Some people always seem to get lucky in finding and getting perfect apartment deals. Don’t you wish you were like them? Don’t they drive you crazy at times? How do you become like them or make yourself luckier? What are you missing? What can you do that’s different? You’re ready for it, right?

Wouldn’t you love to get lucky and not only find your first deal, but actually close on it? Well, read on my friend…

I got this email the other day from a leadership trainer and in it was something I believe is profound, yet so simple. His email spoke on five ways to make you luckier. As I read though the email, I pondered on these 5 things and I looked at my life successes and agreed 100% of what he says. Here’s what he says and I break it down for you further as it applies to us real estate investors.

-5 Ways to Make Yourself Luckier-

Flow – Be in the moment. Be spontaneous. And stay there! You ever get into the flow of something and everything is going super well, then just like that, you talk yourself out of the flow? This is letting your “head trash” rule your life’s flow. So, next time you’re in the flow, pay attention to the negative words that enter your thoughts. Thoughts rule. Say no to stinking thinking! In other words, when a smoking deal comes into your life, don’t push it away with unbelief and doubt. Follow up no matter what and flow with the deal and let it takes its course – this could be “the one”!

Come from Love – There are only two ways to go through life: coming from fear, or coming from love. Coming from love means you are coming from “more than enough” – and that’s a vibration that people can feel. Therefore, approach your deals and sellers with love and understanding and watch the magic happen. People don’t care what you know until you show that you care. If you take on this attitude, I guarantee deals and opportunities will show up! Guaranteed!

Come from Service – Most people are stuck in WIIFM: “What’s In It for Me?” truly successful people are service-minded people who are tuned to WCIDFU: “What Can I Do for You?” This is the key to achieving phenomenal success in real estate. Come with this mindset when you’re trying to get the seller’s motivation or during negotiations and you’ll increase your chances of a successful outcome by 10 times.

Trust – Realize that you don’t have to know everything before you start. Just do it.

Action – Just do SOMETHING. Taking no action is the greatest danger of them all. Remember, inaction is a form of action, and has its own consequences. If you don’t take action, events will control you, you will be constantly reacting instead of acting. Life rewards action is the bottom line.

These are 5 traits of truly wealthy people. And the wealth I’m referring to has everything to do with money, relationships, family, and health. So, if you want to put yourself into position to “get lucky” and experience life to the full (the way it was meant to be!), take a good look at these 5 traits and ask yourself if that’s what you’re being. It’s just a matter of time before your perfect deal shows up because of it. If not, then it’s not too late. Be intentional in making the changes necessary to Be.

Til next time…

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Why You Should Network With Non-Real Estate Investors

I’ll admit. When I first started out as a real estate investor all I did was go to my local REIA meetings. I happen to live in the Washington, DC area so there are plenty of REIA’s close to me and I hit them all.

I was a networking machine at these meetings and it paid off well. I got plenty of referrals and did plenty of deals from the people I met. However, after a while I didn’t feel as if the REIA’s were “productive” enough for me and I wasn’t getting the necessary return on my time investment.

Another problem was that as real estate investors we’re small business owners and all I was doing was hanging around the same type of business owners and not expanding my business network.

So what did I do?

I started joining various small business associations in my county. In every town and city in the U.S. there are more “clubs” you can join than you’d ever be able to attend, such as BNI and the Chamber of Commerce.

When you attend these types of events you expand your network and you could get deals and business from folks who would have never given you a deal before. But more importantly, you start to think more like a business owner and not just a real estate investor.

For example, what’s the most important part of the real estate investing business? It’s marketing. And when all you do is attend REIA meetings, you see all investors doing pretty much the same type of marketing.

However, when you attend a small business event you might get a marketing idea from the local plumber, or baker or photographer that you can use in your real estate investing business.

In fact, you should be looking for these marketing breakthroughs at every event you attend.

Perhaps the local salon is giving away a free report and you could give away a similar free report in your real estate business.

My point is, try and expand your horizons so you don’t fall trap to real estate investor “incest” and start doing the same thing you see other real estate investors do. Because if you do the same thing they do, how will you differentiate yourself from the competition? You won’t.

But when you get a great idea from a local restaurant owner, and you use a similar postcard the restaurant is using – but make it applicable to your real estate business, then you won’t have any competition at all.

So… if I were you, I would make a list of the associations in your area and join several of them this week. It will pay off in lots of deals and also, lots of great marketing ideas.

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I love doing lease options and subject-to’s. And with the properties that don’t go into my buy-and-hold portfolio, I sell almost all of them via lease option. However, the huge downturn in the real estate market has caused a problem for many landlords and their lease option tenants.

You see, since 2008 the market has dropped 30%-50% in many locations. If you gave a tenant/buyer an option to buy a house for $100,000 a few years ago, the house might now be worth only $70,000 and you’ve got a problem.

