The Art of Real Estate Investing

Discover Opportunities Others Overlook

ROB BEEMAN Published by Roman Publishing

Disclaimer: This book is the author’s personal view and is designed to supply information regarding the subject matter presented. It is conveyed with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting or other professional advice. It is not intended to replace or substitute professional advice. If the reader feels that legal advice or other expert assistance is required, the reader should seek the services of a competent professional. The reader should consult with qualified counsel as to the legality and safety of any investing activities prior to engaging in the same. The author and publisher specifically disclaim any liability, risk, loss, personal or otherwise, incurred as a result, directly or indirectly, from the use or practice of ideas or techniques portrayed or discussed within this book. Web sites referenced in this text were active at the time of publication. The sites are referenced for informational purposes only and neither the author nor the publisher endorses the sites referenced. Cover designed by Mike DiTizio

Illustrations by Cheryl Boyd Disque of The Wooden Palette, www.thewoodenpalette.com 856.740.0323 Type setting and processing by DR&P © 2003 by Robert Beeman all rights reserved Published by Roman Publishing This book, or parts thereof, may not be reproduced, stored in any retrieval system, transferred or transmitted in any form or by any means, without prior permission from the publisher. Printed in the United States of America Printed by Instantpublisher.com ISBN # 0-9745141-0-1

Lease a man a garden and in time he will leave you a patch of sand. Make a man a full owner of a patch of sand, and in time he will grow there a garden on the land.

---Unknown

CONTENTS

Preface ix

Part I – Getting Started and Structured CHAPTER 1 Is Real Estate Investing for Me? 1

CHAPTER 2 To Incorporate or Not to Incorporate, That is the Question 5

CHAPTER 3 Types of Properties 9

Part II – The Purchase Process CHAPTER 4 The Search for Property 15

CHAPTER 5 Placing a Bid 33

CHAPTER 6 The Purchase Contract 45

CHAPTER 7 The Title Search 49

CHAPTER 8 Arranging Financing for Purchase 51

CHAPTER 9 Insuring Your Property 61

CHAPTER 10 The Purchase Settlement 63

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Part III – The Management and Marketing Process

CHAPTER 11 Property Keys in Hand, Now What? 67

CHAPTER 12 Managing Necessary Repairs 71

CHAPTER 13 Marketing the Property as a Rental 85

CHAPTER 14 Marketing the Property for Sale 97

Part IV – Closing the Deal CHAPTER 15 The Sales Agreement – You as the Seller 105 CHAPTER 16 Financing Options for the Buyer 107 CHAPTER 17 Pre-Settlement Inspections 115 CHAPTER 18 The Final Walk Through 117 CHAPTER 19 The Sale Settlement/Closing 119

Part V – Creating Dollars from Land CHAPTER 20 Raw Land Deals 121 CHAPTER 21 Developing Property 135

Part VI – Staying Organized CHAPTER 22 Organizing your Paperwork 139

Part VII – Non-Ownership Income Option

CHAPTER 23 Providing Private Funding 143

Contents vii

Conclusion 155

Internet Sites to Check Out 159

Glossary of Terms 163

The man who does not read good books has no advantage over the man who cannot read them.

---Mark Twain

PPRREEFFAACCEE his book is written in a easy to read format so that each reader can enjoy it and use it as a tool in the manner that best applies to their investing strategies.

Too many times we pay hard earned money to buy a book, attend a seminar, buy a video, or take a course with the hopes of learning the “Secrets of Success” of a given topic, only to be greatly disappointed with the end results. Why listen to a speaker that talks eloquently, but does not say anything useful? Why read the writings of a brilliant author if the information portrayed is not understood?

While this book may never win a Nobel Prize, it may be just the ticket for the person thinking of venturing into real estate investing or ownership. Will it help bring about world peace? Of course not! Will it end poverty and homelessness? Again, no. It will, however, supply the reader with useful knowledge, tactics, facts and procedures related to real estate investing. To a novice, it can be a “How to” book, an industry related dictionary, a road map or reference guide. To the existing real estate investor, it can be a newfound source of ideas or contacts, which often can turn into newfound dollars. To the expert, guru, or seasoned real estate investor, it can be a reminder of the basics and what really works, or does not work.

In today’s world the common belief is that it is better to own, than to rent. This is true for all of the obvious reasons such as: equity for the monthly expense, satisfaction of ownership, tax deductions, and so on. We all want to own a piece of this earth that we can brand as ours. If we are lucky, perhaps we can pass it on to our heirs once we are

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gone. It would be a symbol to the rest of the world that we were here. With that being true, it can then be said that if it is a better to own, it is better to own more than one. Of course, this is referring to ownership of property. Perhaps it is that part inside all of us, that little voice, which says: “To own is to be in control. To be in control is better than to be controlled.”

Therefore, we labor long and hard with the hope of purchasing a property to call ours. Are we content with just one? For some, yes. However, for a large and quickly expanding number of us, no -- one is not enough. Because to own one property, which we call home, means we are in control of ourselves. However, to own more than one property is to mean that we are in control of our destiny and desire to succeed.

Whether your goal is to purchase a single property for you to call home or become the next Donald Trump, wheeling and dealing with everything from single-family homes to skyscrapers, this book will hopefully assist you in your goal setting process.

Preface xi

Some individuals discover success in real estate investing much more rapidly than others. A lot of it is tied to your particular personality and interests. Whether you are creative, reserve, flamboyant, ambitious, conservative or a risk taker, these traits will often carry over to your investing activities.

