the maximum purchase price you should pay for the property.

Negotiate intelligently- Profits from your real estate investments depend mainly on the cost of acquisition. That is to say, you make your money when you buy, not when you sell. When you make a fair estimation of other costs involved, it provides you with an understanding you need for negotiating a profitable purchase price.

While there are many situations where people did all the wrong things when it came to their real estate investments, here are some examples of  investors that simply invested their hard earned money, following all of the rules set before them at the time. These were not speculators or experienced corporations that where throwing their money around. They did full-doc loans with serious downpayments and invested in positive cash flow properties. They did what any RESPONSIBLE investor would have done.

So what happened?

The government screwed up the economy. – They let sub-prime mortgages and speculators take control.

The government changed the rules. – Fannie Mae changed their lending rules even for people already in the game.

The government put a band-aid on the problem that didn’t stick. – They said the bailout packages would solve the problem – it hasn’t.

The banks took advantage of the situation. – They rewarded their executives for bad decisions.

The banks refused to stop the hemorrhaging. – They took major losses instead of small ones by not working with homeowners and investors.

The investors in this story did everything right. They cannot be blamed for the situation they are in now. Especially when they asked for help before their problems started and offered less costly solutions to their lenders afterward.

We have lost a bunch of banks now, along with tons of jbos. Those banks and jobs might still be around if they had only been willing to work with homeowners.

As the name suggests, it is the owner who is directly selling the property. Therefore all dealings with respect to the sale have to be made directly with the property owner. An FSBO deal has a number of advantages.

One advantage of dealing directly with the owners is that you can get first hand information about the property’s specific strengths and weaknesses.  Vital information on the history of the property, nearby schools, recreational areas, malls and shopping centers, health care facilities etc.  This can let you assess the value and desirability of owning the property from a resident’s perspective which can make you much more comfortable about the investment you are about to make.

Another advantage is that property owners are not real estate professionals and you will find dealing with them much easier than dealing with hardened professionals who unnecessarily hike the price of the property greatly lowering the profit potential of the deal. In FSBO deals owners usually do not price their properties very high and during negotiations usually agree to come down rather quickly on their quoted price.  Additionally, in their effort to close a deal, home owners are known to also offer incentives like a decorating allowance or covering the fees of the buyer’s agent etc. All in all, FSBOs offer great deals.

However, on the down side many home owners unintentionally give inaccurate details of the real condition of the house and associated problems. They may be unaware of the fact that something they accept as being normal may in fact pose a problem to a new owner of the property. It is therefore advisable to have a home inspection done when dealing in FSBO property. This may also satisfy the property owner as to the true state/worth of the property and would help close the deal at a much faster pace.

FSBO transactions can be completed quite smoothly if the owner has some previous real estate experience. This helps him understand that the longer a house remains unsold the more its position will worsen as it will make potential buyers suspect the existence of possible deficiencies or defects associated with the house preventing its sale.

On the other hand when you buy agent listed property it saves you a lot of trouble to assess the price as usually the property is priced realistically in relation to its fair market value. Conversely, selling at a higher price is sure to enhance his commission in the deal. Therefore he does have a vested interest in the deal.

It is also easier to find agent listed properties as agents are able to list properties on many MLS sites and also advertise in classified ads and real estate magazines. Agent dealings can also cut down the time needed to close the deal and transfer the property as they work behind the scenes even when not working directly with you.

In the end, it can be said that an FSBO real estate deal with a knowledgeable property owner can offer a more profitable real estate investment opportunity as compared to buying an agent listed property.

I agree with Nadji’s view in the article, “…things will get worse before they get better. But he said it’s impossible to time the bottom and it makes sense to get in before interest rates rise and big institutional investors jump in and drive up prices.”

Don’t let this opportunity pass you by. If you have cash in hand, or you have access to cash, this is the time to invest for your future.

It just so happens that Dallas-Fort Worth came in at number 1 on the list. This is good news for my wife and I who are looking at the area for near term investments. Check out the list at http://tinyurl.com/ccxdff.

As you know, if you want to sell anything quickly, it means that you have to price it accordingly. So our good fortune, in a sense, is also our misfortune because we have to discount these properties so heavily.

Of course, that is only good news for you because you get a chance to own an excellent investment property for a very low price. Just click on the image below to be taken to the details.

The process we follow is to look first at the financials and see if the park worthy of further investigation. If so, we then look at the area to see if it makes sense for an investment in mobile home parks. If the park still looks good, we will negotiate with the seller and put a contract in place. Finally, with a contract secured, we complete our due diligence to ensure we are buying what we think we are.

Only during this due diligence phase will we make a visit to the park. The looks of the park are very much a secondary consideration after the financials. Whether the park is a 1 star or a 5 star, the important thing is that it has good cash flow.  Remember, Cash Flow is King.

