Beginner's Guide to Real Estate Investing

GARY W. ELDRED, PHD, has invested successfully in real estate for more than twenty-five years and has served on the graduate business school faculty at Stanford University and the University of Virginia. He cohosts a nationally broadcast radio show on investing and frequently makes presentations at seminars throughout North America. He is also the author of 106 Mortgage Secrets All Borrowers Must Learn—But Lenders Don’t Tell and Trump University Real Estate 101, both from Wiley.

• About This Book xiPart One: Mindset + Knowledge = Wealth 1Chapter 1 Start Now 3Just Say No to Excuses 3You Must Believe It to See It 7Set Goals Now 12Chapter 2 Multiple Paths to Building Wealth 19Appreciation in Market Values 19Inflation 21Cash Flows 24Mortgage Payoff (Amortization) 24Buy at a Bargain Price 25Create Value with Property Improvements 26Improve the Neighborhood and the Neighbors 27Convert the Use 28Manage and Market Your Properties More Profitably 30Protect Your Profits from the IRS (Tax Shelter) 30Discounted Notes, Tax Liens, Tax Deeds, and Realty Stocks 34Part Two: How to Raise Money 37Chapter 3 Strengthen Your Credit Power 39Consistency: Fast Track or Flake 39Character Counts 40Credit Scores Count Most 42Summing Up 51Chapter 4 How to Invest Using Little (or None) of Your Own Cash 52Why Low-Cash Deals Magnify Your Returns 52Minimize Your Down Payment with Owner-Occupant Financing 56Don’t Overlook FHA 59Discover FHA’s Best Kept Secret: The 203(k) Program 62Too Many Vets Pass Up VA Loans 63Even Fannie and Freddie Accept Little- or Nothing-Down Loans 65Summing Up 66Chapter 5 Avoid Banks, Seek Seller Financing 68How to Persuade the Sellers 69What Type of Seller Financing? 71Try a Contract-for-Deed 74Assume a Low-Interest-Rate Mortgage 77“Assume” a Nonassumable Mortgage 80Chapter 6 Five More Techniques to Finance Your Investments 84Wraparounds Benefit Buyers and Sellers 84Lease Options 85Lease-Purchase Agreements 91Master-Lease an Apartment Building 92Chapter 7 How to Come Up with the Cash to Close 96Cash Out Some of Your Current Home’s Equity 96Bring in Partners 97Second Mortgages 99Personal Savings 100Sell Unnecessary Assets 100Easy Money—Hard Terms 101Use Credit Cards 105Personal Loans 105Sweat Equity (Creating Value through Improvements) 105Eliminate Your Down Payment with Pledged Collateral 106Student Loans 107Use Creative Finance 107Chapter 8 Here’s How to Qualify 109Be Wary of Prequalifying (and Preapproval) 109You Can Make Your Qualifying Ratios Look Better 111The Application Itself Contains Many Clues to Your Integrity 121No Preset Qualifying Income Applies to Commercial Properties 122Part Three: How to Invest for Maximum Gain 127Chapter 9 Twenty-Seven Ways to Find or Create Below-Market Deals 129Why Properties Sell for Less (or More) than Their Market Value 129Don’t Dilly-Dally with Due Diligence 135How to Find Bargain Sellers 137Chapter 10 Make Money with Foreclosures and REOs 143The Stages of Foreclosure 143Approach Owners with Empathy: Step One 145Some Investors Profit from the Foreclosure Auction: Step Two 148The Benefits of Buying REOs: Step Three 151Chapter 11 More Sources of Bargains 156Federal Government Auctions 156Sheriff Sales 157Buy from Foreclosure Speculators 157Probate and Estate Sales 157Private Auctions 159Short Sale Bargains 162Chapter 12 Run Numbers Like a Pro 169Monitor the Construction Cycle 170How to Profit from the Construction Cycle 170Per-Unit Measures 173Gross Rent Multipliers (GRMs) 175Capitalized Value 176Cash Flow Returns 181Create Your Own Appreciation 183Chapter 13 Greatly Increase the Value of Your Investment Property 184Search for Competitive Advantage 185First, Verify Actual Rent Collections, Not Merely Rental Rates 186Talk with Tenants 187Set Your Rents with Market Savvy 188Your Apartment Checklist 189Give the Interior a Martha Stewart Makeover 190Safety, Security, and Convenience 193Rightsize the Rooms 194Create More Storage 195Check Noise Levels 197Overall Livability 198Chapter 14 Twenty-One More Ways to Push Up the Value of Your Properties 199Create Strikingly Attractive Curb Appeal 199Collect More than Rent 202Convert a Garage, Attic, or Basement 203Create an Accessory Apartment 204Create a Special Purpose Use 205Change the Use of a Property 205Cut Operating Expenses 208Gentrification and Other Value Plays 210Part Four: Onward and Upward to Build Wealth 217Chapter 15 Win What You Want through Negotiation 219How to Define Win-Win 219Know Thyself 222Know the Property and Neighborhood 222Know the Sellers 223Establish Favorable Benchmarks 225Tit for Tat 226Get Seller Concessions Early 226Come Ready to Buy 227Ask for More than You Expect 227Establish Credibility 228Never Offer to Split the Difference 229List Your BATNAs 230Negotiate for Yourself 231Leave Something on the Table 233Chapter 16 Write Your Purchase Offer 235No Single Contract Form 235Draft Clauses with Understanding 236Summing Up 246Chapter 17 Craft Your Lease to Increase Profits 247Achieve Competitive Advantage 247Craft Your Rental Agreement 248Landlording: Pros and Cons 260Chapter 18 The 12 Secrets of Successful Landlording 262The Good News 262Hired Management versus Self-Management 263Before You Buy, Verify, Verify, Verify 267Prepare the Property for Rental 269Craft a Winning Value Proposition 270Attract Topflight Tenants 271Set Up a Flawless Move-In Policy 275Retain Topflight Residents 276Strong Market? Raise Rents 277Prepare for Special Problems 279Maintain the Property 280Process Move-Outs Smoothly 280Persistently Seek Ways to Increase Your Cash Flow 282Keep Trading Up 283Internet Appendix 285Index 291