The Getting Complete Guide to Started Day 1 Finding & Analyzing Deals Day 2 Choosing A Profit...

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GettingComplete Guide to

StartedDay 1

Finding & Analyzing Deals

Choosing A Profit Strategy

Putting It All Together

Contracts

From Contract to Closing Table

• Wholesale

• Rehabbing

• Rentals

Managing Exit Strategies

Business Entities

At the end of this session, you will be able to:

1. Define Types of Contracts2. Identify essential elements of a

written contract3. Explain how to complete a

contract4. Summarize the ways to present

an offer

Day 2 – Choosing A Profit Strategy

Contracts

Types of Contracts

Contracts

Purchase & Sale – Standard Contract

Installment Contract – Title does not pass

until conditions are met

Option Contract – Set for a fixed period,

consideration, specified price

Listing Agreement – Between seller and

broker

Essential Elements

Contracts

• Competent parties• Offer and acceptance• Consideration• Legality of object• In writing and signed

Important Points

Contracts

• Buyer’s Name• Seller’s Name• Property Address/Legal

Description• Sale Price/Deposit• Time for Acceptance• Financing• Assignability

Important Points

Contracts

• Closing Date

• Inspection• Title• Escrow• Seller’s Disclosure• Addendums• Escape Clauses

Ways to Present An Offer

Contracts

1. Verbal – “would you”

2. Letter of Intent – non binding

3. Written Contract – binding

A-B-C Offer

Contracts

All Cash [Wholesale Offer]

100% Seller Finance [Retail]

Creative Option Solution [Lease Option, Combo]

What we covered this session:

1. Types of Contracts2. Essential elements of a written

contract3. How to complete a contract4. Ways to present an offer

SESSION REVIEW

Day 1 - Finding & Analyzing Deals

Contracts

• Wholesale

• Rehabbing

• Rentals

Business Entities

1. Define Key Closing Terms2. Name the Team Members3. Define Key Action Items4. List Closing Documents5. Read A Settlement Statement

Contract to Closing Table

Key Terms

Closing Statement• A detailed cash accounting of a real estate

transaction showing all cash received, all charges and credits made and all cash paid out in the transaction.

Deed• A written instrument that, when executed and

delivered, conveys title to or an interest in real estate.

Key Terms

Escrow• The closing of a transaction through a third party

called an escrow agent, or escrowee, who receives

certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions.

Prorations• Expenses, either prepaid or paid in arrears, that are

divided or distributed between buyer and seller at the closing.

Key Terms

Survey• A pictorial depiction of land and the improvements

on it and shows boundary lines with measurements and bearings, buildings, easements, etc.

Title Evidence• Proof of ownership of property; commonly a

certificate of title, an abstract of title with lawyer's opinion, title insurance or a Torrens registration certificate.

Key TermsTitle Insurance

• A form of insurance contract which guarantees to indemnify an owner or mortgagee of property for damages suffered as a result of undiscovered title defects which arise later.

Title Search• The act of examining in detail the public records

relating to ownership of a parcel of land to ensure that the current owner has clear title, free of any liens, claims, mortgage or competing and adverse interests.

Parties Involved• Real Estate Brokers• Attorney• Escrow Agent• Loan Officer• Appraiser• Insurance Agents• Lenders

Key Action Items• Choose Closing Date/Agent• Order/Examine Title• Notify Seller of Defects• Accept/Reject Title• Obtain Survey• Inspections• Review Leases• Obtain Insurance

Closing Documents• Affidavits• Bill of Sale• Deed• Insurance Policies• Satisfaction of Liens• Mortgages • Pest Control Report

Closing Documents• Tax Receipts• Survey• Warranties• Utility Bills • Leases• Service Contracts• Title

Settlement Statement• Buyer debits and expenses• Seller debits and expenses• Credits due to buyer• Credits due seller• Net balances

What we covered this session:

1. Key Closing Terms2. Team Members3. Key Action Items4. Closing Documents5. How to Read A Settlement

Statement

SESSION REVIEW

Contracts

• Wholesale

• Rehabbing

• Rentals

Business Entities

At the end of this session, you will:

1. Be able to compare exit strategies & decide best option

2. Understand how to manage- Wholesales

- Rehabs - Rentals

Determine Exit Strategy

• Quick Turn (Wholesale) • How much profit for you? The rehabber?

