Real Estate Negotiating – Harnessing the power of questions.

January 30, 2009



Harnessing the power of questions


by James Miller

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Did you ever notice how the cops on the police dramas get so upset when the person they are interrogating asks them a question?

Who hasn’t heard a TV cop yell “I’ll ask the questions around here!”?

Ever wonder why it was so important that he ask the questions?

Asking a question gives you an advantage in three ways:

1) It causes the other person to come up with an answer.
From very early on we are taught to answer questions.  Throughout our years of schooling, there were always people of authority, mostly teachers, and parents, who required us to answer a question. If we gave the right answer we received praise, if we answered incorrectly, we heard a “no”. This incessant questioning, while forcing us to learn, also ingrained a deep-seated need to be right.

It is this “need to be right” that drives us to answer questions today.

As soon as we hear a question, there is a reticular activation mechanism in our mind that starts searching for an answer. This focuses the mind to find an answer and detracts you from things such as creating a question of your own.  It stops us from thinking outwardly and causes us to search inwardly for an answer.

If you want to see how motivated we are to answer questions, try this game:

You and a friend take turns asking each other questions as fast as possible. The questions don’t have to relate, or even make sense, but you can only ask a question. As soon as someone says anything other than a question, they lose.

Try it, you will see that this game shows how difficult it is to not answer a question that is asked of us.

2) Questions direct and control the conversation.
Questions require us to explain, which directs the flow of information. Once a topic has been changed it is awkward to change it without using some sort of segue.

In order to control and redirect the conversation you should get good at using a segue to transition to another topic.

Some of the segues I use most often are:

“I know this is off topic but,…..”
“By the way…”
“Before I forget….”
“I hate to interrupt but….”
“I’ll get to that in a second, but the first thing I need to know is…”

These phrases lighten the blow by acknowledging the impending change in topic.

The interesting part is that you can use them in lieu of answering a question to ask your own. This has the double impact of deflecting their question and redirecting the topic of conversation.

3) Questions buy you time.
When the other party is scrambling to put their information together in order to answer your question, you can be using the time to do your own due diligence.

One of my favorite Donald Trump stories is how he did this during negotiations on a building purchase.

Donald realized that he didn’t have all of the information he needed to continue with negotiations. Instead of revealing this point and asking for more time, he challenged the other party, asking if the knew the true history of the building they were trying to sell. The other party quickly ended the conversation and asked to get back to him at some other time.

Donald had no knowledge of any problems with the history of the building, and didn’t specifically state that he did, he just asked a question that gave him the time he needed to get his ducks in a row.


How to use Real Estate to get an infinite return on your money.

January 29, 2009

How to use Real Estate to get an infinite return on your money.


by James Miller

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I am going to start off by pulling back the curtain on the great OZ of “infinite return”.

An infinite return on your money can happen when you have nothing in an investment. While “infinite return” sounds like a large amount of money- after all infinity is a really big thing– the way the math works out, it doesn’t have to be large at all.

For example, if you get a dollar back from an investment that you have no money in, you have received an infinite Return on Investment or ROI.

In fact I really think it should be called a “division by zero” rate of return on your money, as that is what the calculator tells me if I try to calculate it.

We have gotten an infinite return a few times with Real Estate.

Here is an example of one method we used on a property we bought a couple years ago.

We bought a fixer upper house for $50,000. We got the sellers to give us a second mortgage for $10,000 which the bank treated as a down payment. We left the closing with a net of $800 being deposited into our account.

As sexy as that was, it still didn’t give us our “infinite return”.

The house needed to be repaired before anyone could live in it. We spent about $5000 on fixes like new windows, carpeting, and replacing the radiator hose that they had used on the bathtub drain instead of the proper fix – a $2 PVC elbow.

Once fixed up, we sold the three bedroom one bath house on a Lease Option, or “rent to own” contract, we let the buyer in light, allowing them to put down only $3000.

We held the property a year this way, netting about a $100 per month cash flow. After one year, the fist mortgage was “seasoned”, and the value of the property had increased due to the repairs we made. Because of these two factors, we were able to refinance everything we owed into a new first, paying off the original first and  second, the repair bills and were able to take out an additional $3,000 to put in our pocket.