So what do you do?

Well… a lot of it depends on your tenants. Your tenants might decide they can buy a house down the street for a lot cheaper and they might move out when their lease is up. If a tenant can get a house for $70,000 and you can’t sell them your house for that price then there’s not much you can do.

In fact, this just happened to me on a property I have in Stafford, VA. I had an excellent tenant for the last several years that just moved out. She could buy a similar house in the area for $150,000 and the best price I could give her was around $200,000. I hated to lose her, but I certainly don’t blame her for moving out. In this case, I do have a good property so I’ll get it filled quickly.

However, if possible, I would encourage you to work with the tenant if you can. Let me give you another example from a property of mine.

I have a row house in Baltimore, MD. The tenants absolutely love the house and want to purchase it, but the appraisal came in a few thousand short below their option price. They didn’t want to move out so we extended the lease for another 6 months and will reevaluate things at that time.

Now, with the Baltimore property I could have dropped the price slightly, but it’s another good property and I am in no need or hurry to sell it. However, if it was a dump which I didn’t want any longer I would have dropped the price in a heartbeat to get rid of it.

What you have to remember is that every situation is different and everything is negotiable.

If you have quality tenants that truly want to buy the house and they’ve paid rent on time every month, I would definitely try and work with them. Much of the time this will be extending the lease every 6 months or so until the property is worth their option price. Or, if you have a ton of equity in the property you could always reduce the price if you wanted to.

On the other hand, if the tenants have been a pain in the butt and you’ve had to chase the rent every month then I would not extend the option and I would try and get new tenant/buyers in the property as soon as possible.

Just remember to remain flexible and take each property on a case by case basis.

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Time To Act

Engaging in genuine discipline requires that you develop the ability to take action. You don’t need to be hasty if it isn’t required, but you don’t want to lose much time, either. Here’s the time to act: when the idea is hot and the emotion is strong.

Let’s say you would like to build your library. If that is a strong desire for you, what you’ve got to do is get the first book. Then get the second book. Take action as soon as possible, before the feeling passes and before the idea dims. If you don’t, here’s what happens:

YOU FALL PREY TO THE LAW OF DIMINISHING INTENT.

We intend to take action when the idea strikes us. We intend to do something when the emotion is high. But if we don’t translate that intention into action fairly soon, the urgency starts to diminish. A month from now, the passion is cold. A year from now, it can’t be found.

So take action. Set up a discipline when the emotions are high and the idea is strong, clear and powerful. If somebody talks about good health and you’re motivated by it, you need to get a book on nutrition. Get the book before the idea passes, before the emotion gets cold. Begin the process. Fall on the floor and do some push-ups. You’ve got to take action; otherwise, the wisdom is wasted. The emotion soon passes unless you apply it to a disciplined activity. Discipline enables you to capture the emotion and the wisdom and translate them into action. The key is to increase your motivation by quickly setting up the disciplines. By doing so, you’ve started a whole-new life process.

Here is the greatest value of discipline: self-worth, also known as self-esteem. Many people who are teaching self-esteem these days don’t connect it to discipline. But once we sense the least lack of discipline within ourselves, it starts to erode our psyche. One of the greatest temptations is to just ease up a little bit. Instead of doing your best, you allow yourself to do just a little less than your best. Sure enough, you’ve started in the slightest way to decrease your sense of self-worth.

There is a problem with even a little bit of neglect. Neglect starts as an infection. If you don’t take care of it, it becomes a disease. And one neglect leads to another. Worst of all, when neglect starts, it diminishes our self-worth.

Once this has happened, how can you regain your self-respect? All you have to do is act now! Start with the smallest discipline that corresponds to your own philosophy. Make the commitment: “I will discipline myself to achieve my goals so that in the years ahead I can celebrate my successes.”

*God Speed*

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“Every great leap forward in your life comes after you have made a clear decision of some kind.” – Brian Tracy

Apartment property investors are constantly asking me when is the ideal time to get their properties ready to go “on the market.” Before I answer, I wanted to share the biggest mistake in selling an apartment building. The #1 biggest mistake I see investors make is:

Selling when you NEED to sell.

I have seen many investors over the years literally leave tens of thousands of dollars on the table when they sold their property because of some change in their lives. Retirement, divorce, financial problems outside of their property investment, and any other life change that “forces” the need to sell. This is the biggest mistake I see investors make, and one that you should avoid.

Now on to when you should get your property ready to sell. In my opinion, I would start getting things ready at least one year ahead of time. I know, timing is everything and you may not have this much time due to circumstances being what they are, but ideally it should be about a year.