• Rehab• Risk vs. Profit

• Rental

Summary of Strategies

Wholesale Rehab Hold

Strategy Quick flip Fix n’ Flip Hold

Income Quick cash 3-6 months Cash flow

Potential $ $ $$$ $ + wealth

Credit Req. None Some Some

Up front $ Very Little v. little some v. little some

$ Needed for: Consideration

Rehab + Holding Emergencies

Risk Factor Very Low Low Low-Mid

Contracts

• Wholesale

• Rehabbing

• Rentals

Business Entities

1. Describe how to assign a contract

2. Explain a simultaneous close3. Summarize the wholesale

process

Wholesaling GOALS

Wholesaling

Process 1. Seller and Buyer sign contract

2. Buyer submits deposit (escrow)

3. Buyer assigns contract to New Buyer

4. New Buyer replaces Original Buyer’s deposit

Wholesaling

Process

5. New Buyer takes over existing contract terms

6. New Buyer obtains funding and closes

7. Seller and Original Buyer get paid

Wholesaling

Example

1. Seller and Buyer agree on contract for property• Purchase price = $100,000

2. Contract is assignable3. Original Buyer assigns contract rights

to New Buyer• Cost = $5,000 from New Buyer

Wholesaling

Example

4.New Buyer purchases property for $105,000

5.Seller gets $100,0006.Original Buyer gets $5,000

Wholesaling

Important Documents

• Purchase & Sale Agreement- Seller- Original Buyer

• Assignment of Contract- Original Buyer- New Buyer

Wholesaling

Considerations

• Purchase 60-70% of market value

• Escape clauses

• Release from liability

Wholesaling

Protecting Yourself

• Make sure property is under contract

• Always get a copy of original contract

• Ensure you are working with original buyer

• Wholesaler should make less than rehabber

Wholesaling

Protecting Yourself

• Lender approval?

• FHA: 90-day rule

• Avoid multiple title transfers

• Avoid double and triple assignments

Wholesaling

Simultaneous Close

• Two closings take place

• Contract is not assignable

• Must take title to property

• Title seasoning

Wholesaling

Creative Assignments!!!

• Include assignment fee in second closing

• Use creative financing techniques (trusts)

• Seller can become the hard money lender

• Take possession of property Then Sell!

Wholesaling

Finding Buyers

• Newspaper - “We Buy Houses” - “Place Ads seeking buyers

• Flyers

• Real Estate Auctions

• Real Estate Investor Associations

Wholesaling

7 Steps to Wholesaling

1. Negotiate at 60-70% of FMV2. Set closing date of 30 to 90 days3. Insert and/or assigns in purchase contract4. Contingency clauses (Escape clauses)5. Find a Buyer6. Assign the contract and collect

assignment7. Inform seller of change

At the end of this session, you have learned how to:

1. Describe an assignment ofcontract

2. Explain a simultaneous close3. Summarize the wholesale

process

SESSION REVIEW

Contracts

Wholesale

• Rehabbing

• Rentals

Business Entities

1. Describe the five major rehab categories

2. Explain how to estimate rehab costs

3. Understand how to manage a rehab from start to finish

Rehabbing GOALS

1. Electrical2. Plumbing/drainage3. Structural/foundation4. Roofing5. HVAC: Heating, Venting, A/C

* Permit required * Use a contractor (professional)

Where to Spend Rehab $

• Kitchen

• Bathrooms

• Curb appeal

Where to Spend Rehab $

• Roofing: per 1010 square or 100 sq. ft.

• Carpet and tile: per sq. ft.• Vinyl/wood/laminate: yard

(sq. ft. 9 yds)• Electrical/plumbing: time &

material ($50 – $150/hr)

Understanding Rehab Pricing

• Kitchen cabinetry: per lineal foot (lf); $100 – $500

• Trim/baseboards: $2 – $3 per lf• HVAC (heating/air): per ton• Door/window: per unit installed

• Drywall: per board• Painting: per sq. ft.• Fencing: per lf• Siding: per sq. ft. or lf

1. Find the property2. Make offer3. Get signed contract4. Important dates memo5. Estimate Repairs6. Set up professional inspection7. Put together project overview

Managing Your Rehab – Step by Step

8. Secure financing9. Prepare contractor agreements10. Set up insurance11. Prepare budget12. Closing13. Utilities14. Put sign out

Managing Your Rehab – Step by Step

Managing Your Rehab – Step by Step15. Schedule repairs16. Post call sheet for workers17. Photos18. Advertising/Marketing19. Cost analysis20. Cost Summary21. Document with photos

1. Describe the five major rehab categories

2. Explain how to estimate rehab costs

3. Understand how to manage a rehab from start to finish

SESSION REVIEW

Contracts

Wholesale

Rehabbing

• Rentals

Business Entities

1. Understand Due Diligence Process2. Discuss obligations to the tenants3. Fill vacant units4. Understand tenant selection process5. Collecting rents6. Keeping Tenants

Landlording GOALS

• Tenants with leases- Focus on the future- Planning- Controlling “Bad Seeds”- Opportunity for creative financing- Raising rents (at turnover)- Update tenant information- Attorney Review

Obligations to Tenants

• Tenants without leases- Liabilities- Following Rules- Communication breakdown- Financial performance- Getting rid of “bad seeds”- Creative financing

Obligations to Tenants

• Handle vacancy history- Maintenance/repairs- Are rents market rates- Property management or lack of

Managing Vacancies

• Maintenance- Use checklist- Focus on visible items- Focus on mechanical items- Final Walkthrough- Touch up paint/replace carpet- Add safety items

- smoke detectors, GFCI switches, etc.