While our cash on cash ROI for the first year was only around 60%, $1200 annually on the $2000 we had left in the property, the cash on cash return became infinite once we pulled out the remaining money we had invested in it.

I should take a moment to let you know how that deal worked out:

The tenant buyer we put in the house did not exercise their option to purchase in the allotted two year time frame. This worked out ok for us as he forfeited the $3000 he put own, and became a tenant only. We raised the rent from $600 to a market rate of $650.00 per month.

We would have every right to kick him out, as our intention was to sell and he had two years to get financed, but we don’t like to do that if we don’t have to.

If they so desire, we try to let the person living in a lease option home stay on as a tenant, if they miss the exercise date.

It also very hard to kick a young couple out who have paid diligently over the past two years, and it really doesn’t hurt us to let them stay.

If they ever want to buy the house from us we would honor that as well, but at a new higher market rate and not at the price we would have let have it for a few years ago.

Here are the steps to receiving an infinite return for the example I just described:

1) Locate a fixer upper type property.  Make sure that 70% of  after repaired value of the property is enough to pay off everything you will invest in it.

Example:  Property acquisition cost is $50,000. Repairs and holding costs total $20,000. After repaired vale of the property should be at least $100,000.

Try to get a seller second on the place for a minimum of one year, negotiate for no interest, and no payments if possible.

Make sure the property will net positive cash flow by at least 15% of the monthly income.  Monthly income will typically need to be at least 1% of loan against the property in order to just squeak by cash flow wise.

2) Repair the property, put a tenant, or tenant buyer in place.

3) After holding the property for one year refinance the property  paying off everything that you have invested in it and possibly taking cash out.  Be careful not to take too much out as the more you take out, the more you will cut into the monthly cash flow.

You should have a positive cash flow with now money invested, giving you an infinite return.

As a final thought you should note that you can also have negative “infinite returns” if you lose money each month on an investment.

Leverage works both ways.


The first time I made $4800 in three weeks.

January 28, 2009


The first time I made $4800 in three weeks.

by James Miller

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We secured an accepted offer to purchase on a two bedroom one bath fixer upper located in Dodgeville Wisconsin for $50,100.  Our initial intention was to fix it up and rent it out.  We could have probably pulled around$600/mo. in rent from it.

My brother and I had talked about letting this deal go as the place needed some work and the cash flow would be close to a break even after the time and money we had to put into it getting it up to snuff for a tenant.

We instead found that we had locked into one of the most inexpensively priced houses in town.  Word had gotten around that we had a contract on the property and we learned from some Real Estate Agents that there were a few different people interested in properties in this price range.

We negotiated with one agent to work with his buyer to buy the place from us after we had closed on it.  Two weeks after we bought the house, we resold it for $57,000.00. We ended up netting $4843.87 in profit.

We let our bank in on what was going on and we were able to minimize a lot of the closing costs.

Here is how the deal went down:

We bought the property through a real estate agent on July 27th,  we went to the bank, put $9160 down as a down payment for a short term loan on it, got the title work done, got an appraisal, and purchased the property.

We immediately signed a contract with another agent to resell to his buyer for $57,000,  and closed with them on August 19th.

I thought we had found the Holy Grail of Real Estate Investing.

In just under three weeks we were able to get almost $5000 on a low priced deal by flipping a property…all without pounding a nail.

I know now that we could have done so much better.

Double closing comes to mind, so does assignment of contract.

(Here is a link to a good article by James Orr that discuses them both)

Here is an example of a recent deal my partner put together for us which illustrates what I am getting at:

My partner assigned a contract to an investor for a home on the river that has an approximate value of $110,000,  she had negotiated the seller down to $47,500, with terms of 1/2 up front and the balance in two years with no interest and no payments.

The assignment fee to the investor who bought this contract from us was $8,500.

Can you already see how this deal was so much better?

Just to get a few things out of the way before I discuss the finer points.

The assignment was done in late 2008, basically right now, when things are tight and “nobody” is buying.  The first deal was done in the summer of 2005 when everybody was buying.

The prices of the properties are relatively the same, $50,100 and $47,500.

We didn’t do any work to either property.

Here are the reasons that the assignment was a much better deal:

We made more money on the assignment than on the flip.

Here’s why:

1) There was more room in the deal….  About $55,000 more.

