Prospera Blog

By now you’ve likely begun hearing news that the real estate market is showing signs of improvement. You’ve probably also heard that prices are still dropping. As I’ve discussed in an earlier blog, making sense of the different statistics and news headlines takes some interpretation. Let’s use the following two headlines as examples and interpret exactly what’s going on:

“Pending home sales rise 6.7 percent in April”

“U.S. Home Price Declines Slowed in First Quarter”

So, pending sales are up but prices are still dropping. Why is this? From my vantage point it’s simple… first time home buyers and investors are starting to take advantage of the abundance of good deals. Short sales and bank owned listings are excellent examples of homes that are selling undervalued which are dragging the overall numbers down. Side note: instead of getting into a lengthy discussion about depreciation statistics, please refer to my previous blog talking about interpreting the actual depreciation statistics.

I have personally been seeing increased activity from first time buyers and new investors in my day to day activities running Prospera and working with my agents and clients. It seemed clear to me that first timers and investors buying undervalued and low priced properties were leading to these results, but I grabbed some information from the Northwest Multiple Listing Service’s statistics to illustrate the point.

- The median price of actively listed homes in April, 2009 for King County was $499,950.

- The median price of pending homes (homes in which a buyer has agreed to purchase the home from the seller) in April, 2009 for King County was $365,000.

The pricing disparity in the homes selling and the homes sitting is astonishing, but goes to show that lower priced properties are the ones selling. Another interesting tidbit is that the total volume of active listings (homes listed on the MLS not under contract to sell) in King County has dropped 16% to 9,608 in April, 2009 from 11,424 in April, 2008. Not many people are talking about the drop in inventory of listed homes, but it is a positive sign that things are on their way back to a more normal, healthy market. However, I do believe there will continue to be plenty of short sales and foreclosures affecting the overall pricing for the next year as we feel the repercussions of all the layoffs. Meaning, sellers will likely continue to have difficulty as a whole if similar homes up the street are listed for less as a short sale.

The most recent Northwest Multiple Listing Service compiled statistics for King County show a year over year deprecation of 12.8% for sold single family listings from February '07 to February '08. Prices have indeed dropped, but not in the manner that a simple percentage reflects. A large percentage of the homes that are selling in King County are short sales (see Short Sale 101 for a definition of short sales), and these short sales are selling at prices far below market value. In addition, we now have a large number of bank owned listings which are priced aggressively to sell quicker than anything else on the market. Finally, we have very motivated sellers who may have lost their jobs or are simply tired of waiting around for the right buyer to walk through their door, which is taking longer due to fewer active buyers. All of these aforementioned transactions result in lower purchase prices which drag the median price of homes down.

What is important to remember about the deprecation in regards to “median” prices is that half sold for more, while half sold for less. Also, the “average” prices of sold single family homes in King County has dropped in that same year over year stretch at the rate of 10.9%. These aforementioned percentages are still an inaccurate reflection of particular areas as they are county wide (and can sometimes be state or nation wide depending on the reporting source); they do not take into consideration particular neighborhoods. For instance, an older home in Burien on a busier street may have depreciated at a rate of 15% while a home in Magnolia with a view may have only depreciated 5%.

Also, headlines are often intentionally deceiving to grab interest.  For instance, the headline of the recent Seattle Times article "March home sales, prices continue to decline compared with a year ago in King County" gives a doom and gloom outlook.  Yes prices dropped, but that same article talks about the positive news that pending sales are way up compared to year ago... how could that have been left out of the headline?

What does all this mean? It means to take each report you hear on TV or read in the newspaper with a grain of salt. I’m not going to say that everything has been peachy, but there are certain factors, or even headlines, that skew the statistics and do not fully represent the big picture.

The bottom line in our current real estate market for me is that there are two major factors to consider:

1) It is a difficult time to sell. Meaning, if as an investor you are pondering a fix and flip strategy, keep in mind that you may have a difficult time selling the property because there are fewer buyers out there than normal. Basically, whether you are a regular home owner or an active investor, just keep in mind that it is a difficult time to sell.

