Real Estate Speculation: Don't Fall Into This Trap

When we become overwhelmed by uncertainty there are often two extreme behaviors which ensue:

1. at one end of the spectrum we have complete inaction
2. at the other end, is rash action without really knowing what we are doing, which we often call "jumping in"; or in the investing world, speculation.

In my previous post about risk reduction techniques we looked at various ideas to help reduce the risks that might be preventing you from taking action and doing your first deal. Following on from that, I thought we should address the other extreme since we want to find a happy median that allows measured but confident action.

While taking a leap of faith in some ways is admirable and often gets the desired result of creating momentum it can also mean financial suicide. One of my favorite sayings is "you cannot steer a parked car" so I would probably prefer to see people taking action rather than doing nothing but let's take a look at the differences between smart investing and just plain speculating.

The following are things you should do to ensure you don't find yourself in the dangerous territory of real estate speculation when making an effort to get started.

1. Deal Analysis

First and foremost is deal analysis. If a deal stacks up on paper then that's just about all you need to know. You really aren't speculating if you have done a thorough and accurate analysis that shows you what profits to expect and when. As I've mentioned before, the key to successful real estate investing is knowing your profit BEFORE you do the deal. So, if you haven't already, go and check out my post on how to evaluate a real estate deal.

2. Don't get caught up in the hype and excitement

We saw the hype before the markets crashed and to some extent we are seeing it again. Now the hype itself is not a bad thing because it gives us information about what is likely to happen. The problem is when it results in pure speculation that ends badly.

It's worth noting that such speculation can and does work out very well for some people who get very lucky with their timing. There were those who bought and sold before the credit crisis and made a handsome profit and there are people who a speculating now by snapping up foreclosure bargains. Some will falter and some will do very well. The key is to realize when your greed gland has been activated, not get swept up in the excitement, and invest wisely rather than just following the crowd.

I believe now IS a fantastic time to be buying real estate in the US but you should not just go and leap in without doing an evaluation of each deal. Let the hype guide you but do not get swept up in it and speculate blindly.

3. Don't bank on appreciation

You can invest for appreciation but do not BANK on appreciation when starting out. In other words it can be factored in as a potential upside but you should never put something that requires a crystal ball into your deal analysis - how can you? So the deal should stand up on cash flow analysis and any appreciation that you forecast should purely be a nice upside.

I will not get into the cash flow versus appreciation debate here (maybe another time) but when getting started your investments should not be costing you money every month unless you have deep pockets and are prepared to lose money. ie. unless you are choosing to speculate.

4. Don't try to time the market perfectly

Some macro analysis will provide you with valuable information about whether you should be getting ready to buy or sell. Such information will certainly improve your odds of success but don't get too clever and imagine that you need to time it perfectly. Remember: anything requiring a crystal ball falls into the category of speculating rather than investing.

I hear very confused individuals wondering if now really is a good time invest because many people are saying that prices will continue to drop for some time. So? It's a time to buy, not a time to sell. Maybe they are confused because their notion of investing doesn't include anything other than flipping - I don't know. But that brings us to the next point.

5. Choose your strategy wisely

Real estate investing is not a one-size-fits-all affair. Unless you have a clear strategy in mind, you are speculating and not investing. And unless you choose a strategy that suits market conditions and suits your strengths and weaknesses you are also taking undue risks.

There are more options available to you than just flipping, so get an idea of what strategies you have available to you and then think about which ones suit you and suit the market you are operating in. Check out my 5 Step Plan for Getting Started for more information.

6. Don't treat the markets as one big market

Real estate markets have quite different dynamics from region to region and one problem with listening to the hype and the news is that they are often referred to as "the real estate market". For the sake of simplicity, averages are often used to report trends but a smart investor knows that investing based on averages is quite dangerous.

Realize how different real estate markets are from city to city and even within different areas of a city. And then choose a market accordingly. That is smart investing rather than speculative approach of basing your decisions on averages.

