The life and times of an Arizona Investor

This will be my personal journal to document my failures and successes during my real estate experiences in Arizona. All stories, thoughts, and successes will be documented..

Friday, December 30, 2005

Real Estate forecasts in 2006 & 2007 Check it out!

I've tracked CNN money's appreciation reports for several years and I have found them to be accurate based on tracking the Reno, Las Vegas, Phoenix, and Tucson markets.

This article was quite interesting. A firm estimated the forecasts for 2006 & 2007. I don't read into these 100% because they never explain their numbers , however, its another data point.

http://money.cnn.com/pf/features/lists/re_growth_forecast/

http://money.cnn.com/2005/12/29/real_estate/buying_selling/handicapping_housing_markets/index.htm

The biggest observation was that Texas may be the next emerging market. Steve, better get ready!

Check your city out! Also, I would recommend going back to CNN money from time to time because they make a good effort to track the national market.

Good investing!
|| Bginvestor, 2:14 PM || link || (2) comments |

Sunday, December 25, 2005

Ideas for Goals in 2006..

In a recent previous post, I've recommended that an investor should reflect on some key items before setting 2006 goals. I'll post my goals based on answering these questions soon.

1) Determine how much borrowing power and/or other people's money you have access to investing.

I've had a mentor tell me, "If you can't afford to buy a house at XX price, don't look at them!" For time management, know how much your working capital is and work within the limits. This will help your marketing efforts immensely by focusing like a laser instead of a fog light!

Also, this is a good time to get ambitous and create goals to access more capital.

2) What is the current state of YOUR Real Estate market and what techiques are best suited to maximize profits in your local market?

Ok, for those of you who don't know, the real estate market generally runs in cycles (I need to write a post on a "guru's" explanation of the cycles). Understanding the cycle , will make you more money, period.

3) How risk adverse are you?

Are you ready to take the plunge into developing or re-habbing properties. Go above your comfort level and set goals, however, don't get crazy and expect to do over the top things like do a condo conversion on the New York Plaza and make millions off of your first transaction!

By being honest with yourself, you will narrow down the paths to which REI is right for you.

Good investing,

Bginvestor
|| Bginvestor, 10:06 AM || link || (2) comments |

Saturday, December 24, 2005

Check out the added blog links!

I've added some additional blog links! Check them out..

Its real interesting to compare the Real Estate Inevesting (REI) experiences in different parts of the country. If you read the blogs carefully, you can learn alot about the current real estate market and you'll see that investing techniques depend heavily on the type of real estate market.

One observation that I noticed was that margins (in percentages) appear to be similar for high prices houses (California) and median and lower priced houses (Arizona, Texas). More specifically, the percent of purchase is the similar, however, the profits are higher in California. This makes me think about investing in Tucson in some of the nicer neighborhoods (250k-350k)should be considered immediately. Instead of doing 2-3 fix-ups, I can make the same profits in just one!! Hmmm..

Good investing,
Bginvestor
|| Bginvestor, 10:25 AM || link || (2) comments |

Wednesday, December 21, 2005

Recommended REI books..

There was a gentleman that asked me for recommended books to read for the beginner so I thought I would post some of my favorites.

These books are cheap (around $10) and are worth every penny. In my opinion, the beginner should read up on all the different ways to purchase realestate and pick one or two and go for it! Become an expert even if you have to go to a seminar (sometimes).

If you want to be a buy and hold guy, this is a must read. This is one of the books I buy for my friends.

"The weekend millionaires secrets to investing in real estate" by Mike Summey and Roger Dawson

Great book on how to get started , analysis, and build your portfolio in rentals. If you understand and follow this book, you will become a millionaire. Depending on your market , it can take awhile though!

"Making big money investin in Foreclosures w/o cash or credit" By Peter Conti & David Finkel

This is a great book to learn the many ways to buy foreclosure properties. This is not a step by step book, however, its a great summary on the many different ways to acquire. You can't be an expert from reading one book you know!

"The pre-foreclosure property investor's kit" by Thomas Lucier

If you want to be serious about chasing seller's in pre-foreclosure, this book summarizes it nicely. If I had to write a book to summarize what I do, it would closely resemble this one.

There's more, but they are on loan with friends so I don't know the complete titles.