2) Because buyers are scarce and sellers are motivated, there are some killer deals available that have loads of equity in them (short sales and bank owned listings are prime examples) that many investors and first time buyers are taking advantage of. Investors and first time buyers are finding undervalued homes that have instant equity because they can appraise for a higher amount than the low price they negotiated with a desperate seller.

Here is an excerpt from an April 8^th article from the Wall Street Journal talking about how to interpret reported housing statistics:

* “But if you are thinking of buying a home, here's the more positive news: While overall market averages may not be as cheap as you might have expected, you can probably ignore them.

There are plenty of deals taking place far below the official average levels. The indices are masking a huge disparity in prices.

Even the National Association of Realtors concedes distressed sales – including foreclosures and short sales – are closing about 20% below "normal" market rates. (Never mind how to define "normal").”

And here is an excerpt from that same Wall Street Journal article that speaks to why people are finding this a good time to buy:

* “If you can borrow at 4.5% or 5% over 30 years, many purchases start to look appealing. Especially if we get a hefty dose of inflation down the line.

If that happens, your monthly payments will be low and you'd get to repay the principal over time with devalued dollars. That's a double win.

Inflation isn't guaranteed: The bond markets are only predicting about 1.4% inflation over the next 10 years, and BCA Research recently reminded clients that deflation, or falling prices, remains a danger. Unemployment is still rising and recent wages actually fell.

Yet if you had to bet from here, you'd bet on inflation in due course. The government is running massive deficits and has the printing presses at full throttle. That's the classic recipe.

And inflation is the debtors' friend -- which is why it is surely going to prove the politically expedient way out of this mess.

Anyone purchasing hard assets like real estate, with a 5% fixed rate loan, ought to make good money if that happens”

“Aggressive buyers are finding some simply terrific deals. And they're paying with cheap debt, too.

Default rates are rising. Lots of sellers are forced. A buyer with options holds all the cards.”

* "The Case for Buying a Home Right Now" by Brett Arends – April 8^th, 2009 from the Wall Street Journal Online

Attention First Time / New Investors! Prospera Real Estate presents upcoming small group investment seminars designed to get your real estate investing ball rolling in a positive direction toward early retirement. Seats will be limited to just a handful of attendees, giving you a personalized opportunity to learn proven strategies designed to limit risk. More importantly, with fewer people in attendance you will have the opportunity to get your questions answered!

Topics and strategies we will cover include:

• Lease Option Investing
• Buying Undervalued Short Sales
• Buying Undervalued Bank Owned / REOs
• Finding Tenants / Tenant Fulfillment
• The Purchase Process (offer, inspection, closing...)

Plus, we'll even leave you with a free list of low risk investment opportunities that are currently available!

It's no secret that prices are down and sellers are motivated. Adding a large inventory of short sales and bank owned properties means we have even more undervalued homes on the market. Now is a wonderful opportunity to buy homes at a premium and capture built in equity while prices are low and there's an abundance of terrific deals.

All of our seminars are held in Bellevue. Seating is very limited so you can walk away with a clear understanding of these low risk strategies.

Click on the "Investing Seminar" button (http://www.prosperarealestate.com/freeseminar) to the left for upcoming dates/times and to RSVP.

Bank owned / REO homes are excellent mid term real estate investments for those looking to purchase at a premium, hold for at least a few years, then sell when the timing is right to maximize profits. Demand has fallen short of supply and banks and sellers everywhere are desperately dropping their prices in an effort to entice a buyer and much needed sale. Add adjusting mortgage rates and rising jobless rates and we have the recipe for a multitude of bank owned homes priced to sell. Banks are NOT in the holding real estate business, meaning they are pricing and negotiating their REO's to sell to remove them from their books.