Summary

You don't need to get everything perfect so don't let any new information here paralyze you. But you MUST get the deal evaluation right. So if there's one thing to focus on here, it's that.

In terms of how to ensure you take action without undue risk I'd suggest the following. Put a bit of a plan together based on the points above, the getting started plan and the risk reduction methods, then start looking at appropriate properties in your market that suit your strategy. Most importantly, do a financial analysis of each property you are considering and when you find one that stacks up on paper go for it. When you've taken the preliminary steps mentioned you will have covered your bases sufficiently.

Yes, there will still be things ahead that you will need to figure out as you go along but with your contingency planning and other risk management in place you will be well equipped to handle it. So this leap of faith at the end is just a matter of overcoming that final hesitation.

This article has been republished from InvestingSecrets.Com. Written by Scott Roemermann.

Do Real Estate Gurus Really Want You to Succeed?

Do real estate gurus really want you to succeed may sound like a very peculiar question but let’s look at the logic behind this question. As a perspective real estate investor you are constantly bombarded with very different ideas from real estate gurus. Some have years of experience, but many more have just a couple of years experience and have only operated in a frenzied environment.

I remember a guru selling a program that was touted as going further than any other program in the industry. The difference was his specific strategy of having various vendors paying for the advertising and actually making money on the home sale even if the property wasn’t sold. I admit it sounds good and it may have worked in a white-hot seller’s market, but it had no chance of working in the flat markets we have had for the past few years.

The guru still kept pounding on the success of his program – which may have occurred five years ago. After the presentation, one person who bought the course because he was having a sale in a few weekends asked what I thought. I said that the idea was old and the new wrinkle on “selling vendors” to participate was a twist but I didn’t think it would work in this market.

Three weeks later the student called me after his open house event and explained that he could not get any vendors to participate and not a single vendor who would pay to advertise. So he paid for the advertising himself and it was a total bust with only three people coming for the full two days.

I suggested he try the round-robin auction method we have used for 15+ years. He did just that two weekends later and had 53 people visit and sold the property the following week. I can guarantee that if you simply put a sign in the yard (FSBO or Realtor’s), run the usual newspaper ads, put it on Craigslist, etc. you are hoping for a lightning strike called a qualified and motivated buyer. Using a systemized marketing program that also accumulates a hungry buyers list is much more effective.

The enormous value of this investor finally selling his property was not just getting rid of it after being on the market for 7 months, rather it was the buyers list he developed. Maybe 95+% were neighbors and investors, but the others were real perspective buyers and a few of them actually had loan approvals.

The investor called the guru marketing the course and complained about the result of what had happened using the instructions from his course, and the guru offered the explanation that, “It’s a bad market”. He did offer to personally do the sale for the investor for a nominal fee of $3,000 saying that it was a small price to pay to get his property sold and how many leads he would get!

If you have been to a national training or “boot camp” you will agree that you are often besieged by additional speakers with different specialties, all with the intent of selling you additional courses. It’s not impossible to spend $20,000 – $30,000 at a single event and in some cases $50,000+. With all this money trading hands, why would the gurus want to see you fail? Frankly, if you succeed in doing deals, you will take more of their time than if you do nothing. They already have your money – it is purely economics and good business in their minds.

Just buying courses over an over again only gets you closer to broke, not closer to doing deals. Doing deals takes the courage to get started and to not be afraid of what happens. Gurus know that having you rush to the back of the room now makes money for them but not just from this initial purchase. Once you are in the system, you will now need more and more information and finally a personal mentoring course to really get you started.

This article has been republished from Stock Markets Review.

Tips For Successful Real Estate Investing

When it comes to investing your money Real Estate investing is always a sound one, even in a tough market. There are two reasons for this, first of all, there is a limit to the amount of available Real Estate there is and secondly Real Estate will eventually appreciate in value, you just have to be patient.

