Investor Report: Investment Buying Tips
by Kenneth R. Harney
Foreclosures and bank REOs are pulling a new wave of novice investors into the market, some of whom "are just plain clueless, to put it bluntly," says Robert Cain, a long-time rental market and real estate management specialist based near Tucson, Arizona.
"They see the price and they way, wow! I can buy that house and turn it into a rental," says Cain, who lectures around the country and online about investing intelligently.
"But they don't understand the local market, they don't understand landlording, and don't even necessarily visit the property," Cain said in an interview last week with Realty Times.
For example, a property manager in Tennessee called Cain for advice recently. The manager had a simple question: "Should I fire my client?" who lives in California and purchased rental real estate 3,000 miles away in Tennessee -- sight unseen because the low price made it sound like a steal.
But the property had a long list of defects requiring costly repairs, and it was slow to rent - causing the absentee owner-investor to blame the property manager for the cash drain.
"We see it constantly," said Cain. "New investors think it's easy. They buy on emotion, on low pricing, rather than buying with a disciplined plan.
What are some of the key rules for freshman class investors? Here are a few of Cains' that have served him well since the early 1980s:
Number one: Due diligence is never optional. You've got to understand the local market - and that includes not just where prices are headed, but specific market demand for rental real estate in this price segment, and even the local government's plans for the area where you're thinking of buying.
Number two: Buy with a written plan - that's right, just like the large professional investors use, with an entry strategy and an exit strategy. How long are you going to hold onto the property, how much will it earn you during your period of holding?
And what's the endgame - a sale to another investor? Conversion to condos? Tear it down and build something that's closer to the underlying real estate's highest and best use?
"Write it all down," says Cain. That way you can analyze it better.
Number three: Calculate the actual costs of the property in advance - not just the bargain basement price, but how much you'll need to fix it and feed it - the management costs, rental commissions, vacancy costs, taxes, to name just a few.
"If you don't know these things up front," says Cain, "you are flying blind. And there are no good surprises in real estate."
Published: October 23, 2009
Thomas Merical
http://www.findahomesellahomenow.com/
In The Millionaire Real Estate Agent, we declared you could be just three exceptional hires away from having the organization of a Millionaire Real Estate Agent. That’s still absolutely true. However, our ongoing research for both MREA and SHIFT has given us new insight into how these key positions evolve. Some of you got a sneak peak at Mega Camp 2009. For the rest, here’s a quick look at hiring and compensating a Showing Assistant.
Leverage is ultimately about focus. You hire talent to keep you focused on your most dollar-productive activities and they focus on everything else. After entrusting your admin and marketing chores to another person, you look for help on the buyer sales side of the business. Successfully showing homes can be extremely time intensive and help here should keep you focused on leads and listings. So who do you hire?
In the past, research pointed us to a licensed buyer specialist paid on a 50/50 commission split. Today, some successful agents are first hiring an unlicensed Showing Assistant to keep their costs of sale low and their productivity high.
A Showing Assistant can literally jump into the driver’s seat with your buyers while keeping you in the driver’s seat when it comes to converting buyer leads, getting signed agreements, identifying wants and needs and eventually writing and negotiating contracts. A good one should be able to successfully show homes to around three to four buyers a month while earning bonuses based on 25 percent of each deal. Based on a $5,000 average commission, a good Showing Assistant could earn $60,000 a year. This is a terrific opportunity for someone. Better yet, you get to stay focused and 75 percent of the buy-side income stays on your side of the ledger.
You are still looking for someone who has the ability to grow into your Lead Buyer Specialist. So when you have someone with the ambition and proven ability to succeed with a high volume of buyers over time, your Showing Assistant earns the right to be promoted to a licensed Buyer Specialist. Your Buyer Specialist would then handle buyers from the appointment to closing and now earn 50 percent of the commissions. Again, a good one should be able to handle three to four buyer sales a month without burning out.
Burnout is a key word. Once you have identified a great Buyer Specialist, you don’t want to lose them! When they burn out and walk out, guess who gets their job? You do. And you’ve already got a job.
When your business is generating enough leads on a consistent basis to push a great Buyer Specialist past their ability to successful manage them all, the Showing Assistant concept reenters the picture. Now your Buyer Specialist has the opportunity to hire a Showing Assistant of their own. The Showing Assistant is still paid on a 25 percent bonus; however, that money comes out of the Lead Buyer Specialist’s half of each commission. Effectively, you continue to earn 50 percent of each buyer transaction, while the Buyer Specialist earns 25 percent and the Showing Assistant earns the final 25 percent as a bonus. Any buyer transactions your Buyer Specialist closes without the help of a Showing Assistant would still be on a 50/50 split.
Now your Buyer Specialist might successfully help four buyers on their own and another four with the help of a Showing Assistant. That’s now eight closed buy-side transactions each month. And with an average commission of $5,000, your Buyer Specialist has the ability to gross as much as $180,000 a year while just personally showing three or four buyers a month!
Showing Assistants may come and go—each auditioning for a shot at being your Lead Buyer Specialist. But once you find one, hiring and managing Showing Assistants moves from your plate to theirs. You have found your leader for working with buyers. Any additional help needed to keep your buyer transactions on track becomes their issue and opportunity.
Showing Assistants can save you money on the frontend, reduce turnover on the backend, all the while providing the best possible service to your buyers.
Click here for a video highlighting The Organizational Model and MREA.
(with Jay Papasan)
Thomas Merical
http://www.findahomesellahomenow.com/
Thomas Merical
http://www.findahomesellahomenow.com/
http://www.findahomesellahomenow.com/
CEO Keller Williams Fairfax Gateway
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