The old saying goes “two heads are better than one.”  Out of all the real estate transactions I have been a part of, some of my favorite deals were the JV deals I have done with a partner.  Working a real estate investing deal with someone else can greatly increase profits, productivity and results.   I [...]

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A Tale of Two Real Estate Joint Ventures: Success vs. Failure

The old saying goes “two heads are better than one.”  Out of all the real estate transactions I have been a part of, some of my favorite deals were the JV deals I have done with a partner.  Working a real estate investing deal with someone else can greatly increase profits, productivity and results.  

I have two joint venturing stories to share with you today.  One story is of a great success that created laughs, profits and comradery.  The other story is of a simple deal that let a two decade long friendship burnout.

Success in Partnering

The year was 2004.  The patriots just defeated the Panthers for the first of consecutive Super Bowl victories and I had just met another young investor in town.  We met at a local REIA meeting and we quickly discovered that we shared very similar ambitions and drive; the best part of all was that he was nothing like me.  He was crass, rude, analytical, introverted and he knew about developing land, impact regulations, and he could rebuild or fix anything in or under a house.  I on the other hand had real estate investing knowledge, experience, and knew how to find and structure amazing mobile home deals.

We sat down and discussed how to make $1,000,000 in the next 30 days.  I love having these conversations even if we seem to be reaching for the stars.  Over the next 3 years we created several mobile home/land transactions from scratch.  We were both doing things we loved and were proficient in doing.  We bought undervalued land using creative terms, he made it ready for residential use and I moved very beautiful, very inexpensive manufacture homes in place.  We sold the home and land packages with seller financing until a point when we were refinanced out, making a sizable profit for the amount of time and effort applied.

A Real Estate Partnership Gone Awry

Halfway through this fun and profitable joint venturing experience, a childhood friend and I came up with a plan to purchase and fast turn homes destroyed by hurricane Katrina.  Yes, this is one of those stories!  Partly sparked by the TV hit “Flip This House” and the hype of real estate and flipping homes we rushed to get our investing game plan together.  We were best friends and I let friendship cloud my vision to the great obvious flaw in our partnership.  My friend knew next-to-nothing at the time about real estate investing or rehabbing gutted houses.  My tasks in the transactions were to handle a majority of the financing, book keeping, and my friend was to handle the supervision and handling of repairs, contractors, permits and deadlines.

We got along great, trusted each other completely and went so far into debt it hurt.  We purchased our first Katrina home using hard money; before we were even done fixing the first one to be ready for market the second and third homes were already bought — with hard money of course.  Living over 900 miles away from Mississippi made it challenging to view repairs, pull permits and hire contractors.

Missing materials, natural disasters, insurance underwriter, alcoholic contractors, fires, power problems, and permitting issues all caused delays to mount up and expenses to multiply every month. The mounting frustration, animosity and disdain between my partner and I caused a breakdown in communication and soon the deals were doomed.  I ended up losing my best friend, credit, respect and a ton of capital.

Lessons Learned

It is import to remember, before embarking on any new venture, to get advice about the destination ahead and to set realistic goals with an educated and trusted mentor.  You would not try to travel to somewhere you have never been without detailed directions or a guide.  Watching a few shows on TLC does not make anyone an expert in construction or management, and being naive won’t stop the bills from piling up.  Things do not always happen like you plan, but if they do turn sour it would be nice to have a partner that is just as invested in the transaction, its success and failure, as yourself.

Joint venturing can be a great asset when it multiplies your efforts.  Try doing a single deal, make a profit, and then do another.  Test the joint venturing waters before you dive in without a tank.  Partnering with an individual that has the same or more drive, successful track record and passion, yet brings a knowledgeable skill set different than yours, to a deal, can make for a fruitful partnership.

-          J. Fed

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A Tale of Two Real Estate Joint Ventures: Success vs. Failure

I am a tree-hugging capitalist. If you’re a real estate investor, you should be as well.  Going green is the single greatest advantage for any real estate investor in any real estate market.  Why? Four main reasons: Bigger Pockets- Put simply, green properties sell (or rent) faster and for more money.  Green properties cost less to operate [...]

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Why Smart Investors are Going Green

I am a tree-hugging capitalist.

If you’re a real estate investor, you should be as well.  Going green is the single greatest advantage for any real estate investor in any real estate market. 

Why?

Four main reasons:

Bigger Pockets- Put simply, green properties sell (or rent) faster and for more money.  Green properties cost less to operate (usually 30-60% less) and are more valuable.  In fact, they appraise average of 10-15% higher than a comparable home according to a study done by SmartMoney in 2008.