2) My partner was able to negotiate for great seller terms.  Making it easy for an investor to finance.

3)  There were no Real Estate Agents involved.  I really don’t have anything against Real Estate Agents, it is just that the more people yo uhave involved, the more times you have to slice the profit pie.

I also find that negotiating creative financing terms through most Real Estate Agents can be difficult, as people tend to say “no” to something they don’t understand.

We didn’t have to take any money out of our own pocket.

Well, except for a $10.00 earnest money deposit… But that is light years better than having to put don $9160.00 for a down payment like we did in the first deal.

It didn’t require our credit.

No bank loan on our part, so no credit needed.

In the first deal, we had actually purchased the property and held it while waiting for the second closing.  We were exposed to the fact that the second buyer could have walked away.

We did have a plan to rent the property out, if our buyer walked.  In that market we could have even spent a bit to throw on a coat of paint and resell the place to someone else, but we were tied to a mortgage and our credit was on the line.

In the second example all we had on the line was $10.00


There are only three ways to buy Real Estate

January 26, 2009


There are only three ways to buy Real Estate.


by James Miller


Yes there really are only three ways to buy Real Estate.

When you get started in Real Estate investing it can seem like there are hundreds of buying techniques you need to know.  In reality there are only three ways and every other method you think you know is just a variation of these three.

1) You pay the seller cash

2) You get terms from the seller.

3) You and the seller agree on some combination of cash and terms.

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Cash
You pay the seller cash.  It doesn’t have to be your cash, you can borrow if from a bank, a hard money lender or from an individual.  You can partner up with someone in either a debt or equity financing position.  You can borrow from your 401K.

It doesn’t matter where the cash comes from, it just means that the seller is getting completely paid off at the time of closing.

Cash is one of my least favorite ways to buy, unless I can use an all cash offer to drive the price down through the floor.  I am talking 30 cents on the dollar kind of thing.

Terms
You buy the property from the seller “subject to” the existing financing, by using a wrap around mortgage, land contract, or rent to own/lease option type purchase, or by having them carrying the whole first mortgage.

Most of these will require some small outlay of money, but in Real Estate terms I consider anything costing you under a few thousand to get into a property “no money”.

Terms means that the seller (or his lender) is not paid off when you take over the property, and that there isn’t any sort of significant down payment being transferred to the seller.

Terms from the seller is one of my favorite ways to buy property.

Combination of Terms and Cash
You pay the seller a portion of the purchase price in cash and they finance the rest for you in some way.  It could be that they carry back a first mortgage, a second mortgage,  use a land contract, lease option, wrap around or even “subject to”.

This is the most frequent way that I purchase property.  Sometimes I decide to catch up a mortgage in order to take over a property “subject to”. Other times the sellers want a down payment to feel comfortable carrying back a first mortgage on the property.

Buying property really is just this simple.  Don’t let the details of the multitudes of creative techniques confuse you.

It always comes down to one of these three ways.


How to avoid arguments over security deposits

January 26, 2009


How to avoid arguments over security deposits

By
James Miller


It is no secret that property managers are one of the most sued professions. As landlords and investors we need to be able to reduce the possibility of this any way we can.

It is my contention that most arguments that ultimately lead to court actions stem from some sort of miscommunication.

While there are people out there who try to sue for just about anything, I think most people who end up in court feel that they have been wronged by someone, but have not been able to work it out with that party.

For landlords and property managers, having a good explanation of what is expected will help to reduce the possibility of arguments and court.

I found that repairs cost me much more than tenants expected and I was constantly getting challenged on the costs.

My answer to this problem was to create a schedule of fees for security deposit withholding.  Here is what I came up with:

Schedule of fees for security deposit withholding

This is the general guideline used to determine what charges to hold against a tenants security deposit. It should be noted that this is a general guideline and charges are determined on a case-by-case basis and may be higher depending upon the situation. It should also be noted that we have 21 days by law to return your security deposit. We will do everything we can to speed up the process.

We are fair in our evaluation of what to withhold from a tenants security deposit and do not treat it as a way to profit from the end of a tenants lease. A large amount of effort is needed to turn an apartment, and money is only withheld to cover any excessive damage that is beyond what is normal wear and tear.

Time for our personnel is expensed out at $50/hour.