We currently have a surplus of inventory which is helping drive REO prices down. As an example, I am seeing many bank owned listings selling for 70 cents on the dollar like the following: a home that sold in the last 1-2 years for $650,000 currently listed at $450,000. That’s 30% less than its recent sale! Reports just released for King County show that the median price of single family homes has dropped approximately 12% over the past year. That number is likely skewed due to the amount of short sales and bank owned listing that are selling so cheaply, but regardless that still leaves roughly 18% to play around with.

Meaning… you could buy the aforementioned example for 450k, refinance for a value of over 500k, allowing you to put as much as $100,000 in cash in your pocket to utilize elsewhere.

Oddly enough, while the market was hot investors were buying high and hoping to sell high within a one to two year time frame. Now is the time to take a safer approach and find a home to buy low, rent out, then sell high years later. Adding the ability to utilize equity from a refinance to purchase multiple homes accelerates your investing. This is how most real estate investors retire early and in the manner they choose, not what their job, 401k, and retirement plan chooses for them.

Prospera Real Estate specializes in Bellevue, Seattle, King County, and Puget Sound real estate investing and a specialist can be reached at 425-289-1099 for additional information, assistance, and an individually catered search for currently active REO homes.

Short Sale 101: For Sellers

    For sellers in difficult situations, a short sale is generally a strategy that most are unfamiliar with. I routinely receive phone calls from sellers who are having difficulty selling their home due to their lack of equity, and for many of these sellers the short sale is their best option. Through my experience working with these individuals I have found that I generally answer the same questions about short sales, and I have detailed those questions and my answers below:

What is a Short Sale?

    Simply defined, a short sale is when the proceeds from the sale of a property are insufficient to cover the existing debt owed on the property, and the owner is unable to pay the funds required to cover the difference at closing. Since the owner is unable to pay the difference, the final approval of sale must come from the lienholders (i.e. lender). Many lenders will agree to accept the reduced proceeds of a short sale to avoid a lengthy and costly foreclosure.

Why Should I Short Sell My Home?

    If you are unable to sell your home for an amount that will cover the existing debt and all settlement costs (taxes, commissions, escrow fees, etc generally around 9% total), then a short sale will prevent you from having to pay to close on the sale of your home.

    Let’s use a real quick example. Jack and Jill Homeowner bought a property two years ago for $300,000 with 100% financing and need to sell. However, the current market value of their home is only $310,000. After an approximate 9% in closing costs for the sale (excise tax, title and escrow fees, commissions, etc), the total proceeds to pay off their loans will be $310,000 less approximately $28,000, which equates to $282,000 to the lender. In this instance, the proceeds from the purchase will be short by approximately $18,000, which is what Jack and Jill Homeowner would have to pay the lender at closing.

    Unfortunately, with the challenges today’s economy is facing, many sellers are like Jack and Jill and cannot afford to pay $18,000 to sell their home. Even without any economic challenges, no one wants to pay to sell their home. Some homeowners choose to discontinue making payments and let the home eventually slip into foreclosure. GREAT NEWS! There’s a better option. Lenders dislike foreclosures as much as the rest of us… they’re lengthy, messy, and costly. Lenders frequently accept short sales to avoid this costly legal process.

What About My Credit?

    Preventing unnecessary damage to your credit is major reason sellers choose to short sell their home. Short sales are less damaging to your credit and your ability to gain future financing than foreclosures. If you are unable to pay the amount needed to close the sale out of your own pocket, then the short sale is likely your best option to mitigate credit damage.

    One of the most damaging aspects to your credit scores are late payments. If you choose to stop making payments and begin to have 30, 60, or even 90 day late notices then your credit will take a much more significant hit. Although some real estate agents are qualified to assist with your short sale, they are not attorneys or CPAs. Thus, I always recommend speaking with your attorney and tax professional to carefully examine your financial and legal situation and to assist in your decision in choosing to short sell your home.

What is the Process and What Timelines Can I Expect?