With a cold housing market and hundreds of thousands of homes in foreclosure, you can make the most of your investments and get more bang for your buck in the Real Estate market. Before you go jumping in, however, here are some tips to get you started.

#1 – Don’t bite off more than you can chew. If you aren’t a do it yourselfer and you don’t have the money to invest in a fixer upper, then don’t buy one. Spend a little more on a house that is move in ready instead.

#2 – Do add upgrades. There is a reason that rental homes are advertised with carports, dishwashers and garbage disposals. It is because tenants find them valuable. If your investment properties don’t have them, add them, they will pay for themselves with the increased rental rate you can charge.

#3 – Don’t buy for yourself, buy for your tenant. Just because you love the color scheme orange and black doesn’t mean that you should buy it. Think about the people who are going to live there so that you can get the most money for the property.

#4 – Do charge the right price. If you want to grab a prospects attention, offer an introductory rent but don’t low ball the property. You can compare rental rates for comparable houses or properties in the area to make sure that you are charging enough.

#5 – Don’t hire a professional when you can do it yourself. This applies to upgrades, repairs or even selling the property if you don’t want to rent it. However, refer to rule #1 before jumping all in on a project.
#6 – Do educate yourself on real estate investing. Many people think that it is very easy to do, but the truth is that those who have had the most success in this type of investing took the time to learn every aspect of it so that they could maximize their profits, you should too.

Find out more about Real Estate Investing at http://citiscaperealestate.com/

This article has been republished from Stock Markets Review.

5 Tips For Dealing With Your Banker

Many people find interviews uncomfortable but unavoidable parts of life. This is as true for an interview with your banker as it is for a job interview. In both cases, the other party has something you want. We'll look at some tips that can help you go into the interview process with some bargaining power on your side.

1.) Prepare Your Papers
Before you even book an appointment or step into a branch, have a clear idea of what you need and what you have. Write a personal balance sheet listing your income, debts and assets. The bank will require this information anyhow, but it helps to tally it up in your free time when you can seriously look at what you own. (Buying rental property with personal, cash-collateralized loans is a smart move. Learn more in How To Tap Banks For Real Estate Loans.)

More often than not, the bank merely wants to hear yearly income and outstanding debts. By compiling the list in advance, you can add in the assets that make your case look stronger. As a general rule, if it is valuable enough to be covered under insurance, it's worth listing as an asset.

Once you have your assets and liabilities tallied up, you'll know what you need in the case of a consolidation loan, and what you can handle in the case of a business loan or other type of loan. Write up a short page explaining what you are looking for in clear language - e.g. "I want a $20,000 loan to consolidate my credit card balances at a low interest rate" - followed by the supporting documents. This could simply be your balance sheet with the interest rates on it and a letter of employment or it may be a complete business model with statistics on your market.

2.) Give Advanced Notice
Once you have your papers in order, make the appointment with your banker. Before the appointment, preferably two or three days in advance, drop off your papers at the branch so your banker will have time to look through them. This will save the time spent on preliminaries in the interview and allow you more time for negotiating. This also tells your banker that you are serious and organized. The personal opinion of your banker doesn't count for as much it used to due to the increased role of computer risk models in banking, but it is still worth getting; having a banker going to bat for you can still open doors.

3.) Practice Your Pitch
Your banker is likely going to be working off a script to some extent, and so should you. Don't volunteer information randomly. Instead, plan out what additional details to give and take the time to consider your answers to questions rather than rambling on at length.

For example "I changed careers in 2009, and I was dependent on the credit card for two months in between," is an explanation that contains all the relevant details. It's far better than, "I was unemployed for two months because my idiot of a boss fired me. You think he'd know not to park his car in a forklift lane." These unplanned slip-ups that come out when you're nervous can hurt your personal capital with the bank.

