But do you ever wish you could make more on a wholesale deal? After all, you’re not doing anything to increase the value of the property, so you’re limited in how much you can really make, right?

Wrong.

And now it’s time for a sandwich.

Welcome to the Sandwich Deal

It is possible to make 4x or 5x what you would make in a typical wholesale deal, if you think outside the box.

Any wholesale deal is like a sandwich: The seller and the buyer are two slices of bread, and you connect them with your sandwich-filling goodness.

Usually, the “sandwich” doesn’t last long… you set up a contract with the seller. You sell the contract to the buyer. The deal is done.

But imagine the possibilities if you formed a more long-term relationship with wholesale leasing.

When you offer a seller a wholesale lease option, it’s still a wholesale deal. You (the investor) don’t own the property, you own the contract. But instead of finding a buyer for the property, you find a rent-to-own tenant for the property.

Why Is This a Good Deal?

Sellers love this option because they can set the price for the deal. This is especially appealing for sellers who don’t have much (or any) equity in the property, because they can get the full value of the property back.

A particular group of buyers also loves this option, and this is where wholesale leasing is most different from traditional wholesaling… but know this: It’s critical that you find the right buyer and that you help them through the whole process in order to make this deal successful.

The best buyers for wholesale lease options are people who don’t quite qualify for a mortgage, but who are on track to qualify soon. If you target the right properties, you’ll have no trouble finding potential buyers, and the price and terms will be a win-win for both the seller and the buyer.

Wholesale leasing is also a win for you. You don’t own the property, so it’s a low-risk deal. It’s a relatively easy investment. Since the seller gets to set the price, you don’t need to negotiate. And you don’t need any funds to do these deals.

Wholesaling this way does involve a bit more long-term work than traditional wholesaling because you need to make sure the buyer is supported through the whole process of renting to own, but given the significant increase in your profit, that little bit of extra work is definitely worth it.

Profit? What Profit?

How does this actually make you more money?

It depends on the deal option the seller chooses…

After you talk with the seller and get the basic information you need, you should make an offer with at least 3 options, showing the seller how much they can make with each option. Your options should look something like this:

Option 1: Cash Offer

The cash offer is a traditional wholesale model. It gives the seller a comparison point for the deal. This is going to be your lowest offer.

In this case, your profit is the difference between your deal with the buyer and your deal with the seller.

Option 2: Sandwich Lease Option

With this option, you offer the seller a lease to the perfect tenant—you. You are responsible to pay the rent and cover maintenance and repairs under $500. To do this, you sublease to another tenant-buyer, but you stay in the middle.

Offers like this typically have a term of about 5 years, but the tenant-buyer can always choose to buy more quickly.

This is going to be a higher offer than Option 1. That’s because in this scenario, you have 3 paydays:

Option 3: Lease Option Assignment

The lease assignment gets the seller the highest price. In this case, they can choose how much they want to ask for the property. Lease option assignments typically have a minimum term, for example, a minimum of 2 years.

This is more like a traditional wholesale deal, except that you look for tenant-buyers instead of other investors to purchase the property. Unlike Option 2, when you do a lease option assignment you do NOT stay in the middle. The seller can make more, but they also take on more risk.

Like a traditional wholesale deal, you make a profit up front, through the 3% option deposit collected from the tenant-buyer when they move in.

How Does this Actually Work?

Let’s go through the steps of a wholesale lease deal so that all of this is clear…

Step 1: Find a Seller

You’re looking for a property people want to buy. That means you want to find properties in nice neighborhoods in good school districts. They should be in the median price range for the area.

Your ideal seller doesn’t have much equity in the property. The easiest way to find these sellers is to look for them in for rent and for sale by owner ads online. You can look at for sale by owner sites and at sites like Craigslist. You might also try your local newspaper’s website or printed classified ads.

Once you’ve got a list of potential sellers, follow your marketing plan to contact them and send them an offer. You don’t need to spend much time on the phone with them; you just need some basic information in order to make an offer.

Find out about the seller’s situation… Is the seller current on the mortgage? Would they be consider renting the property? If the seller is motivated and interested in renting, it’s time for Step 2.

Step 2: Contract

Remember, with wholesale lease options you don’t need to do any negotiating. Send the seller a simple letter with clear options. You don’t even need to meet the seller in person. Just make sure the seller understands how each option works.