Materials are expensed pass through.

Light Carpet Cleaning $25 per room, no remaining or difficult stains

Heavy Carpet Cleaning $50 per room, stains remain or are difficult

Extra Heavy stains in Carpeting that require replacement of the carpeting will be charged on a time & materials basis.

Light wall patching (larger than pencil eraser, smaller than quarter) $15 per occurrence

Medium wall patching (larger than quarter, smaller than baseball) $30 per occurrence

Heavy wall patching (Baseball size & larger) minimum $50 per occurrence, or time + materials

Cleaning toilet $25 (as evidenced by remaining stains, dirt, mildew or hair)

Cleaning tub $25 (as evidenced by remaining stains, dirt, mildew, or hair)

Cleaning sinks $25 (as evidenced by remaining stains, dirt, mildew, or hair)

Cleaning Windows $10 per window

Missing/damaged outlet or switch plate $5 (plate plus installation)

Removal of trash/debris $45 per garbage bag full. Large items such as furniture and appliances the size of a microwave or smaller at $75.00. Large appliances and furniture at $150 per item.

Property damage: I.E. broken fixtures, windows, appliances Etc. charged at time plus materials. Any cost for outside labor for repair will be passed through with a $15 up charge.

Light bulbs: All lights were supplied in working order with light bulbs. It is the tenants responsibility to provide the apartment to us in the same fashion any missing/out bulbs will be charged at $5.00 per for normal 40-60 incandescent. (bulb + installation) Special bulbs

Fire alarms: Were supplied in working order with fresh batteries. Will be charged $20 per missing/broken alarm.

Unusual odors: If deemed caused by the tenant (pets, spills, left out food) damage will be charged on a time and materials basis.

Lost/damaged Keys $40 per key

Thelpa.com, a landlord protection agency has a great settlement charges guide, as well as a ton of other free landlord forms.

I also created the next document to give tenants as a map to work toward getting as much of their security deposit back as possible.


Hints for getting your security deposit back.

We take photos for our files before and after you move, so we do know what was there before you moved in. Anything unusual or excessive should have been noted on the move-in/move out form. These will be the two major things we use for comparison to determine what charges to apply.

Let us know of any items that need to be repaired or taken care of before you move out. If we can plan for it, it will cost us, and you, less.

Leave all hardwood and vinyl floors in a broom swept condition. Vacuum and Shampoo all carpets.

Use 409 or other cleaner to remove any stains or marks from walls. Check heavy use areas such as switch plates and cupboard handles.

Open a couple boxes of baking soda and put it in the refrigerator and freezer.

If you know you have marks that will need to be touched up, ask us for some paint. In most cases we have the color on record and can provide you with a small amount to touch up any marks.

If you would like to try to fix any holes in the walls, drywall patching compound can be bought in small inexpensive containers. You can save the expense of a putty knife by using an old plastic credit card or ID as a spreader. Just make sure you don’t make the problem worse by leaving a rough surface.

Switch plates and outlet covers are inexpensive; In the large chain stores you can buy a package of ten for under $5. If you have more than one that is damaged it may be worth your time to replace them yourself.

Vinegar and Newspaper works well to clean windows.

Make sure any utility bills, (especially water and sewer if you are responsibile for it) is up to date and paid. Providing us a copy of a last billing statement is a good way to help ensure quick return of your deposit.

Remember to return any loose items such as remote controls, keys, etc.

If you have a difficult stain or other damage you are trying to repair before we go through, call us, as we have seen a lot of situations and have many helpful hints for removing difficult stains and fixing items in a cost effective way.

Our focus is to turn over an apartment with minimal time in between. Any effort on your part to go the extra mile will be noted and taken into account when looking at what we need to withhold from your security deposit.

Both documents are given to the tenants as they move in and when they move out so they know what to expect.


Getting the most from your Contractor

January 25, 2009


Getting the most from your contractor.
by James Miller

1) You must accurately communicate the work to be done.

I always do this in writing, unless I am working with someone who has a proven track record with me.

While it isn’t a contract or true “specification”, I usually work up a word document that I later print out, or turn into a PDF if I am e-mailing it. I use a lot of pictures and text box call outs on these pictures to indicate what I want done.

See this Adobe PDF example of a siding project we contracted out.