Higher Demand- The demand for green properties (SFR, rentals, commercial, multi-family, etc) continues to skyrocket.  As consumers become more educated about green living they are more frequently demanding green elements. ‘Green’ used to be only for the tree-huggers. Now it’s for anyone who wants lower utility bills and a healthier, more comfortable place to live or work.  The fact that ‘green’ is en vogue right now is a bonus.

Limited Supply- Green homes continue to account for a very small piece of the residential marketplace.  Even with builders and rehabbers hopping on the green bandwagon, supply is far less than current demand. It will be several years before this ratio starts to even out.

Free Cash!- Right now there are literally billions of dollars available to real estate investors to either build or rehab green. Money is available through a variety of rebates, incentives, tax credits, etc for all levels of green property upgrades.  From $2 lightbulb rebates to $250,000 subsidies for green building, the incentives are there.  A great place to find them is the Database of State Incentives for Renewables and Efficiency.

In this current economic climate it pays to be a tree-hugging-capitalist-real-estate-investor. You make more money, get your expenses subsidized, create healthier, high performance properties, have little competition, tons of demand and protect the planet in the process. Going green is a no-brainer because right now it’s an opportunity and an advantage.  Soon it will be regulated and required everywhere.  The question isn’t whether to pursue green; it’s when.

And the answer to that for savvy real estate investors is right now.

Photo: earcos

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

Why Smart Investors are Going Green

Traditional lenders tightened their underwriting criteria almost immediately after the credit collapse, and construction loans were among the hardest hit. Now, the government has decided that may not be a bad idea. HUD recently unveiled its proposed changes to FHA’s underwriting of multifamily mortgages. The agency had previously released its planned tweaks to single-family FHA, so [...]

Traditional lenders tightened their underwriting criteria almost immediately after the credit collapse, and construction loans were among the hardest hit. Now, the government has decided that may not be a bad idea.

HUD recently unveiled its proposed changes to FHA’s underwriting of multifamily mortgages. The agency had previously released its planned tweaks to single-family FHA, so the new approach to apartment loans was not unexpected. Carol Galante, Deputy Assistant Secretary for Multifamily Housing, maintained that the move was part of an effort to strengthen the FHA multifamily programs.

The changes—namely, to Section 221(d)(4) and 223(f) loans—were necessary due to the rising rate of default for market-rate 221(d)(4) loans, among other factors, Galante stressed. FHA also has a high concentration of properties in the markets with the highest vacancies, she stated, adding that the claims rate has doubled in the past two years to 1.2% in fiscal year 2009, and that figure is expected to double this year.

The main changes involve increased oversight of Multifamily Accelerated Processing lenders and borrowers and improvements in credit risk management and processing.

Debt service coverage ratios would also be increased for market-rate 221(d)(4) loans and developers would have to come up with twice the working capital escrow (from 2% of the loan amount to 4%). Further, cash-out proceeds would be withheld until the project is completed and stabilized, and most borrowers must be able to prove they can stabilize the property within 18 months of delivery. For MAP lenders looking to fund new construction or LIHTC deals, there will be a new specialty certification that would require them to demonstrate that they are experienced in those areas. (For a full breakdown of all the changes, go here or here.)

The details to HUD’s plan are still being worked out, and the proposal should be published on the Federal Register soon. But what information has been released has certainly sparked debate among members of the multifamily community about what tighter underwriting conditions could mean for the availability of FHA financing, which has basically become the only source of construction funds in the industry since the credit crash.

Last week I put a property under contract with the intent of wholesaling it to one of the investors on my buyers list. Unfortunately, the guy I had in mind for the property ended up passing on the deal, and so did everyone else on my list. I started to sweat a little bit, but knew [...]

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How to Sell Your Wholesale Real Estate Deals in 7 Days or Less

Last week I put a property under contract with the intent of wholesaling it to one of the investors on my buyers list. Unfortunately, the guy I had in mind for the property ended up passing on the deal, and so did everyone else on my list.

I started to sweat a little bit, but knew that I had a good deal on my hands and just needed to do some Ninja marketing to find an end buyer. My goal was to get the property sold within 7 days, which I ended up doing. Following was the marketing strategy that I implemented, which resulted in a signed contract as of yesterday which will put a quick 4k in my pocket.

Signs Around the Property: Signs are my #1 source of leads for buyers, so I immediately placed handwritten signs in the neighborhood where the property was located. I put the signs out early Saturday morning, and my phone rang off the hook all day. (Note: Code enforcement in your city may prohibit you from placing signs in certain areas, so be sure to check with them first to find out what the rules are).