Once the seller chooses one of the options you’ve offered, get the paperwork in place. Work with an attorney to make sure you’ve got all the necessary details in your paperwork.

If you’re not doing this deal in person, you can use a notary to get all your documents signed. Make sure you don’t start making payments until you’ve got a tenant-buyer in place. Then it’s time to move on to Step 3.

Step 3: Find a Buyer

Rely on your marketing plan here. Use whatever methods you’ve found most effective, whether that’s Craigslist, bandit signs or online advertising. For example, you might put a sign on the property that says:

“Rent-to-Own. Only 3% down to move in. Call 555-5555.”

However you market, make sure you’re targeting the right buyer.

Screen potential buyers to make sure they have a realistic chance of being approved for a mortgage within the terms of your agreement. Do a background check. Also, use your 3% option deposit to confirm that the tenant-buyer really is serious about the deal.

Step 4: Final Paperwork

Once you’ve found a buyer, make sure you get all the paperwork in place. Have an attorney take care of or review all your contracts.

Make sure both the seller and the buyer understand how the contract works. If the seller chose the lease assignment option, make sure the seller accepts liability for the deal.

Set up the deal so that a third party collects rent and pays the mortgage. The tenant-buyer will be protected this way, and if the deal is a sandwich deal with you in the middle, you won’t need to worry about this happening each month if you’ve got someone taking care of the rent and payment for you.

Step 5: Follow Up

The goal of this wholesaling method is that the tenant actually buys the house. This goal doesn’t change once all the paperwork has gone through. Make sure the tenant-buyer has support to reach the goal of purchasing the property.

If the tenant-buyer needs to repair their credit, make sure they get into a good credit repair program. And make sure they have the contacts they need, such as a broker who can help them buy the house.

A Final Note

Wholesale lease options do require some extra legwork, but that doesn’t mean you need to break a sweat over every one of these deals.

Find team members who can make each step easy to execute. Establish a relationship with an attorney you trust. Find someone who can collect and distribute payment. Maybe even hire some property scouts to find the kinds of properties you’re looking for.

When you’ve got a solid team in place, you can do even more deals.

Whatcha Think?

Have you done any wholesale lease option deals? What do you wish you would have known before you started? Let me know below.

“Direct mail is already the nation’s leading advertising medium because of its effectiveness in targeting, and because it is so measurable. This improvement only enhances its effectiveness.”
~Matt Spahn, Fortune 50 and start-up marketing and media executive

But the reality is: If done well, creating and sending direct mail pieces can be simple, extremely cost effective and beneficial to the growth of your business. You just have to spend the time necessary – up front – to make sure you’re doing it right.

Today, I want to share some insightful strategies to plan, create and mail postcards or letters that will bring you the best results (whether you’re looking for cash buyers, motivated sellers or both).

A major factor in this process is really dedicating time to the pre- and post-work involved, so I’ll cover that too. So, without further ado, let’s get into it!

Determining a Budget

This may seem like a no-brainer, but when it comes to direct mail (or any marketing technique), you need to determine a budget – and stick to it.

At first, I wouldn’t recommend spending boatloads of money (obviously), until you get your technique down. Direct mail marketing is truly an art – you can’t just throw a piece together willy-nilly and send it out to everyone and their brother. (Well, you could, but that would be pretty useless).

So, figure out how much (per month) you want to spend on direct mail. Be sure that you can commit to at least 12 months of spending this amount. You don’t want to blow $5 grand over the course of your first 3 months, and then realize you can’t afford to send anything else out for the rest of the year.

Whether it’s $200 or $2,000, choose your number wisely and commit to it.

Creating Your List(s)

This step, just like every other one in the direct mail process, deserves time and research. I would never recommend choosing a zip code and sending out a piece to every address in that area.

Would this be a super fast way of doing direct mail?

Yes.

But would it lead to property deals?

Unless you get randomly lucky, probably not.

Instead, you need to narrow down your recipient list to include only the people who have a possibility of being interested in your services.