I find that this document clearly outlines what we want to accomplish and eliminates the confusion that can often times happen when you try to verbally describe the work to be done.

It takes me a bit more time to create a document like this, but I can only imagine the costs it has saved me by not having to stop the contractor’s crew and ask them to rework something.

Please keep in mind that the above example document is not a contract, but rather an outline of the way we want the work preformed. I have no idea how much merit it would carry if you end up in court with a contractor, but I am guessing it is better than nothing at all.

2) Always use a contract.

I have to admit I do break this rule if I have a some proven experience with a certain contractor and the job to be preformed is relatively small, like fixing a stoop, or putting on a screen door.  If the job is larger, like building a deck, or pouring a foundation, I will certainly use a contract, regardless of my history with the contractor.

TIP: The contract you use should contain incentives for finishing on time or before, and penalties for each day, after the completion date, that they are late.

3) If it is not working out with the contractor, get rid of them.

Before the siding job on the 602 W. Division property, I had a different contractor wrap the windows in aluminum. The bid came in at $1200, which was a very good bid for the amount of windows we had (28 I believe).  He didn’t really have a contract, but instead tried to get me to sign a one page document which only outlined the terms of payment and not the work to be done.

I wrote up my own contract for the window wrapping and agreed to his unheard of 50% down payment requirement, mainly just to get him to use my contract.

This was a mistake my part as he wrapped about 25% of the windows, and then the started finding excuses to not do the rest.

I personally think that he just didn’t like the cold weather.

I should have gotten rid of him and moved onto the next guy, as it took him four months to finish a job that most other contractors could pull of in a weekend.

He also used my dumpster to get rid of building materials from a project that he was working on at home.  It was easy to figure out who had done it as he was stupid enough to throw away his junk mail which had his name and home address,  along with his construction debris.

I am a pretty generous guy. If someone asks to throw something in dumpster we have, I will usually let them throw away just about anything.

This guy threw away a large amount of material, without asking, and when I called him on it he lied and said it wasn’t his.

Not exactly a class act if you ask me.  It also pissed me off.

I could have saved myself a lot of pain if had I gotten rid of him right away.

Instead, I held out hope for his reassuring promises that were continually punctuated with excuses.  He eventually stopped taking my calls and only finished the work when I filed a small claims action against him.

When the work was done, he demanded payment the same day he finished.

I am certain, if I had not had a contract he would have never completed the job.


How to Market your property in this Market

January 23, 2009


How to market your property in this Market
by James Miller

I am assuming that you are in the same boat as a lot of Real Estate Investors. There are plenty of deals out there to buy, but how do you unload the ones you already have.

Here are a few of the techniques I use for unloading properties in this market.

Tip#1:   You have to make it easy to buy your property.

If you try to sell your home or investment property traditionally, and by that I mean looking for offers that completely pay you off the day of the closing by being either the all cash, or bank loan types.  you will have severely limited the market that you can sell to.

Things have already gotten tougher as 720+ FICO’s and 20% down are now virtually standard. You can also bet that appraisers are not as lenient with their property valuations as they once were.

Here is a list of my alternative selling methods.

Lease Option
You can think of this as a rent to own type program where you get a substantial down payment as option consideration and in exchange you agree to sell the property to the buyer at a given price within a certain time frame.
The tenants are buying the home and tend to take better care of it. You can also get higher than market rents, by agreeing to put some of their monthly payment toward equity build up.
Since the Deed does not transfer until they cash you out with a bank loan, you get the added benefit of being able to write off the depreciation.

Carry back a Second
In this scenario you agree to hold a note for some portion of the purchase price.  This amount can often times be credited toward the down payment amount that they need to bring to closing table making it easier to buy.  The amount of a seller second is often limited by the lender of the first mortgage to a certain percentage, typically 5%, or 10%.
The Deed will transfer so getting your money back if the sellers default can require a foreclosure action. You are also second in line behind a lender who may eat up all the equity in the property in a foreclosure.

Carry back a First Mortgage
If you own a property free and clear, or if the buyers are putting down enough to eliminate any mortgage you have on the property you can hold a mortgage in first position, essentially becoming the bank for the seller.
The Deed will transfer so getting your money back if the sellers default can require a foreclosure action. You are in much better position by holding the first.