Step 1: The first step is to get your home listed on the MLS at an attractive price in an effort to coax a quicker offer. It is important to realize that price plays a less significant role once you decide to short sell your home. That doesn’t mean price isn’t important because we do want to submit an offer that the lender will accept. What it does mean is that the difference in selling your home for $400,000 or $390,000 makes no difference to you the homeowner since you are neither paying to close or walking away from closing with money in your pocket. We will list your home with specific remarks that buyers and agents search for in seeking out short sales.

Step 2: Once we get an offer, the second step is to submit the offer to the lender with their requested short sale package material. This generally includes pay stubs, an estimated closing statement, and a letter of hardship to name a few. Prospera Real Estate agents work with negotiators who assist in putting the short sale package together, submitting the short sale package, and negotiating with the lender on your behalf at no cost to you.

Steps 3-6: The next four steps are PATIENCE. Short sales take longer then a traditional transaction because we have to wade through the bureaucracies of the lender. It takes time for the short sale package to get updated into their system, then for the lender to assign one of their negotiators, then for appraisal… and you get the picture. Overall it can often take about a month from point of submittal to point of approval but this varies depending on the specific lienholders.

Step 7: Get the deal closed! Depending on the buyer, closing the deal can happen within days of lender approval. Lenders will often give 30 days from point of approval to get the deal closed… so expect anywhere from a few days to 30 days depending on your unique transaction.

Can You Walk Me Through an Example?

Subject Home: A Bellevue split level home with two existing mortgages totaling $538,200. In this instance the only liens on the property were the first and second mortgages that were with the same lender. The market value of the home at time of listing was around $530,000. The appraisal conducted at the time of the second mortgage came in at $598,000 less than one year prior to homeowner falling behind on payments.

Ideal Scenario: For this particular homeowner, the ideal scenario was to short sale the home as the owner did not have sufficient funds to provide at closing to cover the existing debt. The homeowner did not want a foreclosure to appear on his credit report so he felt most comfortable settling with the lender.

The Process: We entered the market at the price we felt reflected the current market value of the home in an effort to show the lender we tried to get the best offer possible. Within one week, we received an offer for approximately $45,000 less than the asking price. The lender accepted the offer after all the required paperwork was delivered to the lender and their internal appraisal was conducted. This offer was eventually rescinded due to a buyer’s contingency. Thus, since we knew the lender would accept 45k less than we originally listed the home for, we re-listed the home at the price of the first offer to ensure we received a quick offer. Upon re-listing, I called all of the parties that showed interest prior and was able to drum up a new offer that night. The new offer was substantially lower, but the lender approved it and we proceeded to closing.

***** I realize that this may all be a lot to digest, especially for those of you who are taking your first look at the short sale as an option. I handle short sales on a daily basis and I can of course go into greater detail and answer any questions you have. I’m just a phone call away and can be reached at 425-289-1099 *****

Continued From Part 1

Access to Information: Having your license and being a member of the MLS provides easier access to information that will help you make more educated and profitable investments. Much of the information needed is public information, but this can often be timely to track down and be less organized and easy to use. The MLS provides the ability to run comps, see area statistics (median/average prices, average time on market, number of homes sold in an area, etc), and get an overall feel for a particular area of interest. Title companies also provide access to additional property and neighborhood information to licensed agents. Ultimately, being licensed allows access to more information in a timely manner.

Marketing Aids: For starters, the aforementioned information at your disposal can help in the verbiage of your marketing material. In addition, some title companies will provide labels to be used for your mailers at no charge (labels are the names and addresses printed on labels that you simply stick onto your envelope). As a licensed investor, you will be able to contact the customer service department and ask for a spreadsheet and labels for a particular search criteria. For instance, you can narrow down by area, mortgage amount, owner occupied, etc. This is great for sourcing potential investments, but can also be used when searching for a renter or lease option tenant. When I have a rental or lease option that needs to be filled, I send out postcards to the 100-300 closest non-owner occupied homes. Often times neighbors are looking to move or get into a lease option, and more often have friends who want to move to the area.