So, as you get started, ask yourself these questions:

Now, depending on who you’re targeting, you may be able to pull a lot of info from your county clerk of court website (where you can browse public records). Some lists, however, will require more work on your part. But overall, you will probably want to target one (or several) of these l, depending on your main goal:

You’ll probably have ideas of other lists you want to pursue, depending on the buyers or sellers that you’re targeting.

And, even with these lists in hand – it’s best to narrow down your recipient selection even more. Make sure the properties you’re targeting are located in the areas you’d actually be interested in buying or selling a property in.

Now, this might sound like a lot of work, and – let’s face it – it is. But, keep in mind that the more time-consuming a mailing list is to put together, the better your response ratio will be.

Think of it as studying for an exam. If you put 20 minutes into studying, you’re probably not going to do so well. But if you spend 2-3 hours studying, you’ll reap the benefits.

Time is money, my friends. Put enough time into crafting a specialized mailing list, and you will likely score more property deals in the long run.

Creating the Message

Now, if writing isn’t exactly your forte, you might feel a little uncomfortable with the idea of creating a message for your direct mail pieces. But, really, you don’t need to be a Shakespeare or a Stephen King.

You just need to think carefully about what you want to say on your postcard or letter.

Remember, your message needs to capture the reader’s attention within 1-2 seconds; otherwise, the recipient will immediately throw it away. So, your message needs to be impactful and to the point.

The “to the point” part is extremely important… no one’s going to waste time reading a novel. In as few words as possible, explain who you are, what you do and how your services can benefit them.

A couple of additional tips:

Remember, keep it short, and make sure your contact info is prominently displayed. If you have a website, include it as well.

Making it Pretty

Now, this part is a little easier…

You don’t need to be a graphic designer; you just need to make sure your piece stands out. So, whether it’s adding color, having a handwritten message on the envelope or on the letter or postcard itself, using an oddly shaped postcard, or adding ANYTHING to make it seem more like a letter from a friend (rather than an advertisement) will work.

Whether you print the piece on your own, or order it from a print shop (probably a better option), just make sure the quality is high.

Determining Your Mailing Strategy

Even when you have a masterfully written, eye-catching, amazing piece of direct mail – and you have an awesome mailing list full of leads – you still shouldn’t send them out randomly.

To get the best results, make sure you have a mailing strategy. In this case, timing is everything. You want to make sure you stay top of mind with your leads, but you also don’t want to inundate them with constant mailings that drive them nuts.

Once you’ve determined a specific mailing list (say, probate, for example), mail to that group first. Then, follow up with them by sending another (different) piece 3 months later. All in all, you should send them a letter or postcard about 3-4 times per year.

So, an example schedule might look like this:

Don’t send out a direct mail piece without having a long-term plan. Sending one random piece, and then dropping off the face of the earth, will not make a good impression on the leads you’re targeting.

No matter what type of schedule you decide on, stick with it!

One other important note to keep in mind: Depending on which area of the country you live in, you may want to take a break from mailings during the winter months. People tend to buy and sell houses much more frequently in March through October, and a message sent to them in the dead of winter might not make much of an impression.

On the other hand, you may want to send out seasonal pieces during those months (for instance, a “Happy Holidays” card in December). This increases your brand awareness – and your credibility – without making you seem like a “selling machine” who only cares about making money. Just something to think about.

Tracking Your Results

Now, this is one of the most important steps in the entire direct mail process. If you don’t track the results of your direct mail pieces, you will never know how effective they are – and if they are worth the money you’re spending.

So, I repeat: Always. Track. Your. Results.

The easiest way to do this is to include a unique email address or phone number on your postcard or letter. This way, when you receive a phone call to that number or an email to that email address, you will know that the person saw your direct mail piece. Make sure you track all of this info in a spreadsheet.

Or, if you want to get more sophisticated, you can have a unique URL on your postcard that brings people to a specific page on your website (a landing page with more info about you). Then, using Google Analytics, you’ll be able to easily see and track where the views of that webpage are coming from.

And, of course, when people contact you, keep track of your responses (for instance “left a voicemail on 6/21;” “sent an email on 7/15;” and so on. Follow up regularly, but don’t harass people. (Obviously, you know what to do, but I just wanted to throw that out there.)

An Underappreciated Marketing Method

With time, you will begin to see patterns of which mailing lists are working well for you and which aren’t. Depending on how many deals to get from these marketing pieces, you will also be able to determine your ROI.

