Creative investing while having a real estate license

Hello Walter,

These were some of my concerns I expressed a couple months ago in my post. I'm up here in CT. I had recently taken/passed my RE Sales course and have yet to take my State Exam; I have also not yet Affiliated with a Sponsor Broker because of my concerns while conducting my due diligence. I have an offer of sponsorship via a good friend with his broker should I decide to proceed. I will be interested to see the responses you bring with this post. Thank you for articulating your concerns so well.

Wishing you TONS of $UCCE$$!

Were you investing before you decided to take the state real estate course? Funny story, I originally got my real estate license because I was investing and frustrated with local Realtors so I wanted to represent myself. Now as I mentioned, I wonder how that will affect me with the creative deals.

P.S. I used to live in CT and although I like being by the beach here in NJ, I miss New England.

Hey Walt, its not as big a deal as you may think

First thing is you do the research, let them know the results and you go fromthere

If you look at a house and its worth $180k and you want to offer $140k, tell them. Show them the documentation that verifies your finding and tell them how to do so so that they can check for themselves. Don't give them any reason to question your sincerity and don't be surprised if they accept and refer you to their friends and associates

The only issue I think they would have is if you gave them an insulting offer; let them have some dignity in this matter and not like you know everything and they know nothing and you'll get more success than if you did otherwise

Hopes it helps

I am an agent in Phoenix. Because of the ethics issue, I do not participate in wholesale deals other than as an agent. If you have a buyer, represent them, and collect a commission. I do not have a problem with, buy and hold, or flip deals, as these don't suggest that you are taking advantage of the seller.

I can understand that but if you're being 100% honest and open, the reprecussions are minimal to zero.

In addition to the openness, also offer to find them another home if thats the plan at a discounted rate; offering to take less for them taking less I believe shows you're not trying to screw them, but assist them sincerely.

Thanks for the feedback so far. I look forward to many other Realtors' perspectives and maybe even a hint or two from Dean or his staff.

I understand what you're saying ElixBrown about being open and up front with the sellers and allowing them to maintain their dignity. However, being in the litigious society that we have today, my fear is that you may tell them that their property is worth $150,000 but you are offering $125,000 and once they discover that you are assigning a contract for $10K more, they will come back and ask why you didn’t bring that buyer to them. I’m not saying you’re wrong. I respect your opinion, but it’s a very grey area. If the property is listed in the MLS and they have a Seller’s agent then I would agree, but if you are calling FSBO’s, cold calling or door knocking, that could open up a can of worms for us as Licensees.

Al and John

In the past, I have gone the conventional route and used my license to buy, rehab and rent or flip properties, but with the economy and real estate as it has been for the past 4 years, my credit is shot and the equity in my homes are gone. I KNOW in my head and heart that we all have before us an opportunity in real estate unlike anything that I have or possibly will ever see in my lifetime. That is why I am picking myself up, dusting myself off and starting my journey all over again. With no money to put down right now, I see wholesaling as a great opportunity to build some “liquid equity” so I can buy more cash-flow properties.

Thanks again for everyone’s opinions. Keep them coming.

Hi Walt, I also hold a real estate license in the state of CA, but it's on a non-active status at this time. I've had my license since 1995 and worked for a broker that invested in real estate herself. I'm not sure how different the laws are where you live, but according to that broker it's okay to invest as long as you disclose to the seller that you are a real estate agent and submit paperwork to your broker that you are interested in purchasing the property it shouldn't be a problem. I also agree with elixbrown's comment, if you are sincere with the seller and give them back something or offer a discount then yes they may not feel like you're trying to beat them out of their home. With so many people in this business today and some are scamming others, people are scared and need that assurance that you're not out to get them. If you are willing to go that extra mile and be honest you'll be suprised how far people will go to give you what you desire. Just keep in mind a bad repetition travels alot faster and father then a good one. I say go with your gut feelings and think to yourself what would you do if it were you? What is your code of ethics. If you're still not comfortable with your decision try checking with the Board of Realtor's, Dept of Real Estate's website in your area and see if they offer any newsletters or articles on this issue, also check your code of ethics laws to see if it mentions anything about this. My final advise is to talk with your Broker, he/she may be able to enlighten you on this issue, after all that is a part of their job to help you with any questions or concerns you may have. Hope this helps. Be blessed and keep investing.

Remember never give up always get up!
Tricia

I am going on a listing appointment with a man who isn't doing well physically. He is going into an assisted living, has no heirs and needs to sell his house quickly. I did my CMA on the property and determined the value of his home to be around $225,000. That is an honest and true value in my professional opinion. Does antone think I would be out of line if I offered him $175,000 for the house as an investor (with no commission)and a guaranteed closing in 45 days as long as I tell him the true value I came up with in my CMA? I don't want to burn my bridges with this listing, but at the same time, there is a 9 month supply of inventory on the market right now and with the tax credit expiring in a month, who knows what will happen. I really need to cross that line from Realtor to investor if I want to get anywhere.

Hi Walter
I first want to welcome you to the board. I know you will find a lot of useful information here and make a lot of new friends.