Negotiation: As a licensed agent you are now an “expert” to sellers on home values. As I mentioned earlier, state law mandates you disclose your status as a licensed agent, and for some this may be detrimental to their negotiating power. However, those that are hindered by their licensed status are quite possibly the “vultures” that give many investors a bad reputation and cause new laws to be enacted to protect distressed home sellers (my apologies if you by chance are hindered by being licensed and are NOT a vulture). For the rest of you, your status as a licensee gives you a professional edge in discussing price, process, etc. Though being licensed does not necessarily mean you are more knowledgeable, it typically appears that way to uneducated sellers.

These are just some of the most basic examples of how being licensed can help your investing business.

What are the disadvantages of being licensed?

Cost: Obtaining a real estate license does cost money, but the rewards can quickly outweigh the costs. When making your decision on whether or not to get licensed, figure on a cost of up to $395 for the required education, $146.25 for the state licensing fee, and $138.25 for the state exam fee. In addition, membership with the Northwest Multiple Listing Service costs $360 annually, and a subscription with GE to gain access to lockboxes costs $12.54 monthly (when used through your cellular phone). Outside of this, the other costs to consider are renewal fees and cost of required education for license renewal which is infrequent. On the topic, Prospera Real Estate is a Rockwell Institute Satellite School which means Prospera can pass along great savings on the education. Rockwell is known for their students having an exceptional 90% pass rate on the state exam at a very cost effective price… need I say more?

Time: It takes time to get your license. 60 hours to be exact. Although this can be done on your own time through internet courses (which Rockwell provides). There isn’t much of a concern on a time limit for completing the education once signed up (Rockwell is friendly to work with and they can generally be accommodating if you are having trouble finding the time after months have gone by). Other than the education and physically taking the time to pass the test, whatever other time you spend is in utilizing your license to be a more well rounded, educated, and profitable investor.

Continuing Ed: ***This should really fall into the Pro category as education is an important aspect of being a profitable investor. But for the sake of the time and cost, I’ll put it here.*** Once you obtain your license, you will be required to renew it by your second birthday after the day you become licensed, and then once a year thereafter. 60 hours of continuing education is required for your first renewal, then 30 hours for each renewal thereafter. As with your initial education, this can be completed online through Rockwell for those of you who prefer that method. There are also many free classes and seminars that offer clock hours for attending.

So, what’s an investor to do?

The bottom line in the debate on getting licensed is that it is case dependent. If you are investing in real estate, then you must consider getting licensed and examine all of the additional streams of income this can open for you. If you determine that the pros outweigh the cons then go for it. If you determine that the profit it provides in regards to referral fees, additional deals you may not have found, commissions earned (and saved), negotiating power, resources, etc does not scream “get license,” then getting licensed isn’t for you.

You have probably already asked yourself "should I get my real estate license?"

    First and foremost, it is important to know that there is no clear cut answer to this question. Whether or not you should obtain your real estate license is largely dependent on how you plan to utilize this new tool in your tool belt. Some of you will also need to consider the laws real estate licensees must abide by. As an example, when working with a potential buyer or seller, an investor must disclose that they are licensed. For many this can add credibility in the buyer or seller’s eyes and aid in completing an attractive investment, but there are some individuals out there that disclosing their status as a licensee may detract from their negotiating skills (more on this later). This is one example of the many angles that should be considered in determining if obtaining a real estate license is right for you. Ultimately, to appropriately determine whether or not you should get licensed, you will need to consider the amount of upside it provides. To get your mind moving in the right direction, let’s look at some of the pro’s and con’s…

What are the advantages of being licensed?