Remember that knowing how to “do” direct mail well is involves a constant learning process. Something that works well this year might not be effective next year, for instance. Or a particular mailing list might bring you spectacular results one month, and no results 3 months later.

It’s all about trial and error…

As time goes on – and as you track your results – you will intuitively know the best approaches for your specific market, mailing list, and so on. And you’ll be able to apply this knowledge to create marketing campaigns that bring you the best results (aka motivated sellers and/or buyers).

Getting Started

What questions do you have about creating and sending an effective (and creative) direct mail piece?  Let me know; I’d be happy to help!

Plenty of people have strong opinions about this common question. So how do you figure out what’s best for you?

The Real Issue

It all comes down to money…

The question you need to answer is whether you can benefit your investing business financially with a real estate license.

Now, some people will tell you the real issue is that most deals investors do are illegal without a license. In fact, the Ohio Real Estate Commission said as much in one of its newsletters. But that doesn’t mean investors automatically need a license.

Usually, these kinds of comments are made by people in traditional real estate deals, including real estate agents. They find investing deals puzzling… because they’re not traditional deals. But there’s nothing wrong with getting creative to set up a deal that works for everyone.

Wholesaling, for example, is NOT illegal when done the right way.

Come to your own conclusions about your investing options. Read the laws in your state. Talk to a real estate attorney (or several of them) to get their take. And set up a business model that you’re comfortable with.

SO, back to the real issue: money. Just how can getting licensed make you money?

#1: Access to MLS

That magical land of the MLS… Of course, you might already be finding out about deals on the MLS through an agent you’re working with. But if you can access the MLS yourself, suddenly there’s no wait time…

There’s no relying on someone else to tell you about new deals. That instant access might very well bring in a deal you wouldn’t otherwise have spotted in time.

You can easily search for properties. Plus, you’ve got access to all kinds of data about a property. Suddenly, finding comps is a breeze, and you don’t have to sweat over pulling tax records and other property records.

Plus, if you’re using a fix & flip model, you can list your properties for free on the MLS. Since most property sales are done through the MLS, this is free marketing. What’s not to love, really?

#2: Networking

A real estate license gets you invites to events you might not even know about as an investor. The more people you know, the easier it will be to get your investing deals done.

Plus, these are the kinds of events with people who know real estate. Be on the lookout for like-minded people and you’ll have new opportunities to get deals done.

#3: Make Some Extra Cash

As a licensed agent, you can set up a friends and family plan. Got a brother who wants to upgrade to a house with more square footage? No problem. You can help him with that transaction… plus make a little bit of pocket money with the commission on the deal.

You won’t be pulling in as much per deal on these smaller transactions, but at least you might have some say on the location of your next family Christmas party.

Plus, commissions can bring in some extra spending money, which is never a bad thing.

You can also look at commission money as an opportunity to fund your investing deals. Got a fix-&-flip deal coming up? Save that commission money to cover part of the repairs and cut down on your loan amount.

#4: You Keep the Commission

As a licensed agent who’s also an investor, you get to keep the commission you would have otherwise paid to a different agent. How great is that?!

If you’re investing in a $100,000 property and the agent is making 3%, you just saved yourself $3,000!

Plus, a selling agent’s commissions tend to be higher (around 6%). And that’s on the property after you’ve added any wholesale fees or finished your fix & flip.

So that property you bought for $100,000 might now be $180,000 after some renovations. That’s a commission of almost $11,000 you’ll be saving! And between the two closings, your savings total $14,000. Cha-ching.

That $200 for a license is looking pretty good, am I right?!

Obviously, that does mean you’re doing more work on the deal in acting as the agent, but you can always outsource some of that work to virtual assistants.

#5: Make Money on Referrals

If you’re a licensed agent and someone refers a deal to you, you can’t pay them a referral fee…

But if you make a referral as a licensed agent, the person you referred can pay you part of the commission. Easy money.

#6: Gain Control

With your license, you enter the world of negotiations.

You will be able to write offers and work directly with listing agents to finalize a deal. You’ll also be able to work directly with lenders, appraisers, home inspectors and attorneys.

More work?

Yes.

But these are details you would be keeping track of anyway. You save the time of having to discuss an issue with your closing agent and wait for a response.

