ffirs_eilers.qxd7/7/041:56PMPagei Real Estate Millions in Any Market T E R R Y E I L E R S John Wiley & Sons, Inc. ffirs_eilers.qxd7/7/041:56PMPagei ffirs_eilers.qxd7/7/041:56PMPagei Real Estate Millions in Any Market T E R R Y E I L E R S John Wiley & Sons, Inc. ffirs_eilers.qxd7/7/041:56PMPageii Copyright © 2004 by Terry Eilers. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. 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HD255.E3713 2004 332.63′24′0973—dc22 2004005519 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 ftoc_eilers.qxd7/7/042:13PMPageiii Contents ACKNOWLEDGMENTS xi INTRODUCTION xiii PART I AN OVERVIEW OF YOUR WEALTH-BUILDING PROCESS CHAPTER 1 Identify Exactly What You Want to Achieve 3 Turning Dreams into Reality, 3 You Decide What You Will Achieve, 4 Goals—The Most Valuable Building Blocks, 7 Daily Action Goals, 10 Short-Term Achievement Goals, 10 Long-Term Success Goals, 10 Time—Your Most Valuable Asset, 11 Managing Your Time, 12 Preparation, 12 Actions, 13 CHAPTER 2 Taking Inventory of Your Personal Resources 15 Where Is Your Starting Line?, 15 The Basic Action Plan, 16 Believe You Can Before You Do It, 17 You Can Make Deals with What You Have—or Don’t Have, 19 It Does Not Take Your Money to Make Money, 21 There are Professionals Available to Help You—Use Them!, 22 Putting Your Investment Team Together, 23 Real Estate Brokers and Agents, 24 Title Companies and Escrow Agents, 25 Banking Relationships, 25 Attorneys, 26 Insurance Agents, 27 Accountants, 28 Professional Management Companies, 28 The Other Professionals, 29 CHAPTER 3 The Basic Education—What You Really Need to Know 31 It All Seems So Complicated, 31 Real Estate—Quick and Easy, 32 Technology—The New World of Information Availability, 33 Outsmarting the So-Called Experts, 34 iii ftoc_eilers.qxd 7/7/04 2:13PM Pageiv iv CONTENTS The Most Important Component, 36 Identifying and Qualifying Sellers, 37 Basic Real Estate Terminology, 40 PART II THE COMPONENTS NECESSARY FOR IMMEDIATE AND LONG-TERM REAL ESTATE WEALTH CHAPTER 4 How You Make It All Work 59 The Benefits You Will Achieve Through Real Estate Investment, 59 Is There Risk Involved?, 60 Can You Save Your Way to Wealth?, 64 What It Takes to Be Successful in Today’s Market, 66 CHAPTER 5 Establishing Yourself as a Professional Investor 69 Getting Organized, 69 A Place to Work and Make Calls, 70 Date Book or Planner, 71 Telephone, 71 Mobile or Cell Phone, 72 Computer and the Internet, 72 How You Will Represent Yourself?, 74 Business Cards, 75 Flyers and Brochures, 77 Web Site, 79 It Is a Numbers Game, 79 CHAPTER 6 Analyzing the Marketplaces 81 What Is the Process?, 81 Finding the Best Areas, Neighborhoods, and Properties, 84 What Are the Most Common Mistakes?, 86 Making the Right Choices, 87 Tracking Your Research—Developing and Using a Property Search Log, 88 Your Property Search Binder—The Layout and What Is Included, 88 Finding the Areas, 91 The Internet, 92 Do You Have Adequate Internet Service?, 92 How You Search Is Up to You, 93 General Information—City and Area Comparisons, 94 Sterling’sBest Places, 94 Other Information Sources, 95 Chambers of Commerce and City Sites, 95 Some Other Great Sources for Information, 99 ftoc_eilers.qxd 7/7/04 2:13PM Pagev Contents v Population Connection, 100 The Internet Site That Has Changed the Real Estate World, 100 What About the Schools or Other Demographics?, 102 Making Personal First-Time Contacts, 112 What About Unique Properties?, 114 CHAPTER 7 Understanding Comparable Values Before You Begin the Property and Seller Searches 117 What is Most Important?, 117 The Factors of Comparable Values and Comparable Sale Pricing, 118 How to Learn Proper Comparable Sale Pricing, 120 Common Fallacies of Comparable Pricing, 120 How Properties Are Compared, 121 Real Estate Brokers and Agents and Title Companies, 121 Understanding the Nuances of Pricing, 123 What About Using Appraisals?, 126 Your Pricing Will Be Based on Inspections and Comps, 129 CHAPTER 8 Using Income to Value Investment Properties 131 Get Rid of the Emotion—Now!, 131 Valuation Methods Used by Appraisers, 132 The Two Most Used Valuation Methods in Detail, 133 Comparable Sales Analysis—Multi-unit, 133 Net Income Analysis Approach, 134 Analyzing Cash Flow, 136 Income, 136 Debt Service, 138 Expenses, 138 Cash Flow, 141 Getting Caught Up in Analysis, 143s CHAPTER 9 Finding Great Bargain Properties Using Traditional Methods 145 What Success Levels to Expect, 146 Classified Buyer’s Newspaper Advertising, 147 Ads Placed by Sellers, 149 The Words of the Flexible, Accommodating Seller, 149 Public Notices, 151 Real Estate Brokers and Agents, 151 Go with the Broker—You Want to Do What?, 153 Buyer’s Brokers and Agents, 154 Transaction Brokers, 