Referral Fees: This is huge! Having a real estate license means you can legally receive a referral fee, which in real estate is traditionally 25% of the commission earned by the referred agent. As an investor, you are routinely meeting people who could be a referral. For those of you seeking out subject to homes or pre-foreclosures, let’s say the homeowner decides they do not need your service and are gong to decide to traditionally sell the house… well that’s a referral fee waiting to happen! As a real estate agent you have a great recommendation on someone who can help sell their home for top dollar in a timely manner (an agent in your brokerage for example). Or, if you have the time and are willing to learn, you can list the house for them for the entire commission (Prospera will ensure you have a co-listing agent hold your hand through the process).

MLS and Lockbox Access: As a licensed agent you can become a subscriber of the Northwest Multiple Listing Service and GE Supra Key. NWMLS is a great service for investors to help source potential investments, run CMAs (comparative market analysis – comp out a home), and altogether provide useful information that can be used when negotiating with sellers. For those of you entirely new to investing in Washington, the Northwest Multiple Listing Service (NWMLS) is the state’s largest database of listings; it’s where real estate agents have their listings and privileged info available only to agents for all agents to see (and the general public in reproduction of the basic information). GE provides a service that allows licensed agents to gain access to the lockboxes agents use on their listings. Many modern phones with infrared technology are able to access these lockboxes with the appropriate installed software.

Many investor agents have luck finding deals by calling on canceled listings, searching for the word “short sale” (as one example) in the marketing or agent remarks, or just simply searching for listings that have been listed for a long duration that may be willing to accept a substantially reduced offer. If you’re about to make a presentation to a seller then you can present comps you have pulled from the MLS to help prove your case in regards to the value of the home. These are just a couple of examples of what access to the MLS can do for your investing.

Commissions: Depending on the scenario and financing, licensed investors can gain a commission on the purchase of MLS listed homes. However, lenders never want to see a buyer receiving a commission on their own purchase so this does not always hold true.  On the selling side of investing, one of the absolute best ways to get coverage on your properties you need to sell is to make them available to real estate agents working with buyers. Many investors rely upon selling their investments for sale by owner (FSBO) to avoid paying a realtor a commission to list the home on the MLS, but being licensed allows you to list your own home with the service that has the best coverage (the MLS), WITHOUT paying another agent a listing commission.  When listing on the MLS, you should still count on paying a commission to a buyer's agent, but if you cannot move the property FSBO then the backup plan of a traditional listing just got a lot more attractive by cutting the commissions in half.

That will do it for Part 1.  Stay tuned for how being licensed assists in your access to information, marketing, and negotiations....

Being Selective

Being selective is an important trait in investing that has become even more necessary with the changes our market is seeing. Granted, our local market is still in the nation’s top three, but gone (for the time being) are the days of snatching up any property, sitting back, and counting on double digit appreciation. This does not mean that profitable investments are not available, it simply means investors must be more choosy in their endeavors. In particular, it is crucial to be selective when choosing not only your investments, but the professionals and business partners you work with along the way.

This is a three part series and the final topic is “Selectivity with Investments."

Part 3: Selectivity with Investments

As I mentioned earlier and as you’re likely well aware of, investors cannot simply buy any property, put a renter in it, and plan on it appreciating 10% to even 25% as in the past years. Is that going to stop a savvy investor? No! While the buy and hold mentality still works as a long term investment (especially with current rental rates), savvy investors are finding other opportunities in our changing marketplace.

Before I get going too fast here, this seems like a good time to talk about diversity. I do not recommend putting all of your eggs in one basket.  It's okay to have a favorite type of investment and one that feels safer than others, but just like with stocks, investors should at least consider multiple strategies in an effort to alleviate risk. For example, our condo market has recently been outperforming the residential market. Meaning that having both condos and single family residential homes in your portfolio has helped keep things more even and essentially eliminated some risk. In addition, diversifying your portfolio with commercial investments or even private financing helps as the commercial side of real estate often picks up during times when residential investments slip.