Remodeling Vacant Units

• Marketing to Fill Vacant Units- Signs- Advertisements- Direct Mail- Flyers- Government Programs

Renting Vacant Units

Screening• 60% of all property owners rent on looks• 56% never do a background check• Put a system in place

- Voicemail System- Drive by- Prequalification questions- Minimum standards- Fair Housing Standards

Selecting your tenants

Step by Step Policies & Procedures1. Make sure property is EMPTY2. Pre-screen with phone system3. Show property all at once4. Get application signed5. Get application fee from renter6. Verify all of the applicant info7. Place is not rented until deposit check is in

Selecting your tenants

• Clearly define when, where and how• Discount for early rent• Monthly pet charge v. deposit• Evictions

- MUST have P&P

• Unpaid damages- What will tenants be responsible for?- Minimum damages

- liens on personal property

Collecting Rents

1. “Why are you moving?”2. Send letters

- “sorry to hear you’ll be leaving”

3. Offer free gift to say- carpet cleaning, ceiling fans, landscaping, etc.

4. Repair/Appliance policies5. Timely response for all repairs

- All in writing- 3 day guarantee- repair line

Keeping tenants

• Understand Due Diligence Process• Discuss obligations to the tenants• Fill vacant units• Understand tenant selection process• Collecting rents• Keeping Tenants

SESSION REVIEW

Contracts

Wholesale

Rehabbing

Rentals

Business Entities

Understanding Business Entities

Summarize key characteristics of:• Sole proprietorship• Partnerships• S corporation• C corporation• Limited Liability Company

Advantages- Easy to set up - Inexpensive

- Few regulatory Requirements- Many states don’t have fees- No separate income tax filing

Sole Proprietorship

Disadvantages- Owner personally responsible for

debts - No legal protection- Taxed as self employed- Personal assets exposed

Sole Proprietorship

Advantages- Easy to set up - Inexpensive

- Few regulatory Requirements- Losses reported on owner’s tax returns- Flexibility in establishing

responsibilities of partners

Partnerships

Disadvantages- Personally responsible for debts of the partnership- Partners responsible for all

business-related actions of all other

partners

Partnerships

1. Insurance- Umbrella Liability- Builder’s Risk

2. Create a business entity- Twin Brother- Collection of documents

Develop layers of protection

• Requires paperwork with secretary of state

• Pay Federal Income Taxes• Separate Checking Account• Shares of Stock• Minutes and Meetings• Pays it’s own taxes

C Corporation

Advantages- Not personally liable for debts of

corporation- Ownership transferable through

stock- Unlimited life beyond owners- Tax benefits

C Corporation

Disadvantages- Possible double taxation- More expensive to form than sole proprietorships and partnerships- More paperwork

- Schedule C- Minutes & Meetings- Annual Reports

- one checkbox different on the form!

• Does not pay federal taxes – “FLOW THROUGH” on Schedule K-1

• Better if you are taking disbursements• Same paperwork as C - Corporation

S Corporation

Advantages- Avoidance of double taxation- Shareholders not personally responsible for liabilities of

corporation- All other advantages of C

Corporation apply to S

S Corporation

Disadvantages- Can only have 1 class of stock- Shareholders limited to 75 shares- Shareholders must be individuals, estates, or qualified trusts- Shareholders cannot be non-

resident aliens

• Protection of partnerships mixed with benefits of partnerships

• Best of tax codes and protectionary features

• Flow through• Better tax codes for passive income

Limited Liability Company

• Members decide on management• Disbursements determined by

agreement• IRA can be a member of LLC• Can form a 401K

Advantages- Pass-through taxation- Members not held personally liable- No restrictions on number of

owners (members)- Flexibility in structuring

management of company- Less paperwork

Disadvantages- More paperwork than general

partnership- Ownerships harder to transfer than with corporation

• Summarize key characteristics of:- Sole proprietorship- Partnerships- S corporation- C corporation- Limited Liability Company

SESSION REVIEW

Contracts

Wholesale

Rehabbing

Rentals

Business Entities

GettingComplete Guide to

StartedDay 1

Finding & Analyzing Deals

Putting It All Together