The hardest thing to do sometimes is figure out "how" to invest. Its taking me years to fully realize where I want to go. If your this way, I would suggest you take time to understand your "borrowing" potential , what the market conditions are, and how much risk you want to take. This will guide you to what techniques are best. If you don't have any money, do wholesaling! If you got loads of money, build a subdivision!

Good investing,

Bginvestor
|| Bginvestor, 5:57 PM || link || (3) comments |

Monday, December 19, 2005

A quick way to analyze income property..

I had a few hours to re-think on how to analyze income property on the MLS quickly. I want an approach that I could complete in a few seconds to assess the potential "bargain" of the listing.

The best approach is using gross rent multiples. I have been using capitalization rates, but there's too many varying parameters that skew the data. The capitalization rate is simply:

CAP Rate = NOI (annual) / value of property

NOI (annual) = The operating income on yearly basis (Gross rents - expenses).
value of property = The true worth of the property

So, If you know the going cap rate in your area, you take the NOI and complete the math to calculate the "value". Pretty simple. I've gone through scenarios taking certain type of financing and interest rates to back out a pseudo cap rate. I than take the NOI thats listed in MLS and calculate value. For example, MLS rates in my neighborhoods are 5-7 percent. My goals are 10 percent for positive cashflow. You can do some cals to quickly determine how far Tucson's rental market is from the highly appreciated properties.

The problems: The NOI calculation is not consistent w/ how I personally calculate NOI. On the MLS, they almost never use manager salaries and maintenance in their NOI numbers. So, thats an issue. You also have to assume that all the numbers are pretty accurate or else your value is not correct. Guess what side (seller of buyer) the numbers fall to?

Gross rent multiples is a great way.

Gross rent multiples: The number of years that the gross rents (yearly) to get to the purchase price.

Example: Yearly rent 12,000 Price of house 100000 Gross rent Multiple =8.33 So , it would take 8.33 years to get to your money back (get to the purchase price).

There's only two parameters in this equation! If you know know the rents in your area ( and you should) than you can calculate good numbers all day!

I used some of my properties to back out what the gross multiples are. Its roughly about 10-10.5. Let's compare to the average gross multiples in different areas.

Gross rent multiples on MLS

Houses, duplexes, tri-plexes, four-plex, -> 13 - 17
Income property by the university -> 16-19
mulit-unit one bed rooms -> 11.75-13
Properties in much less desirable areas -> 11-15

Ok, this is why I don't buy properties every mnoth. You cannot buy a property and get break even cash flow with mulipliers this high! The cool thing about using this equation is that the "bargain" should not be a function of location. Because some areas have lower or higher rent, this equation normalizes the value to the selling price. You want to pay off your properties as soon as possible, so if you buy a university house, sure you'll get a higher rent, but it'll take longer to pay off the house than in a different area!

So, by scanning the MLS entries, you can cherry pick the lower muliples and ask for a lower price and you may get one at break even cash flow.

I still hate the MLS, but its the best way to find a property that can be split for new construction.

Good investing!
|| Bginvestor, 6:10 AM || link || (5) comments |

Tuesday, December 13, 2005

Another offer submitted.

Ok, so I was going to take a break in December, but this lead popped up!

I found a guy that trying to sell quickly. He bought a house a year ago and started fixing it up for his family. Unfortunately, he got divorced, and now has $2000 a month child support payments and needs to sell the house. He has put himself in a bad situation because he is currently completely remodeling the house and he is only 60% complete. He's a plumber , so he has pretty much redone everything. He has moved rooms, and added bathrooms, and gutted the kitchen!

He can't re-fi it because its not livable. Actually, there's no water to the property right now. Anyway, the numbers are not great, but assuming a repair of 20k, I can make 15k without doing any work myself. This is not bad since I used slightly conservative numbers.

To make this deal work, I needed to assume his loan which he was willing to do. He wanted 5k now, and 15k on the back end.

I was only willing to give him 5k to make the numbers work. He was pissed when I was talking with him about my offer. I shut him down quickly, stating that this is an offer, don't take it personally, its an offer that only makes my numbers work. I'm not forcing you to take it.

He calmed down in a few seconds, but didn't seem interested. I didn't push him hard like, you were saying that you could go into foreclosing, I can make sure you don't!

This is the type of lead that he may call back in a month or so to re-negotiate.