Back to picking a solid investment. We are currently experiencing a surplus in inventory which is forcing sellers to try harder to sell their homes, especially in pressure situations. My beloved Title Rep, Molly Cartwright with Pacific Northwest Title, just sent me some stats showing that King County has a current inventory of almost nine months for condos and houses (Total active listings divided by number of closings = months of inventory).  What does that mean? It means now is a great time to buy low! In years past, investors were buying high as they competed with multiple offers. This was fine since the appreciation was so stellar, but now investors have the opportunity to seek out investments that can be purchased at a premium with instant equity at the time of purchase. For instance, I regularly come across homes with $50,000+ equity and these are homes in the $300,000 price range that are either pre-foreclosures or simply distressed sellers that cannot compete with the inventory. You might ask "how do I consider this equity if it’s what I paid for it?" The answer lies in the fact that the reduced price you purchased it for does not reflect the appraisal value of a home. By having equity you are afforded with alternative options such as a cash out refinance which can allow you to put your down payment back in your pocket and pull out some additional equity, all while meeting your loan’s Loan To Value requirements. *I recommend always running potential figures and game plans for an investment by your mortgage professional before putting in an offer... make sure those numbers and strategies work!*

One other selectivity issue to consider is your mid to long range game plan for investing. If you know there is an investment or strategy you want to be a part of in six months, take that into consideration as you invest today. Meaning, do not let something you do today (loan, overuse of your investing funds, etc) get in the way of what you want to do in the near future. Make sure that the steps you are taking now fall in line with your overall strategy. Your mortgage professional can help you determine if what you want to do today will hinder what you want to do in six months. For example, our commercial consulting and financing company takes a pro-active approach in assisting our clients with creating an overall game plan. One of the major factors we always consider is whether or not the steps and finances needed for Investment “A” do no hinder your ability to complete Investment “B” in the near future. Lakemont Commercial Consulting and Prospera Real Estate are always willing to sit down and talk strategy and game plan, and feel free to email me at robertw@prosperarealestate.com to set a meeting.

That’s it for this three part series… now go out there and put it to good use. Happy Investing!

Being Selective

Being selective is an important trait in investing that has become even more necessary with the changes our market is seeing. Granted, our local market is still in the nation’s top three, but gone (for the time being) are the days of snatching up any property, sitting back, and counting on double digit appreciation. This does not mean that profitable investments aren’t still available, it simply means investors must be more choosy in their endeavors. In particular, it is crucial to be selective when choosing not only your investments, but the professionals and business partners you work with along the way.

This is a three part series and today’s topic is “Selectivity with Professionals.”  Stay tuned for part three...

Part 2: Selectivity with Professionals

Though a lot of real estate investors find success without routinely depending on real estate industry professionals, it is always important to have some in your back pocket whether you are a seasoned or first time investor. There are many facets of being an investor that require consistent attention to ensure continued prosperity and legal compliance. Accordingly, an investor needs to have professionals he can trust with the likes of Inspectors, Certified Public Accountants, Mortgage Professionals, Financial Planners, Real Estate Agents, Real Estate Attorneys, and Escrow Officers to name a handful. These professionals can make or break an investor’s success. In all honesty, there are good professionals out there and there are ones to avoid, which is why it is important to select each professional with care as someone you trust to keep your best interests at the forefront of their actions.

Let’s take real estate agents as an example. I will be the first to admit that there are agents out there just looking to complete a deal and get paid a commission. This was especially true during the last few years when many people got their license trying to make a quick buck in our frenzied market. One good result of our changing market is that the change is weeding out those agents, so a greater majority of the ones still standing are the agents who take their profession and their clients very seriously. With a careful eye focused on perceptions and actions, it is easy to differentiate between these two types of agents. As an asset to the investor, a trusted agent should be one of the first people you talk to in considering an investment. A trusted agent can help you determine, or be an alternate opinion on such basics as current market value, appreciation trends in the given area, after repair value as well as many more insights about a home and area based on the vision their day to day activities as a real estate professional affords.