The specifics we are looking for in a park are as follows:

• between 30 and 100 lots
• mix between park-owned and tenant-owned homes
• some seller financing available
• minimum capitalization rate of 10% based on current rent roll
• city water and sewer (no well and septic please)
• room for improvement at the bottom line through improvements or optimization

If you know of a park that fits these criteria, send me an email at info @ kgerealestate.com

Possibly THE most frequently asked question of me is “What is the best business entity to use for real-estate investments?” My recommendation to most people is that a limited liability company (an “LLC”) is the best entity for this type of use. Here’s why:

– Excellent liability protection for managers and members

– Flow-through tax treatment on LLC profits and losses

– Ability to transfer properties in and out of an LLC with minimal tax consequences

– Personal Asset Protection through the Charging Order procedure (for Nevada LLCs)

Liability Protection

An LLC is similar to a C-corporation (“C-corp”) or a Sub-Chapter S corporation (“S-corp”) in that it exists as a separate corporate entity. It provides full liability protection to its officers and directors (called “Managers”) and its shareholders (called “Members”). As either a Manager or a Member, you are liable only for the money you have invested into the LLC and cannot be found personally liable for any debts incurred by the LLC. Consider the risks associated with owning real estate, especially rental properties. Tenant injuries. Trespassers injured while on vacant land. Unauthorized dumping or storing of hazardous waste. All of these could pose a serious risk to your financial well-being if you held the property in your name directly, even with insurance. Owning property in your own name means that in the event you are sued and found guilty, anything your insurance policy does not cover will come out of your own pocket. Putting an LLC entity between you and this personal liability means that your personal assets will stay protected.

Flow-Through Tax Treatment

Unlike a C-corp, an LLC does not pay income taxes. It is a “flow-through” entity, meaning that, like an S-corp, the tax on the profits (as well as the write-offs on any losses) are passed through to the Members and taxed on their individual personal tax returns.

The flow-through tax treatment becomes important when you decide to sell a property, or convert it to personal use. Here’s a quick example of what happens to a $400,000 profit on real estate after taxes. For this example we are assuming that your personal tax rate on the monies received would be 39.1%, the top tax bracket:

C CORPORATION:

Gross Profit: $400,000
Less: Corporate Tax: -136,000
Subtotal: $264,000
Paid to You as a Dividend:$264,000
Less: Tax You Pay on Dividend: -103,224
Net Profit to You: $160,775

LLC:

Gross Profit: $400,000
Paid to You: $400,000
Less: Tax You Pay on Profit: -156,400
Net Profit to You: $243,600

Ease of Sale

LLC’s have an extra advantage over an S-corp (or a C-corp) where you want to convert a property to personal use, or trade it (called a “like-kind exchange” and subject to special rules) for another home of similar value. If held in an S-corp the conversion or trade of property would be considered a sale with the accompanying tax consequences. Held in an LLC, there are no tax consequences to converting or trading the property.

Asset Protection

When using an LLC to hold real estate, it is very important that you also obtain comprehensive property insurance coverage. In the event of a lawsuit brought against the LLC by a tenant injured on the premises, or, believe it or not, even by a trespasser on your land, good and comprehensive insurance can save you money in the long run. It may even save the property itself if a claimant was to successfully sue the LLC and win. If the LLC had no insurance coverage in place a court may order the property sold to pay the claimant’s judgment.
However, if a lawsuit is brought against you personally, and a claimant attempts to seize assets you hold through an LLC, the rules are a little different.

Charging Orders

A charging order works in the same fashion as a lien — it is an obligation to pay money placed over assets. The charging order does not convey any voting rights, any ability to control the decisions of the LLC or the ability for a creditor to force the LLC to make profit distributions. The charging order merely grants the creditor the right to receive a portion of the LLC’s profits until the judgment is completely paid. And, in a fairly ironic twist, the monies received by a judgment creditor through a charging order will be treated as income and taxed.

Under Nevada law, a charging order is the sole legal method for creditors suing you personally to attack your assets held in an LLC. So for example, if you are a Nevada resident and have a day trading account, a boat and a duplex held in an LLC and are sued personally, a creditor would not be able to seize your assets. They would instead have to obtain a charging order over your membership interests in the LLC, entitling them to receive a portion of income earned by that LLC. If the LLC didn’t earn any income, then there would be no profits to be distributed.

Unfortunately, the charging order laws in other states may not be as strong as Nevada. For those of you who don’t live in Nevada, or who hold property in another state that does not offer strong charging order laws, we suggest using two LLCs. The first LLC is formed in the state where your property is located and holds title. The second LLC is formed in Nevada and is a passive holding company, holding all of the interests of the first LLC. You in turn hold interests of the Nevada LLC. What will happen in the event of a lawsuit brought against you personally is that no matter in what state a lawsuit is brought, a creditor will eventually have to come to Nevada to attempt to seize the assets, and will then run up against the charging order procedure. It costs a little more to set up and maintain, but if you are truly trying to make yourself as small a target as possible, it is a fairly cost-effective solution.

One final point to consider while on the subject of charging orders is to limit the number or dollar value of properties held in an LLC. If you have several properties held in an LLC and you depend on the income stream, then a charging order placed against that LLC could cause a major disruption to your earnings.