Land Contract, or Contract for deed

Similar to a rent to own scenario, but the buyer has a much stronger ownership position.  Many banks will allow a Refinance after a buyer has proven himself or herself under a land contract. The deed does not immediately transfer, but you may need to bring a foreclosure action in the event of a default sue to a stronger ownership position.


Tip #2: Your property needs to have an edge

Anything you can do to differentiate yourself from the competition will help in this respect.  This is kind of like my “why houses need a hook” post.
One of the properties we rehabbed started as a four bedroom one bath home.  We decided to turn one of the bedrooms into two bathrooms making it a three bedroom three bath home. While losing a bedroom is not something you typically want to do, I knew the three bathrooms would give us an advantage over other homes of the same caliber when listed on the MLS.

There are a lot of three bedroom two bath homes out there, but not nearly as many three bedroom three full bath homes.

Tip #3: You will need to spend more on marketing
It is easy to sit back and blame the down market for a lack of results, but the truth is that we are still getting calls on our advertising and the number of calls is always a direct result of how much advertising we do.
It doesn’t feel good to be less results for the same amount of money, but advertising is a cost that directly relates to sales. If the sales numbers for the same marketing dollars spent are dropping,  it is harder and more of a waste of time to try to come up with better, more creative advertising, when you know that increasing your marketing budget will bring you the traffic you need to sell a property.


Five things you need to know before becoming a landlord

January 22, 2009



Five things to know before becoming a landlord

by James Miller


These are things I didn’t really give much credence to until I started investing in Real Estate.  I share them with the hope it will raise awareness for those just starting out.

These five items are targeted to those of you starting out who will become landlords in the process.

Note that if you think that the lease option exit will not make you a landlord, you are mistaken.  While you do seem to get a higher caliber of character as a  tenant-buyer (probably because as they have more money on the line), you still have to do most of the same babysitting duties as you do with a  straight rental unit.

1) If you are going to be a landlord, you will have to evict tenants.

There is no “if it ever happens”. You will eventually have to evict someone.

People who seemed so nice moving in are the very same ones who will be saying how terrible  you and your apartment are to the Judge when you are in court.

I knew this was a possibility when I bought my first property, but by the time I got to 20 rental units, it seemed I had to start the eviction process more often than my lawnmower.

I have really only had to go through with a full blown eviction a few times, but I have had to serve “pay or quit” notices at least 30 times.  As with a lot of things in Real Estate investing, the things you really don’t want to do, are the very same things that you most urgently need to do.

Serving notices and evicting tenants goes with the territory of being a landlord.  You should accept this and start learning the eviction laws and court system in your area.

Getting a good attorney to guide you in this area is crucial.  If you don’t serve papers correctly, or miss a step in the process, they may hold the case over for a later date, costing you money as the defaulted tenants continue to live in your apartment. And once they know you are taking them to court you have zero chance of the tenants willingly paying you anything.

2) Paperwork, bookwork,  and paying bills will take a lot of time.

Before I started obtaining properties, I could bang out my monthly bills in about 15 minutes.   It now takes me over two hours,  just to get bills for the properties written out every two weeks.

I really should be assigning this task to someone else, but never seem to get around to it. I have to admit that part of it might be my controlling nature not wanting to let go of something so integral to the business.

Paperwork and bookwork take a lot of time too,  getting the paperwork done for a new tenant or tenant buyer to move in involves: a lease,lead based paint disclosure, move in move out sheet, welcome letter, and a schedule of security deposit withholding fees.

Most of these I have multiple copies of, but they all need explaining when turn over the keys.

My brother who is my partner in the majority of our properties is in charge of the bookwork. We use Quickbooks as our accountant seems to speak to that software very well.

Even with this premium software package to speed our bookkeeping, I am sure my brother spends no less than five hours a week on entering information. This is mainly due to the fact that we have several rehab projects that generate a lot of receipts.

The properties are  costing us ten hours per week just to keep the papers in order and get bills paid.  This doesn’t even include the periodic phone calls and letters to the tenants.

3) Advertising expenses will be a lot more than you think.

The classified ads we place are a lot more expensive than I thought they might be.  When I have vacancies, it is normal for me to ring up a classified ad bill of over a $100 before we get the right person in.