With my clients, I am always sure to examine all angles to help that client make up their mind on an investment. Your trusted real estate professionals should be individuals that don’t just tell you what you want to hear, but lend you the advice and perceptions they have as an expert in the industry, whether it is a positive or negative aspect of a potential investment. As the investor, it is your job to sort through the pluses and minuses that your real estate professionals help you determine to ultimately decide if a potential investment meets your criteria while staying within your accepted risk range.

Stay tuned for insight into choosing the right investments when I post Part 3: Selectivity with Investments.

    Being selective is an important trait in investing that has become even more necessary with the changes our market is seeing. Granted, our local market is still in the nation’s top three, but gone (for the time being) are the days of snatching up any property, sitting back, and counting on double digit appreciation. This doesn’t mean that profitable investments aren’t still available, it simply means investors must be more choosy in their endeavors. In particular, it is crucial to be selective when choosing not only your investments, but the professionals and business partners you work with along the way.

This is a three part series and today’s topic is “Selectivity with Business Partners.” Stay tuned for the other two topics…

Part 1: Selectivity with Business Partners

    Creating a business relationship with another investor can often make the difference in one’s ability to move forward on an investment. Sometimes this is done out of necessity, for example, someone who has assets or is willing to perform work on a home but has poor credit may partner with an investor with exceptional credit. Do not get me wrong as this is always a method that should be examined if an investor is having problems getting into an investment. However, these business partner relationships can eventually lead to the undoing of a profitable investment so it is important to carefully examine a potential business partner.

    As an example, I recently spoke with an investor who had gotten into their first investment with a friend, well, maybe we should consider it more of an acquaintance. The differences in opinion between the two investors led to additional months of holding costs while the promises the acquaintance made were never backed up in regards to construction costs, etc. Unfortunately, the relationship soured and now the investor is left with a home that will result in a loss if sold at market value. To be perfectly fair, there was more to it than just disagreements amongst the two investors, but it did indeed add extra lighter fluid to the fire.

    This is just one example and I have seen plenty of instances where partnerships succeed, yet I have even seen partnerships amongst friends sour. The point here is that investing in real estate is a big deal. There is a lot of money to be made in real estate so people always need to be careful with their investing, which includes selecting a business partner if applicable.

    I recently came across an article from www.inc.com that provides a solid guideline for choosing an investment partner. Although the article was geared toward finding an investment partner for an entrepreneurial business, the five basic suggestions for evaluating a business partner it provided hold true for real estate investing. I’ve listed them below with some of my personal thoughts to consider when making your evaluation.

#1 Understand Your Needs:

    Know your goals, level of risk you are willing to face, and know your comfort level with the risk and exit plans for a given investment. Does this match your potential business partner? Be sure to take a bird’s eye view and determine any possible outcomes any differences may result in. If the differences are too great then it isn’t likely a strong fit.

#2 Evaluate the Potential Business Partner’s Track Record:

    Get some history on this potential partner. Have they burned anyone in the past? Have they had any legal problems arise from past investments? These are important questions as the right or wrong answer will help determine your initial level of trust with this individual.

#3 Make Sure the Culture Fits:

    There’s no rule stating you need to be spitting images of one another, but do your morals, ethics, and values align? You may end up being polar opposites in regards to skills, etc, but a like minded set of values can be what keeps you on a successful track as a pair.

#4 Stability:

    Is the potential business partner level-headed and steady? I’m not saying that it is a must to be level headed and steady to have a successful partnership, but it is a must to determine whether or not you want to deal with some who may be flaky or wishy-washy. Again, consider the potential pitfalls that may arise due to an unaccountable partner.

#5 Trust:

    I mentioned this before, but it deserves its own category. Although it can take some people years to fully trust someone, it is still be possible to find the needed level of trust to move forward with a business partner. This refers back to each of the preceding tips and deserves much thought when considering a potential business partner. Do you trust what you know so far about this person and is that enough for you?