Contact Landlords in the area: While I was driving around Saturday morning, I jotted down the phone numbers from every single For Rent sign that I saw in the neighborhood, then once I returned home, I called the landlords and asked them if they were looking to pick up any more rentals in the area.  I also did some research on my county’s Section 8 website to see which landlords had properties for rent in the zip code where my deal was located, and then contacted all of them as well.

Online Research:  By searching through the Property Appraiser website for my county, it is easy to find out who the active investors are in any given neighborhood.  I look for private investors or LLCs who own more than one property in the area where my house is located, as there is a good chance that they might be interested in buying another.

When I did my search, I found ten investors who owned multiple properties in the area.  I then did some internet detective work (thank you, Lord Google!),  and was able to get phone numbers for 6 out of the ten investors!  I contacted all 6 of them and sent out letters to the remaining 4.

Not only did I get the property under contract shortly after I put these strategies to work (the buyer came as a result of one of my signs, btw), but I was also able to add several more investors to my buyers list as a result of my efforts.

This isn’t the first time I’ve used these strategies to find buyers for my wholesale deals, and it definitely won’t be the last.  Give them a shot next time you need a buyer for one of your deals- you won’t be disappointed!

Photo: Salvatore Vuono

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

How to Sell Your Wholesale Real Estate Deals in 7 Days or Less

I got a phone call yesterday from one of my clients.   This client doesn’t make millions, yet she has studied her market, picks her deals carefully, has learned to manage the entire process with precision, and her profits continually reinforce her approach. In short, she is successful! So, why would she be calling with essentially this question; one that [...]

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

Change is Invetiable… Your Success in Real Estate Is Not!

I got a phone call yesterday from one of my clients.   This client doesn’t make millions, yet she has studied her market, picks her deals carefully, has learned to manage the entire process with precision, and her profits continually reinforce her approach.

In short, she is successful!

So, why would she be calling with essentially this question; one that many real estate investors, including you, might be asking right now, ”with everything that is happening in our nations’ politics, our economy and the housing market, is it even possible to expect continued success as a real estate investor?” 

I fully appreciate where she is coming from.  This business is not getting any easier . . . just take a look at this CBS Market Watch article: Housing Market Predictions for 2010: How Good Will It Get? 

Well if you hang around BiggerPockets, you know that it is possible to be successful as a real estate investor.  But, what about those who are aren’t so lucky or only “tune” into the mass media for their information?  What must they be thinking regarding the possibility of success for real estate investors?

Let’s pick this apart just a bit to see what real estate investors can and should be doing to remain successful, in spite of all of the challenges present today.

First, and keep this in mind . . . on Maslow’s hierarchy of needs scale, shelter is one of the basics.  And if you haven’t figured it out yet, that is exactly what real estate investors, for the most part, provide: shelter.  We supply one of the basic necessities of life!  The demand for our product is not going to disappear! 

Second, if you pay too close attention to everything that is written by all of the “experts,” yes even me; you will find that no one really knows for sure what is going to happen regarding our economy.  In fact, on any given day you can find two diametrically opposed opinions regarding almost any topic, although the conclusions of these opinions seem to be trending more and more negative.  As a real estate investor it is critical that you stay informed; just keep an open mind regarding what you are taking in and how it may be affecting your outlook.  Because…

Third, changes brought about by Government policies (think the impact of the Homebuyers Tax Credit), overall economy (think unemployment close to 10% or home ownership slowly trending downward), or your local housing market (steadily declining home values) all demonstrate the following:  things never stay the same.  In fact, the only constant is that things are going to change, and in our world today the pace of that change is rapidly increasing.  And that is where the opportunities are! 

Fourth, just like the dinosaurs, if you as an investor do not adapt to the changing environment around you, you will not only be unsuccessful, but you will very quickly become extinct;  and you’ll only be replaced by an other investor who was able to adapt and make a killing in the process!  If you doubt this, just look at the slaughter that occurred when the housing market dramatically shifted in 2006. It was messy, yet many, many investors have been able to swoop in and acquire deals that have reaped substantial profits.

So, lets recap…

1. Real estate investors supply a basic need to our customers, one that will always remain in demand!
2. Be careful who you allow to influence your thinking. Develop your own opinions!
3. Change is constant, and in the real estate investing world you can expect major changes every 24 – 36 months.
4. If you don’t adapt, you will not be able to sustain your success and you will end up leaving or otherwise somehow be pushed out of this business.

In closing, I think it is important for you to understand that your success as a real estate investor depends on many factors, and while it is important to understand what is happening in the environment around you, it is more important to your success how you respond to that environment.

 Oh, and one more thing.  Lets hear about your successes. They only help to reinforce to others that this business is doable, and everyone loves to live vicariously through others’ success!

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

Change is Invetiable… Your Success in Real Estate Is Not!