Some real estate investors get a massive rush when they drive through a neighborhood and say, “I own that one and that one, those two over there and the one around the corner.” Others get energized when they hop out of their vehicle and the word gets passed along, "Here comes the landlord.” Some real estate investors like to brag, “I bought that building for $30,000 and sold it for $60,000.” Whichever route you decide to take in the real estate investing world, and there are many, this business accepts all personality types and grants you the opportunity to boast of your accomplishments or stroke your ego, if you are so inclined.

A memorable line from the movie Wall Street was when Michael Douglas’ character, Gordon Gekko implied “See that building? I bought that building 10 years ago, my first real estate deal. Sold it 2 years later, made an $800,000 profit.” Of course that was, as they say, “in the movies”. Wouldn’t it be nice to experience that in real life? Who knows it may be possible, and in fact may have already transpired.

Real estate investing is one of few businesses that offers a person controlling the property several options. We use the term having control of the property, as opposed to owning the property, because as you will discover through your reading of this text, they are two very different animals.

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Successful real estate investors have grown to be masters at controlling property, earning maximum profits, and at times, never taking ownership possession. While it is our every wish that each real estate investor, novice or expert, reach and supersede his or her goals in business, it is not the intent to give the impression that the business is a bed of roses without a single thorn.

For every successful real estate investor there is at least one unsuccessful investor. The unsuccessful investors are those individuals who enter the business without a pre-arranged game plan and are flying by the seat of their pants.

You will discover in the pages that follow, knowing exactly what you are going to do with a property before you gain control of it is just as important as gaining control of it in the first place.

There are well-seasoned real estate investors that sit and wait for mismanaged investors to get into trouble and be forced to dump properties in a hurry. They profit greatly from the other’s misfortune. So, while real estate investing can be fun and lucrative, and few things one does in life for income are, make certain for your own sake, that you thoroughly do your homework prior to signing on the dotted line.

This book is designed to assist you in your search for property, evaluation of the property, acquisition, altering or repair, leasing, management, or remarketing of the property. It is my desire, as the author, that the reader have a more complete understanding and insight of real estate investing as a whole after studying this text. I say study, as opposed to read, because it is my belief that the reader will

Preface xiii

refer back to parts of this book from time to time to refresh and sharpen their skills.

So read on, friend, feeling free to dog-ear pages, underline passages or highlight terms.

Illustrations have been inserted throughout this text to help entertain as well as inform. Famous quotes lie ahead to help keep your mind energized and positive thoughts flowing.

To help you have a broader understanding of the terminology used in the business a glossary of terms have been compiled and located after the conclusion of this book.

The mission of producing this text will have been met when this book, used as a tool, helps you successfully complete at least one real estate transaction.

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Knowledge speaks, but wisdom listens.

---Jimi Hendrix

CCHHAAPPTTEERR 11 Is Real Estate Investing For Me?

ike any type of investment, you must ask yourself that most important question. Is it for me? Evaluate the reasons behind your desire to begin investing in real

estate. Whether it is for purposes of owning a property that you will call home, or to purchase property for sources of income. Obviously if your desire is to purchase a property to live in, you will have different criteria in your search for the right one as opposed to those individuals searching for property to use as sources of income. When considering purchasing your first property as your primary residence, you must weigh the differences between ownership and renting. Typically with ownership comes more responsibility. You become your landlord and must maintain the property, assuming the responsibility for all repairs as well as costs associated with the property. Additional costs to be born in ownership, aside from ongoing repairs and maintenance, are: annual property taxes, homeowner’s insurance, in some geographical areas of the country -- ground rent and/or condo association dues, among others. Of course, there are incentives to ownership such as: the hopeful gain in equity as property values rise, the tax deduction advantages which apply to mortgage interest paid annually (consult an accountant for exact allowable deductions), and the ability to make adjustments or improvements to the property to better suit your tastes or needs, along with the satisfying feeling that you are gaining something for the money spent each month.

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According to the Office of Federal Housing Oversight, home prices raised from 1999-2000 an average 6 to 8% and 27.6% in the past five years. According to M/PF research, a real estate information firm, the average national rental rates increased by nearly 7% in the last year. These statistics alone are perfect indicators that real estate investments are wise investments.

If your desire is to consider purchasing property for sources of income, there are various considerations. One of them being: will the property or properties being purchased be a long-term investment or a short-term investment. Since these are two very different forms of real estate investing, the criteria used in searching and selecting properties in each form of investing differ greatly. As such, the chapters of this book that relate to each particular type of investing will cover the pros or cons of each, as well as those items which may be considered as you begin, or continue, your real estate investing activities. Regardless of the incentives for, or the methods used, you must be prepared to devote time and energy, and perhaps money, to your investing projects.

One important item to be aware of is: real estate investing is not a get rich quick business. While substantial income can be earned in the business, it is not an overnight, lottery winning type experience. It requires effort, sometimes plenty of it. However the efforts have been known to produce nice returns. Unlike some other types of businesses, there are no special diplomas needed to be a successful real estate investor. Both the highly educated and the minimally educated individuals have successfully operated real estate investment businesses. While some promoters push the concept of no money down real estate investing, it is not the intention of this book to falsely lead

PART I GETTING STARTED AND STRUCTURED 3

the reader into thinking it is an all roses and no thorns business. Indeed it is possible to acquire property without using any of your money, but more importantly is what you do to earn profit with the property once it is acquired.

Like so many things in life, your investment yields are directly related to the efforts put into them. What you get out of it is directly related to what you put into it.

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Shorter sometimes is sweeter