Now there are a lot of places where you can advertise for free, like posting flyers at the local convenience store, or on Craigslist, but for us the newspaper classifieds out pull the free ads by about 4 to 1

When you have an empty apartment that is costing you $150 a week to hold, you want to generate as many leads as possible as quickly as you can. Newspaper classifieds becomes a necessary expense.

4) You will have to clean and touch up most apartments after tenants move out.

The law allows for “normal wear and tear” to an apartment. What this means to you is that you can’t force the old tenants to make the place move in ready for the new ones.

Some tenants are really good about leaving things in good shape when they leave, but in most cases you will need to have someone go through and clean the apartment after they have left.

In my experience no one ever cleans the stove.

You will be able to deduct for some cleaning and repair expenses, (I do deduct for a stove cleaning) but this is  a built in cost to apartment turn over.

5) You will need to keep a bigger reserve amount than you think.

“Reserves” is the money that is set aside each month for replacement of things like a worn out carpet.   The problem is that the big ones can take a huge bite out of your checkbook.  A water heater will set you back about $300 if you install it yourself.  A furnace can easily be $5000.

Even if if you have  reserve amount of $50 a month being set aside, a new furnace will take over eight years of reserves to pay for it.  This assumes you don’t use the reserves for anything else during that time, which in eight years, is pretty unlikely.


Don’t be afraid to ask for too much.

January 22, 2009



Don’t be afraid to ask for too much

by James Miller


As I was sitting in small claims court last Monday.  As I waited for  my turn to try to get a judgment against an Ex-tenant, I watched as an old man in an electric wheelchair argued his case against the tenants he was evicting.

His tenants were trying to use some claim of water damage against getting evicted and judgment for past due rent.   They failed on both accounts. After this the landlord asked to add in court costs as part of the judgment. This is a standard request, which he was granted.

The elderly landlord then asked for the most audacious thing.

He claimed that by the tenants not paying their rent, it forced him to have to refinance with the bank, causing him to incur $1700 in refinance costs. He asked that the $1700 be added as damages to the judgment.

I smiled at his bold attempt to stick it to them and waited to hear how the judge would deny this crazy request.

Instead, the judge said that it was an unique and novel idea, and that he would hold it over for a hearing.

What this means is that instead of denying the claim, the Judge was actually considering it.

Now I really don’t think this damage claim will end up having much traction in court.  If the old guy was running things that tight, it is hard to say that the tenants missing a rent payment or two, was the defining event that pulled him over the edge.

I think he will have his work cut out for him if he tries to draw a direct correlation between having to refinance and not getting in rent payments.

It seems that would be akin to getting fired for being late, and then trying to sue the driver of your carpool for lost wages. While he may not have contributed to your situation, there were surely some mistakes you made before he came along.

I sat in amazement in that courtroom, not only at the old guys creativeness, but that I had never even thought to ask for so much in court.  I realized that we all tend to ask for what we feel is owed to us, or what we deserve, but no more than that.

I think that it is human nature to ask for what we think is “fair”.

My contention is that in asking for only what we deem as “fair” we are shortchanging ourselves.  What we think is fair may be an unbelievable deal for the other side.
I am going to start asking for things that I think I consider unfair, but in my favor.

I don’t think that there is anything unethical with this as the person on the other end of the conversation has a choice whether they will say “yes” or “no”.

I may start asking if I can get a free desert with my dinner order, or a discount on the clearly priced toilet paper.

I may even suggest to my neighbor that they shovel the snow out of my driveway for me.

Who knows what I might get taken up on.

Ok, I might be taking things a bit far, but this does apply to Real Estate.

You can make thousands of dollars more from a deal just by asking for “too much”.
It reminds me of the popular Real Estate saying when making offers to purchase:

“If you are not embarrassed by your offer, you are offering too much.”

By just moving your lips, you have the potential to make more money than you can from all of those late night hours of swinging a hammer at the “fix and flip”  house.

Here are the questions I like to ask the most when dealing with sellers:

1) Are you willing to sell it for what you owe?
2) Is that the best you can do?
3) Can you do any better in price if I agree to (close quickly, let you take the appliances, etc.)
4) Are you willing to bring money to the closing table to sell this house?
5) I need to include your (boat, truck, car) as part of the deal, are you ok with that?