Why a year? The MAIN reason is to get the rent up as high as possible. You know the tenant that you have been really nice to over the years. Letting them get by with lower (sometimes a lot lower) than market rent? Well now is the time to get the rent up there.

Why? Remember, the main points of value will more than likely be the cash flow the property produces. So, the rents are key here.

Also, this will give you time to do the necessary work and capital improvements that the buyer would possibly discount once the property is on the market. I have known buyers that have literally changed the value of their buildings by tens sometimes hundreds of thousands of dollars by doing these things.

If you can get started working diligently on these at least a year in advance, and maintain focus, you will increase your sales price substantially over selling at a time when you NEED to sell. Timing can be everything, as they say, but getting the property performance up there as much as possible is key to a successful sale.

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The LLC vs. the S Corporation

When it comes to your real estate investments, selecting the right business structure is critical. After all, the legal and financial ramifications can be significant. In previous posts, we discussed the LLC (Limited Liability Company) and its pass-through tax advantages. Another business structure, the S Corporation, also allows owners to report profits and loss on their personal tax statement. However, there are some differences between the LLC and S Corporation that have big implications for the real estate investor.

An S Corporation begins as a plain vanilla C Corporation. Soon after incorporation, shareholders must submit Form 2553 to the IRS to be treated as a pass-through entity. While both the LLC and S Corp offer pass-through tax treatment and personal asset protection, there are some key differences:

1. The S Corporation restricts who can be a shareholder

An S Corp cannot have more than 100 shareholders (of course, this limitation is probably not of much consequence to most real estate investors). All individual shareholders must be either U.S. Citizens or permanent residents. The LLC does not have such restrictions on owners.

2. The S Corporation has strict income allocation

In an LLC, income and loss can be allocated disproportionately among the owners; in the S Corp, income and loss are assigned to each shareholder strictly based on their pro-rata share of ownership.

So, if I own 80% of an LLC, my share of the tax burden doesn’t necessarily have to be 80% of the taxable income. But if I own 80% of an S-Corp and that company makes $100,000 in taxable income, I will be taxed on $80,000 of income.

3. The S Corporation cannot increase pass-through losses

In certain circumstances, the IRS allows the loss in a corporation or LLC to pass through to the individual shareholders. For real estate owners, these losses can provide an enormous reduction in an individual’s overall tax liability. However, the LLC allows you to pass through more loss than in the S Corp – most notably when it comes to mortgage payments. In an LLC, members are allowed to add the amount of the mortgage to their basis for the purpose of computing a loss. Clearly, that can add up to a significant difference in your tax statement.

Of course, details may vary based on your specific circumstances. However, in most cases the LLC is the ideal business structure to both protect your personal assets and offer the maximum in tax benefits.

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The LLC and Tax Benefits

The LLC and Tax Benefits

The LLC (Limited Liability Company) can play an essential role in protecting your personal assets in the unfortunate scenario where the property is sued. Other business structures — namely the C Corporation and S Corporation — do offer the same asset protection benefits. However, the LLC brings some unique tax advantages that make it the preferred business structure for real estate investors and builders.

The C Corporation and the problem of double taxation

In the eyes of the IRS, the C Corporation is a separate entity. The Corporation is taxed, and any money paid out to the owners in the form of a dividend is taxed again on their personal income statements. This is commonly referred to as “double taxation” and can make owning a corporation very expensive to the small business owner.

The LLC (as well as the S Corporation) eliminates this double taxation penalty. The LLC is considered a pass-through entity. It does not file separate taxes; rather, any business income or loss is reported on each individual owner’s tax return. In the case of a single member LLC, the LLC taxes would be filed under the individual member’s tax return; in the case of a multi-member LLC, the LLC would generally file a partnership tax return.

All LLC profits flow through to the owners and are taxed at the personal income rate – which depending on circumstances can be lower than what Corporations pay (of course, you should always check with your CPA or tax advisor regarding your specific situation…).

The LLC and Losses

The IRS also allows any loss of the LLC to pass through to individuals. This loss can offset other sources of income – in effect, reducing your overall tax liability. And as an added bonus, in an LLC, members are allowed to add the amount of the mortgage to their basis for the purpose of computing a loss. For the S Corporation, this is not the case.

Let’s say you invested $10 in ABC property. Your tax basis is $10. You mortgage the real estate and borrow $20. Rental income and values decline leaving your property with a $20 loss at the end of year one. Simply stated, you’ve lost $20 through investment activities in ABC property.

If you had created an S Corporation, the IRS will only allow you to take a $10 loss on your personal income tax (because the tax basis is $10); the remaining $10 loss will be deferred. But with an LLC, you’re allowed to deduct the entire $20 in the first year.

Again, it’s always wise to consult with your personal tax advisor, but generally speaking, most real estate investors choose the LLC for their investment properties.