#7: Pick Up Tips

You will need to spend about 100 hours to get licensed, plus any continuing education hours (this is usually something like 12 hours a year).

Now, you might not learn practical skills on how to fix & flip a house. But there’s always plenty to learn. You might be surprised what tips you pick up and how they benefit your business.

This is especially true if you’re just starting out. You’ll learn the fundamentals of real estate through the process of getting your license.

#8: Earn Credibility

People like to see a license. Remember those complaints from agents I mentioned earlier? If you’re licensed, you’re on level playing ground with those agents and they’ve got nothing to complain about.

Plus, the other people you work with who are outside of the real estate business will see your license as a sign that you’re an investor they can trust.

#9: Become a Leasing Agent

As a licensed agent, you can also be a property manager or leasing agent for commercial and residential properties.

If that fits your business model, it’s an opportunity for an additional income stream. Another cha-ching.

But What About…

Okay, that’s a long list of benefits. But aren’t there some downsides to getting a license?

Yes, and we’ve touched on a few already. But let’s go through a few more…

More Liability

As a licensed agent, you always need to disclose that you’re licensed. Plus, you’re expected to uphold a code of ethics. That means you’re opening yourself up to potential complaints.

Is this a bad thing?

I’d say no.

You want to do all your deals with integrity, so this is just a way to be held accountable to what is probably already your standard of doing business.

It’s Not an Investing License

The licensing process will give you plenty of info on the paperwork to get a deal done. You’ll learn about the legal and financial aspects of real estate deals.

This isn’t training on how to market your business, how to talk to sellers and buyers or how to flip a house…

But, it will give you foundational information on the business.

And even going through the process of getting licensed will probably get you some new contacts… in this case, it’s not so much about what’s being covered in the study material as it is about building your knowledge foundation and bringing long-term benefit to your company.

Studying? No Thanks

If you’re thinking you’re done with school and studying and all that book business, you’ve got a problem. All investors need to be learners.

Why?

First, if you decide not to get licensed, you still need to take time to understand what that means. Read (yes, read) any legislation about real estate transactions. Make sure you’re not just talking to other people about what they think—read the rules for yourself.

And if you want your business to grow, you should value learning. That doesn’t happen only through reading, but so many exceptional investors have written down (or recorded) their thoughts, just so you can learn from them. If you’re not a reader, that’s what audiobooks, videos and webinars are for.

But seriously, don’t make this decision based on how much you hate studying.

It All Takes Time…

Yes, getting your license takes time. Filling out that extra paperwork takes time. And as an investor, you should always be trying to do what makes you money.

As I said at the beginning of this post, that’s really the heart of the issue…

Will making the investment of getting licensed make you money?

Take a look at your business model. How will getting your license increase the number of deals you can do (including new kinds of non-investment deals you might consider doing)? Does that offset the costs?

There’s no one right answer to this question.

What’s Next?

If you’re still not sure whether you want to get your license, look up the licensing process or talk to a licensed agent-investor in your area.

How much time is involved? What’s the cost?

Remember, this is going to vary from state to state.

Your Take

Are you licensed? What helped you make that decision? Tell me about it below.

With some thought, you might wonder if developing a website for your REI business is even worth the time and money.

The answer, in 99.9% of cases, is a resounding… YES.

If your goal is to grow your business and maintain a profitable venture, a website is one branding/marketing technique that cannot be compromised.

So, does your website need to look like it was designed by a top-notch developer and written by an expert marketing professional?

No. (Although, those are huge bonuses.)

The main goal of having a website is simply that… to have a web presence.

By having another platform where interested buyers or sellers can learn more about you, you’ll be marketing yourself to people that you would have never reached otherwise.

When it comes to building your web presence, you don’t need to spend a ton of time or invest a ton of financial resources. But, you can if you want to. That’s the great thing about creating a website – it can be as simple or complex – or as cheap or expensive – as you want it to be.

So, I want to cover the various aspects of building your web presence – as well as the different ways you may go about doing this. Let’s get started!

From Square One

Really, when it comes to building a website, you can make this as simple or as complex as you want…

If you have a small budget and just want something that serves a very basic yet functional purpose, you can do that. If you want something that’s very impressive and will take some time and money to develop, you can do that. If you want anything in between – guess what? – you can do that.