Do I ever NOT recommend using an LLC for real-estate holdings? Occasionally. For example, California assesses an additional franchise tax fee for LLCs with earnings over $250,000 per year. So, if your LLC is holding very high income-earning properties, you could wind up paying extra taxes. To avoid that, we may recommend that you use a Limited Partnership, as it does not have the extra franchise fee levied on its earnings. However, if you operate your Limited Partnership with a corporate General Partner, then you have the filing and operating costs for two entities in California, rather than one, not to mention two franchise tax fees.

Another example could be a situation where the entity is going to be used for estate planning purposes to pass your wealth through to the next generation, and you perhaps foresee trouble on the horizon with your children wanting control once they have gained a majority interest.

Limited Partnerships are a much older entity than LLCs, and the law over how the Limited Partnership is controlled is much more settled. A General Partner cannot be removed in most instances unless they are found guilty of serious misdoings or defrauding the Limited Partnership. In an LLC, however, the law isn’t as settled. And, though you might draft your LLC’s operating agreement as strongly as possible to give you control over daily operations, even after you have transferred majority interest in the LLC to your children, there is still a chance that the kids will be able to make a good legal argument in front of a sympathetic judge and have the operating agreement set aside.
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Garrett Sutton, Esq. has advised countless individuals and business owners on asset protection strategies. For more information and a complete overview of the most effective uses of LLCs and Limited Partnerships, please visit http://www.sutlaw.com

Article Source: http://EzineArticles.com/?expert=Garrett_Sutton

For example, there may be a home loan borrower who owes $350,000 against an existing first mortgage. He may have fallen behind on his repayments and may be facing the possibility of a foreclosure. For effecting a short sale you directly make an offer to the lender/bank for say $270,000. In many cases the bank may agree for such a discount, as the costs involved if the property goes to auction may make them lose a lot more money than what they would lose if they accept the discount related to your offer. It also saves them from a lot of related problems. Plain and simple, it makes business sense for them.

As things stand at present the rate of foreclosures is high. This is the time to take advantage of this situation and make a good chunk of money for yourself. However, from an investment angle, you can get the maximum benefits only if you do not restrict yourself to a single deal. The higher number of deals, the greater the overall returns. If you decide in favor of such an investment strategy, it becomes essential for you to formulate exit strategies even before you make an offer to a lender for a short sale so that once you clinch the deal, you can quickly flip over the property to another buyer for a handsome profit and move on to making your short sale offer for the next deal. In real estate jargon this is known as wholesaling.

There are a number of things that you need to determine before you make your offer for a short sale in line with your exit strategy. The right approach would be to first research the price that the property can fetch if sold in the market. Usually in case of a short sale the market price of the property is less than the total amount payable against the mortgage. This means you must make your short sale offer by crafting a suitable discount on the market price, after giving due consideration to the total cost of acquisition of the property.

Another thing you need to consider is the time required to dispose the property and your expected profit margin. This has a direct relationship to the time and amount of your investment. When you intend to invest for a lesser duration, you may have to settle for lower profits. In such a case you can try to locate a buyer immediately after you get your acceptance letter for the short sale from the lender and later sell outright to the new buyer. The property may need repairs, which will lower the market price, as the new buyer will need to get the repairs done. Conversely, if you are ready to invest more for a longer duration and hold the property to get it repaired on your own before selling it off you may get a much higher price. You may even want to retain the property for rental income and also continue to hold it for price appreciation before you sell it to another buyer.

Your overall profit margins are going to depend on several such factors, therefore, for being a successful investor you must formulate suitable exit strategies in line with your individual situation and liking before you even step in to the real estate investment arena.

Everyone benefits, since the homeowner gets to walk away from his home without paying the amount and the bank is happy to avoid the long drawn process of re-possessing and auctioning the property through a foreclosure. You stand to gain a property much below market rate and on which you can make a decent profit even in-spite of the market dropping. The key is to get the homeowner to agree to your proposal, so you will have to do some research yourself before attempting a short sale takeover of any property.

First identify properties for sale due to foreclosure that are advertised in local newspapers. Check out the going rates for those properties in that area and calculate the maximum amount you are willing to pay for that property. Then contact the person in the foreclosure or short sale or loss mitigation department of the bank, introduce yourself, and send them all details in writing to include the owner’s signed consent. Make the bank a fair offer and be a bit flexible in case you realize that the property has good potential. Be aware that others too could be interested in that property so plan your moves accordingly. You can even buy properties that have been rented out to tenants. That way your cash flow can start the minute you acquire that property. Once you have the property in hand, it is a matter time until you find the right buyer. Therefore, it is important to know if there is a market for the property you are considering.

If you are trying it out for the first time, hire an experienced short sale broker to guide you through the first few deals. You might earn less money but gain more knowledge on how the system works. Since most of these homes are lived in, you will also need to keep in mind the repair bills to be paid before selling them off. So, arrange a team of an attorney, an accountant, a contractor and a good lender. If you have a ready buyer for that property, then that is much better. You might not earn the same in all your deals but as long as you keep making healthy profits, concentrate on your average earnings.

Even though the short sale route looks very simple, it is imperative that all things right from homeowner to bank to buyer fall into place as soon as possible so you flip the property quickly. Thus short sales have tremendous potential especially in the current market scenario since once the economy recovers and money starts flowing again, there might not be many such deals left in the market.