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If you are a first-time buyer, or someone looking to trade up or down to bigger and or more expensive properties, now is the time to do so. According to the new Beacon Economics Home Affordability Index homes in August were at their most affordable level in 40 years or since data became available in 1969. The Beacon Economics Home Affordability Index is based on the percentage of income an average family would need in order to make mortgage payments on an average priced home. The August estimate shows the cost of home ownership (mortgage interest plus principal payments after a 20% down payment) falling to 16.9% from 17.1% in July. Overall, the Beacon Economics Home Affordability Index has remained below 20% for the past twenty-one months.

What does this all add up to? The bottom line is that if you are blessed with cash, equity or IRA funds, and either want a home or a sound, long-term investment, than real estate is your answer. Your thoughts?

Invest well.

Peace.

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If you’re a novice or somewhat experienced real estate investor, and you are contemplating branching out because all of the headaches and maintenance issues related to your existing properties, you may want to contemplate undeveloped land. There are a number of ways that raw land can make you a tidy sum, and it has less troubles than apartments and homes, so it’s a wise move to at least investigate the possibilities.

What we’re talking about here is the concept of ‘buying in the path of progress’ which basically means knowing where areas are starting to get ripe for development and purchasing the raw land ahead of that development. But the real trick is knowing where this expansion and growth will occur years ahead of time and being in the right place at the right time. This takes a lot of homework as you’ll need to understand the impending growth well ahead of everyone else. By not getting a head start you’ll see parcels of land getting scooped up by the experienced or ‘in-the-know’ investors and pretty soon you are locked out of the market.

Staying on top of your target market is the best way to position yourself for a good land buying opportunity. Keep abreast of the latest news in the area and make sure you know everything about the parcels of land available. Your local friendly real estate agent should be able to provide you all of the listings on the local MLS but there are many other parcels that are for sale by owner which you’ll need to track and find yourself. The concept is to study the news and the trends and then be in a financial position to pounce on the land before everyone else so make sure your finances are in order well ahead of time. This is not a game for the faint hearted as you need to be aggressive and go after a property in a short amount of time, as opposed to buying homes or other properties where time is not an issue (at least these days it isn’t.) If you hear that a sports team is relocating or a big company is moving into an area (especially if it’s a major retailer), this is where the big money is made. These teams and retailers have people specifically hired and on the payroll to do demographic studies and know the area probably better than most real estate agents. You can be sure if a company or sports team is moving to an area that it’s prime for growth so pay attention to what these groups are doing and planning.

Again, purchasing raw land does have it’s very big upside but it also is a huge risk that should not be taken lightly. You can certainly stand to lose quite a bit if you gamble on an area and it turns out to be a flop. Now you have a piece of land with no income and little prospects and that’s not the position you want to be in. Do your homework and stay aggressive and maybe you’ll hit that home run too!

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The real estate market may have hit a serious downturn, but lease options are still a viable option for real estate investors searching for monthly cash flow. Lease options are a great way for a would-be buyer to purchase a home – and provide premium cash flow for investors at the same time.

A lease option gives the seller the right to purchase a property at a later date. Typically, the price is pre-set, but you can also have the buyer pay market value if the option is exercised.

Lease Options Explained

If you’ve got rental properties, a lease option provides the best of both worlds. You get a steady renter, more rental income, and a tenant who will treat the home like they own it; in their mind, they already own it.

The buyer pays a deposit, typically 3 to 5 percent of the purchase price. They pay rent – often at premium rates – that go toward their deposit. Usually, they can exercise their option to buy within a two to three-year period, during which time they must arrange for financing with a third-party.

They can buy if they want or they can choose not to buy. No matter the decision, you as a real estate investor get to keep their deposit and premium rental rates.

Lease Options Provide Benefits For Buyers And Sellers

The option money does two things: It takes the house off the market for a set amount of time and it gives buyers options to buy if they choose. As a real estate investor, you get money no matter if the buyer decides to exercise the option or not. The buyer, however, also gets the first shot at buying the home.

Let’s say a buyer doesn’t qualify for your home now, but will in two years. You charge a higher deposit, a premium monthly rent, with a percentage going towards the purchase price.

Fast forward two years later and hopefully the buyer will be in a better position to buy. They’ll already have their down payment if the seller applies it to the mortgage. Let’s look at this example: You have a $160,000 property on a 2-year lease option with 10% option money.

Monthly payments are $1,000 with 20% going toward the purchase price. At the end of the option, the purchase price would be $139,200, with $16,000 in option money and $4,800 in lease payments going towards the purchase price. Option amounts are negotiable, generally 3-5 percent of the purchase price.

As an investor, you unload the property plus you’ve generated a healthy monthly income. The buyer, meanwhile, gets their house. Lease options provide win-win options for buyers and sellers.

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