4.) Follow Up
If you get what you want on the first visit, congratulations! If not, don't just give up. Update your banker as your situation changes. If you buy a new car, add it to your balance sheet and send it to your banker again. If you've paid off and closed a credit card, let your banker know. If your company sees increased sales, add that to your loan pitch and try it again. (Now is the time to lock in your variable rate student loan to optimize your educational investment and save on your repayment. Learn more in Consolidate Your Student Loans Now And Save.)

All the risks in lending come from a lack of information. By following up with your banker and keeping your information as complete and up-to-date as possible, you are reducing the risks for the bank. This makes you look better and better as time goes on.

5.) Maintain Perspective
Finally, remember that your bank is not the only bank around. You can repeat this process at competing banks that may want new business enough that they will cut you the deal you want. Your banker knows this, and if he or she knows you are aware of it to, it may encourage the bank to make an exception to keep your business. Even if they are willing to compromise, it's always a good idea to shop around. (Many banks are now offering free perks to entice new customers. Don't miss The 8 Best Bank Perks.)

The Bottom Line
A loan is a deal, just like any other business deal. If you want the bank to give you what you want, you have to put in the effort to become the type of client they want - organized, reliable and motivated. This will go a long way towards convincing the bank that dealing with you is a good business decision. It may not work the first try, but over time you'll be able to win over your banker or easily find what you need elsewhere.

This article has been republished from SF Gate. Written by Andrew Beattie.

The Listing Agent - Preliminary Marketing of Your Home

The "For Sale" Sign

It seems fairly obvious that when you put your house up for sale that your agent will put a "for sale" sign in the front yard. The sign will identify the agent’s company, the agent, and have a phone number so prospective buyers can call and get information.

Signs are great at generating phone calls, even if very few actually purchase the home they call about. However, you might be one of the lucky ones. For that reason, you should determine what happens when someone calls the number on the sign. Does a live person answer the phone or does the call go to a voicemail or recorder?

You want someone to answer the phone while the caller is "hot." When buyers call the number on the sign, the call should go to a live person who can answer questions immediately. A potential buyer may be on the street outside your home, placing the call using a cell phone.

Also, take a look at the sign and see if it seems more interested in generating calls from buyers, or if it seems more oriented toward advertising your agent’s listing services to your neighbors.


Flyers and a Brochure Box

Your agent should prepare a flyer that displays a photo and provides details about your house. There should also be a phone number so buyers can contact your agent to get additional information. The flyers should be displayed in a prominent location in your home and also in a brochure box attached to the "for sale" sign.

The brochure box is convenient for those buyers who drive by and just happen to see the "for sale" sign in front of your house. It provides enough information so they can determine if they want to follow up with a phone call or inform their own agent they are interested in your house.

This article has been republished from Real Estate ABC. Written by Terry Light.

Is Real Estate Really a Relationship Business?

We hear it all the time. Real estate is a relationship business. This means the more people who know you and like you, the more real estate you'll sell.

And it's true. The more people who know you and like you, the more real estate you'll sell.

But is real estate really a relationship business?

Inspired by the Bravo reality series, "Million Dollar Listing," just one of the dozens of real estate reality shows currently gracing the television airwaves, we are spurred to ask just this question.

The young male stars of this show seem to have an unending supply of "dear driends" with dollars to spend on real estate. "After all," says Chad, one of the agents, "Real estate is a relationship business."

If you've ever watched the show with a cynical eye, you might have noticed that these young men tend to give sometimes laughably self-serving advice. Suchas their advice to their "dear friends" to make full price offers in a declining market before the house even hits the market. They allow their sellers to dictate the price and terms of their listings, whining all the while that the seller is being unreasonable. They talk their buyers out of even asking for repairs at inspection because the seller has already come down on his price (again, in a recessionary market).

So, wha t does this have to do with real estate and relationships?

Selling real estate is about knowing how to sell real estate. Let's say that differently. It's about knowing how to manage and facilitate the exchange of real property so that the buyer or seller who hired you is satisfied with the outcome.