Wholesaling seems to be your best bet by what you described about your situation. It is easy and if you get a deal on the property you will find a buyer fast. I always tell my sellers that in this market I need 3 months to market the contract. They never have a problem with it and it is written into the contract that way. I usually always sell within a month to month and a half. You will know pretty fast if you have gave too much for the house.

On a deal like you are describing I always offer about half of the ARV. (After Repair Value) So if you get 3 good comps in this neighborhood and average them out...and it comes to $225,000...offer him half of this. This leaves you room for your profit and room for your investor to put money into the property and still have money on the plus side. Like Matt and Dean say..."if your offer embarasses you...you probably have made a good offer."

Make sure you always have a good CAP rate so it will cash flow. I have the formula showing how to get a good CAP rate if you need it.
Good luck with your wholesaling! I wholesale lots of junkers and make quick $$$ cash. IT is amazing how many there are now.
Sissy

Thanks for the feedback Sissy. So you don't think that $50,000 off is an insulting offer. I was thinking that this would be a good flip to a first-time home buyer rather than to an investor. As I mentioned, I obviously have to adjust my thinking from Realtor to investor though.

When you mentioned CAP rate, were you talking about the cap (top) price you should pay to have a positive cash-flow or does this stand for something. I would certainly be interested in your formula showing how to get a good CAP rate if you would be willing to message me. I know that I should keep to the lower/middle income properties as they are easier to move than the high end ones.

You said you had determined his house to be valued at $225,000...divide that in half and make an offer of $112,500. That is half and will give you room for a profit and room for the investor to do repairs, remodeling etc...
If you have a retail buyer for the home they will pay more than an investor. You could then make a higher offer for the property. If you have some retail buyers on hand that is great.

When doing your basic financial analysis on a potential
investment property, there are just a few numbers that
you're concerned with when it comes to the income evaluation
for determining your return. This is necessary to help you determine a "Good Buy" from a "Good BYE" when analyzing properties!

Keep in mind that this is not the total analysis, but
just a basic income/return picture. When looking at properties you will be looking at ARV (after-repaired-value), rehab costs, purchase price and income evaluation. This quick lesson here addresses the short version of income calculation.

In case you don't already know this, Net Operating Income is your Gross Income minus your expenses.

Think of it just like a paycheck. If you make
$10/hour, and you work 8 hours, it's $80. That's
not your Net Income because you're going to pay
taxes, social security etc. If you deduct all those expenses,
you will get your Net Income (NOI).

In real estate, we have the Gross Income. It's all
of our income from the property-rents, parking, laundry income, anything you might collect on a particular property. That amount minus our expenses equals our NOI.

To get the NOI before the spreadsheet is filled with
actual rents from your property manager, the taxes from
the realtor, the insurance from your insurance person, we
do a quick analysis and we use a 0.65 factor.

What that means is, if you run the property efficiently, you should net roughly 65% of the gross income. Some properties may net you a little more or less, but using the .65 factor, I typically come within 1%-2% of the actual numbers. What I do is take my NOI and multiply it times .65 and then divide that number by the price I pay for the property and that will give me my cap rate. I'm looking for a cap rate of ten and above.

You need to understand the financial analysis and if a deal makes good sense or not. It's all in the numbers and the numbers don't lie! Knowing these figures is what will protect you from getting hurt financially. Some people don't understand this, they lose money and then they say that real estate is a bad business. It's not a bad business. You will make some mistakes but if you do this part the right way, even if you insist on calling it a risk, it's definitely a calculated risk.

Remember, The numbers don't lie. There's no emotion tied to these numbers. It is what it is. And if a deal looks great on paper, you better snatch it up before the next guy does.

Bottom line, don't forget the Cap Rate Analysis Formula, which contrary to popular belief, works with commercial AND residential properties.

The formula again, is this:
NOI divided by Total Cash Invested. It's the Total Cash
Invested, NOT the asking price. Remember, we will not be
paying the asking price. We'll be paying the numbers which
make sense for us. (I'll rarely ever touch a deal with less
than a 10% cap rate on single-family property. In this market
there are deals available with CAP rates above 15% all day long.

OK Let me see if I got this right. For example:

if my gross rent on a property is $1000/month that would be $12,000 per year
my estimated NIO would be $12,000 x .65 or $7800

If I pay $100,000 for a property then my CAP rate would be $100,000/$7800 or 12.82.

is that correct or am I supposed to be using the ARV in determining the CAP rate?

Although I don't know if I have it right here in this example here, but I can see how this is a great tool for a quick analysis of properties. I take it that there are many factors that affect the NOI though like the region of the country you are in (taxes and insurance), whether you have to pay the utilities, property management fees, turn-over rate, etc.

Thanks for the info and I look forward to using this formula to assess some deals.

You have to subtract all your expenses you may have on that $12,000....like taxes, utilities, if you pay a lawn service to upkeep the premises etc...anything that you spend money on be sure and deduct that from the $12K. When you get your figure then x .65. This is a great tool and when you figure out how to get at least a 10 or 11 0r 12% CAP rate then you will see a good cash flow off your properties you buy...wheater you are buying for yourself to hold or wheather you are trying to get a good deal to wholesale to an investor. CAP rates are important to your investor so he can see that the deal makes sense. Does that make sense? lol!