Good investing
|| Bginvestor, 7:44 AM || link || (2) comments |

Tuesday, December 06, 2005

The "polished" technique for analyzing a deal

I'm about to share my techniques in analyzing properties. I 've analyzed over 100 properties in the last several years and I've learned several critical lessons.

I created a system that has been working well for me. Its probably not the quickest , however, when you have the knowledge to buy properties using sub-to, l/o, seller financing, wraps, conventional , hardmoney, and partner ships, you need to spend some time, you know?

In my marketing, I usually have people call me, so I have a finely tuned script that works very well for me. Its natural now, and I speak w/ confidence that makes the conversation go better. My favorite questions to ask are, "Sounds like a wonder property, why would you ever consider selling it? and "What's more important to you , getting a quick sale or getting top price?" When your in the business of motivation, these are critical questions.

Ok, when I determine that a call does not qualify, I hang up quickly. However, if its a deal (motivation in one form or another) I get more information and schedule a meeting at that time. Before I meet with this person, I do the following:

1) I have a form that I put all of the information that I have gathered. I list motivation level, and all the facts that the seller has given me. It helps to look at all the facts to tell the seller's story. I also document which piece of marketing he/she called on. I get loan info as well.

2) I go to the assesor's office to gather more information. I get info like names on title, purchase amount, purchase date, tax assesses value, and much more. This is a great check to see if the seller is telling the truth in his facts (Actually, I never caught anyone lying to me)

3) In my county, they have aerial photos of the complete city. Its awesome. I can see the neighborhood, where the house is located on the streer, calculate exact lot sizes, and position the property on the lot. This is very useful especially when verify lot size for new construction. In dumpy neighborhoods, you can actually see the trash in the back yards, and run down cars.

If your county doesn't have this, I suggest you use the new goggle software that pretty much does the same thing. I still need to check this software out.

4) Spreadsheet - I plug in all the numbers for the potential scenarios and project profits. Usually the unknowns are repair costs, because I know how much the lenders charge for different loan types. I run the numbers under two scenarios. 1) Rental or 2) fix and flip I never take a property with significant negative cashflow so if this scenario doesn't work , its a fix and flip. Actually, in my market, to make a rental work you need to be in the 70-73LTV.

There are exceptions: If its single-wide, I run the numbers for cashflow. If its a property that a new house can be built on, than the numbers are run for the existing property and new property under a rental or re-sale scenario.

So, there you have it! After doing this, usually 15 - 20 minutes, I decide if I still want to go the the house. If its questionable, I will call to dig into motivation. I NEVER talk numbers over the phone. Here is a critical lesson learned. In all of my deals, the numbers initially didn't look great. After establishing a relationship, negotiations turned into a deal. That is why if motivation is high and numbers are so-so, I go anyway. Don't expect to have a seller call you up and say, "Hey, I want to sell my house to you for 60 cents on the dollar, can you please come by now?'"

Also, if I go to the house, I always make a offer! Always! The offer is a price that works for me, not the seller. After spending this much time, you don't just walk away. Remember, its a numbers game, even if the seller doesn't accept your offer today, maybe tomorrow. That reminds me of the other critical lesson, always touch base with these people in a few weeks. You will be more sucessful if you do.

Good investing,

Bginvestor
|| Bginvestor, 1:34 PM || link || (2) comments |

Sunday, December 04, 2005

My life has changed forever!!

My life has changed forever, I just had my first kid last week! What an awesome experience! My son has totally taken over my life since he has been born. Its amazing how much time is necessary to take care of him. I've been off the main job for the last week and am already dreading going back so soon. I never knew that I would be so attached to the little man.. He's cute! Check him out..

Anyway, I think my son will have a positive experience on my real estate investing. Now, I am investing for him as well, this will motivate me to take it to the next level.

The trick is, I need to find the time... I told my wife I am going to hit it hard again this January. I did have enough time to update my financials which puts another smile on my face. Holding real estate has been a great move for me.. Even in Arizona's hot market, when you buy right, you will not lose.

My tri-plex project is completed and I am very happy with how it turned out. The units are beautiful and will provide solid tenants for years to come. I plan on posting a summary of the "tri-plex experience." I met all of schedule milestones which included tenant vacany and rehab budgets. Based on current tri-plex prices on MLS, I project that I have earned at least a 45k-65k equity. Not bad!

Good investing,

Bginvestor


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