Try Asking  for what feels like “too much”.  I can’t promise you will get it.

I can only assure you that you won’t get what you never ask for.


How to get a free education in Real Estate

January 21, 2009

How to get a free education in Real Estate

by James Miller

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Buy Real Estate Investing information on E-bay.

I know what you are thinking, buying something doesn’t sound “free”.

It does however becomes free after you read or listen to the information and sell it back on eBay. As far as I know there is nothing illegal with this as long as I don’t make a copy of  it.  In some instances I have actually been able to get a higher price for the information when I sold it back.  Tip of the hat to Tony Robbins for being so popular.

The web

This is the most obvious as you are clearing searching it already.

Blogs are a great interactive sources of eduction as well as many of the sites that give away free information such as Dan Auito’s.  Dan has several quality free E-books on Real Estate investing and as of this writing 651 articles on Real Estate investing.  Dan also doesn’t require you to give up an e-mail address to get his information.

There are  many free webinars and phone in’s that I get invited to via e-mail on a very regular basis.

Ron LeGrand seems to have  a perpetual team of people offering these freebies in order to get you as a customer.  Keep in mind that most of these freebies are intended to get you to pay for something they have to offer eventually.  This means that you will have to sit through spurts of sales pitches and resist the temptation to pull out your credit card.

Free seminars

I am a big fan of Ron LeGrand.  Even though people like John T. Reed feel he charges a premium for the information he provides. I feel I have gotten more than my monies worth for the events I have went to.

Once you are on their mailing list, Guru’s like Ron offer free, or very low cost two to three day seminars on Real Estate Investing. Just like the webinars and phone in’s they really want to get you as a customer for one of their boot camps, or other higher ticket items.

If you can sit through a few sales pitches and resist their irresistable offers, there is a lot of good information to be gained at these events. For me, the biggest value was that it opened my mind to investing ideas I would have otherwise never thought of or known about.

…As the  Chuck Langenberger 27th law states  “You don’t know what you don’t know.” Although I am sure he isn’t the original author of that… If anyone knows the true origin of that phrase, please let me know.


Find  a Mentor

Call Real Estate Agents, Attorneys and Title companies.  Tell them that you are getting started in Real Estate Investing and trying to find someone who has been around the block a few times.  Tell them that you are looking for someone who has done a few deals or is otherwise active in the local Real Estate community.

Once you get a name, call this person and ask if they wouldn’t mind taking a few minutes to talk with you over lunch.  You will, of course, be paying for their lunch.

You will want to do at least 90% of the listening during this lunch.  The 10% talking that you do do, should be to thank them and ask pertinent questions like:

“How did you get started in Real Estate?”

“What would you recommend that I do to get started?”

“What do you find are your most successful investing strategies?”

You also need to be very respectful of their time.

This small effort on your part can open up a doors that you don’t even know exist.  These people are also be likely to be well read in Real Estate investing, have a good library of investing information, and a network of knowledgeable friends and associates that you may be able to tap into.

REI Clubs

Real Estate Investing clubs often let you attend the first meeting or two for free.   Meetings after that usually require you to become a member which is often only a nominal fee.

In the unlikely event that there is no investing club in your area, you should create one. We learn at no faster rate than when we are trying to help educate others.

Creating a REI club can be as easy as posting a note on convenience store bulletin boards saying “Looking for like minded people to start a Real Estate investing group.”  This will take some work, but will have the added benefit of opening up networking possibilities through the individuals you meet.

Baptizim by fire

Do a deal.

Yes, there will be many things you screw up as you stumble around, but this education of hard knocks can be taught no other way.  I know I learn best by doing.  It is where the rubber hits the road. You will have to do your first deal eventually, so you might as well get started now.

Don’t let the fear win.  Just start taking steps to make it happen.

In my experience 90% of the things I am afraid of  never come up anyway. The stuff that does jump up to bite you won’t even be on your radar until you are in right the middle of it.

The public Library.

The first Real Estate investing book I ever read was William Nickerson’s “How I turned $1000 into 3 million in my spare time in Real Estate.”  I was 18 and I got it from the public library.  It was novel to me at the time, but I  didn’t know then that twenty years later I would be buying the book for my own personal investing library.

I still enjoy the library as a great place to find information and a quiet place to sit and read.