156 Referrals from Friends, Relatives, and Associates, 156 Direct Buyer Telephone and Mail Contacts, 157 For-Sale-by-Owner Signs, 157 ftoc_eilers.qxd 7/7/04 2:13PM Pagevi vi CONTENTS Bird-Dog Referrals, 159 Other Partner Investors, 160 CHAPTER 10 How to Maximize Your Use of Internet Investment Opportunities and Other Information 161 Saving Time Every Way Possible, 161 Search Engines, 167 Finding Listed Properties, 168 Properties to Purchase, 169 An Example Search, 169 Yahoo.com, 184 Individual Broker Web Sites, 188 Example Broker Sites, 189 Finding For-Sale-by-Owner Properties, 192 For-Sale-by-Owner Sites, 193 Information and Specialty Sites, 195 Foreclosures, 195 Making the Web Your First Stop, 196 CHAPTER 11 Successful Negotiation Techniques—How to Create Win-Win Transactions 197 Important Factors to Remember When Negotiating, 197 The First Impression Is the Most Important, 199 Identifying the Most Important Topics of Negotiation, 200 Educate the Seller, 201 The 12 Rules for Proper Negotiation—Memorize Them, 202 Other Important Factors Pertaining to Negotiation, 214 Using a Negotiation Checklist, 215 Making the Offer—The Climax of the Negotiation Process, 216 The Sections of the Purchase Agreement in Detail, 218 CHAPTER 12 Viewing and Inspecting Properties 221 Where Do You Start?, 221 Let’s Look at Location, 222 Overall Condition of the Property and Structures, 223 Inspecting Potential Investment Properties, 224 Each Inspection Step in Detail, 225 Step 1—Cursory View, 225 Step 2—Investment Inspection, 226 Step 3—Your Own Professional Inspection, 227 Getting Down to the Nitty-Gritty, 228 Walls and Doors, 229 Floors and Baseboards, 229 Windows, 230 ftoc_eilers.qxd7/7/042:13PMPagevii Contents vii Window Coverings, 223 Ceilings, 231 Lighting and Electrical System, 231 Going Through the Individual Rooms, 232 Kitchen, 233 Living, Family, Bonus, and Play Rooms, 234 Bathrooms, 234 Bedrooms, 235 Closets, 235 Laundry Areas, 236 Staircases, 236 Fireplaces, Inserts, and Wood Stoves, 237 Shelves, Bookcases, and Drawers, 237 Heating and Cooling Units, 238 Basements and Attics, 238 Soundproofing and Insulation, 239 Odor, 239 Porches, Decks, Patios, and Exterior Entryways, 240 Garage, 241 Pools and Spas, 241 Saunas and Steam Rooms, 242 Structure Exteriors, 242 Roof, 243 Yards, 244 Warranties and Guarantees, 244 What Repairs Must Be Made?, 244 Sweat Equity, 245 Understanding Seller Disclosure, 245 The Seller Disclosure Statement, 247 Proper Inspections Can Save You a Bundle, 247 CHAPTER 13 Four Favorite Creative Low-Down or No-Down Investment Techniques for Any Market 249 Learning to Think Creatively, 249 Misunderstandings and Fallacies about No-Down or Low-Down Investing, 250 The Most Important Rule in Creative Investment! Learn It! Never Break It!, 252 Four Favorite Low-Down, No-Down Techniques, 253 Favorite No. 1: The Quick Fix: to Rent, Own, or Sell, 254 Favorite No. 2: Buying Properties with Multiple Parcels, 258 Favorite No. 3: Subject-to Transactions or Assumptions— In and Out in a Hurry, 261 ftoc_eilers.qxd7/7/042:13PMPageviii viii CONTENTS Favorite No. 4: Broker/Agent Participation, 266 Second-Nature Creativity, 271 CHAPTER 14 Six More Creative, Seller Participation Low-Down or No-Down Investment Techniques 273 Every Day Is Different—But Every Deal Is the Same, 273 Favorite No. 5: Short-Term Seller Desiring High, Above-Market Interest, 274 Favorite No. 6: Seller-Carry Note Sold for Cash, 277 What Made This Deal Work?, 282 Favorite No. 7: Low Price, High Appraisal, and Refinance, 282 What Made This Deal Work?, 285 Favorite No. 8: Equity Participation with Seller, 286 What Made This Deal Work?, 290 Favorite No. 9: The Wraparound—Seller Receives Interest on Bank’s Money, 290 What Made This Deal Work?, 298 Favorite No. 10: Generating Ongoing Income and Long-Term Wealth, 298 Working the Properties and Types of Deals That Suit You, 302 CHAPTER 15 Closing the Transaction 303 You Have the Deal—Now Get It Closed, 303 Some Considerations During the Closing Process, 305 Final Closing/Escrow Considerations, 308 Transfer of Funds, 308 Closing Costs, 309 Real Estate Settlement Procedures Act, 309 After the Closing, 309 Closing Is an Art—Become a Proficient Artist, 310 CHAPTER 16 Property Management—The Simple Approach 311 Keep It Plain and Simple, 311 Finding Renters or Lessors, 313 Working with Credit Reporting Agencies, 314 Preparing Rental Agreements and Leases, 316 What Should Be Covered in the Rental or Lease Agreement?, 317 The 10 Commandments of Property Management, 317 Management Is Simple and Easy If You Stay On Top of It, 323 CHAPTER 17 Institutional Lending—General Information 325 What Lenders Are Looking For in a Borrower, 326 Fixed-Rate versus Adjustable-Rate Mortgages, 327