Sure, building a real estate business may have everything to do with your relationships, but, as agents, that's not what we do. Is tax preparation a relationship business? Is dentistry a relationship business? Is dog-training a relationship business?

No, we expect our tax preparers to know how to prepare taxes. We hope our dentists know how to fix cavities. We expect a dog-trainer to be a master in dog behavior. That's their business.

Our buyers and sellers have the right to expect that we know our business. This means how to manage and facilitate the exchange of real property, not how to persuade our "dear friends" to provide us with easy paychecks.

This article has been republished from Realty Times. Written by Jennifer Allan.

Falling Home Prices Stir Fears of New Bottom

The housing slump isn't over.

Tax credits and historically low mortgage rates have failed to lift home prices so far this year. Prices fell 0.5 percent in March from February, according to the Standard & Poor's/Case-Shiller 20-city index released Tuesday.

That marks six straight months of declines -- a sign that the housing market is going in reverse.

"It looks a little like a double-dip already," economist Robert Shiller said in an interview. "There is a very real possibility of some more decline."

The co-creator of the Case-Shiller index, who predicted in 2005 that the housing bubble would burst, says he worries that home prices rose last year only because of the federal tax credits. That fear is shared by other economists. They note that weak job growth, tight credit and millions more foreclosures ahead will weigh on the home market.

All that is discouraging for homeowners who have seen the value of their largest asset deteriorate sharply over the past three years. Falling home prices tend to curtail consumer spending. And they make it harder for struggling borrowers to refinance into an affordable home loan.

Prices in 13 of the 20 cities tracked by the index fell. Only six metro areas recorded price gains. One, Boston, came in flat.

In the first quarter of 2010, U.S. home prices fell 3.2 percent compared with the fourth quarter.

The numbers are especially disturbing because they show that improved sales due to the tax credits didn't translate into higher prices, said David M. Blitzer, Chairman of the S&P index committee.

Still, falling home prices haven't kept many consumers from maintaining their optimism about the economy.

A separate report Tuesday showed consumer confidence rose in May for the third straight month as hopes for job growth improved. The increase in the Conference Board's Consumer Confidence Index was boosted by consumers' brighter outlook for the next six months.

In a healthier economy, extraordinarily low mortgage rates would pump up demand for homes. But employers aren't creating new jobs fast enough and loans are harder to come by for small businesses and individuals.

On Monday, the National Association of Realtors said sales of previously occupied homes rose 7.6 percent in April. But the sales were aided by the government incentives that have now expired. Economists don't expect the improvements to last.

New buyers were offered a credit worth up to $8,000. Current owners who bought and moved into another home could get a credit for up to $6,500. To receive them, buyers had to have a signed offer by April 30 and must close by the end of June.

Shiller and other economists worry that prices could fall below the levels of April 2009. That was the lowest point since the peak in July 2006.

IHS Global Insight economist Patrick Newport forecasts prices will fall an additional 6 percent to 8 percent and bottom out in the third quarter of next year. Newport said the glut of homes on the market is the main reason. But he's also worried about the rate of foreclosures.

"When banks foreclose, they sell the properties at deep discounts," Newport said. "Foreclosures have either peaked in the first quarter or are going to peak soon, but they will remain very high for several years."

Mortgage delinquencies reached a record high in the first quarter. More than 10 percent of homeowners with a mortgage missed at least one payment from January through March, the Mortgage Bankers Association said last week.

Since 2006, nearly 5 million homes have been lost to foreclosures or other distressed sales, according to Mark Zandi, chief economist at Moody's Analytics. Zandi expects 3 million more to hit the market over the next two years.

Zandi noted that 15 million homeowners still owe more than their homes are worth. And 26 million Americans are either unemployed or underemployed. The underemployed include people who have given up looking for work and part-timers who would prefer to be working full time.

"It's a lethal mix," Zandi said.

This article has been republished from Yahoo! Finance. Written by J.W. Elphinstone.