It’s important to consider:

1. Your overall business goals

2.  Your budget

3. How much time you want to spend on the development of your website

4. The main purpose of your website/what you hope to gain from it

5. Your long-term plan for maintaining and updating your website

Take some time to think through each of these items and write down your plans. Once you have a clear picture of what you’re hoping to achieve, you’ll be ready to select a domain name.

Choosing Your Domain Name

This initial step is one that you should take some serious time to think about. Choosing your domain name (such as www.JPMoses.com) is a huge decision. Here are a few things to keep in mind:

Some examples of awesome domain names are:

Putting Everything into Action

Now comes the fun part… creating the website and getting it up and running.

There are so many different ways you can go about this. (And I could probably write an entire book about all the options.) But, for today, I want to present 3 routes you could choose to create your website.

Let’s take a look at each one…

Option #1: Using a Template

If you’re operating with a shoestring budget, and you’re hoping to complete your website as quickly as possible, you might want to consider purchasing a website template. In a nutshell, this is when you purchase the basic layout/design of a website, and then you can make minor adjustments or customizations.

Sites like WordPress, Wix and Squarespace are just a few options of good places to start. Of course, you’re going to want to research your options thoroughly. Just type “real estate investor website templates” into your internet search engine to get started.

Option #2: Using a REI website with lead generation services

Using a lead generation website/service that is created specifically for real estate investors is another great option for building your web presence.

These services – such as OnCarrot or LeadPropeller – have predesigned website templates (similar to Option #1), but they also offer the added services of built-in Search Engine Optimization (SEO), lead generation services and tracking, information security and much more. Many of these systems offer different levels of services, depending on how much you’re willing to pay.

Option #3: Using a Professional Developer to Create a Custom Site

You’re going to need to get your wallet out for this one…

Professionally designed websites will cost you a pretty penny. But, as the saying goes… you get what you pay for. This option will give you complete control over the look and functionality of your website. Plus, your website will look entirely unique… which is a great way to attract attention.

Creating Impactful Content

Regardless of which option you choose, every REI website has a similar goal: to tell people about your business, and to spark their interest in working with you (whether it’s buying your property, selling you a property, doing wholesale deals, etc.).

Make sure your website isn’t cluttered with outdated content or bogged down by long paragraphs of text that no one wants to read.

The main goal of your website is to get people to contact you. So, make sure you have:

Building a Social Media Presence

While creating an effective and eye-catching website is important, you also need to make sure you’re active on social media – this will really bring your whole web presence together.

At minimum, you should have a Facebook profile and a YouTube account. Just a quick word about both:

Create a goal for yourself (such as posting on Facebook 3 times per week or uploading a video to YouTube twice per month) and stick with it. The exposure you’ll gain from your social media accounts will probably surprise you… and it should lead to some awesome property deals.

The Moral of the Story

Just like any marketing technique, the development of your web presence can be done 100 different ways – in terms of how much you want to spend, what you’re trying to accomplish and how much time you want to invest.

I hope this post has given you a good starting point for developing your own web presence. It really doesn’t have to be an intimidating prospect, and it’s an extremely valuable way to build your brand, establish credibility in your market, and – ultimately – support a successful investing business.

Now, It’s Your Turn

Have you looked into options for starting your own website? What challenges are you facing so far? Found any secret tips you can share?

“The only strategy that is guaranteed to fail is not taking risks.”

~Mark Zuckerberg

It’s important to remember that every property is unique. There’s no way to say for sure if an REO will be a good deal or a bad deal; it’s all about the amount of effort you put into familiarizing yourself with the property and the process of purchasing it from the bank.

Just like any property type, REOs certainly have their pros and cons. It’s up to you to distinguish the good deals from the duds. And, if you don’t feel prepared to do so, I hope I can shed some light on the topic today to help you make smart, informed decisions.

First, let’s take a quick look at how REOs work…

REOs are properties that the bank (or lien holder) obtains through a foreclosure sale (or, in some cases, through the deed in lieu foreclosure process). If the bank obtains the property through a foreclosure sale, this typically means that there weren’t enough bids at the foreclosure auction or the bids were not high enough for the bank.

In general, banks prefer to sell their properties to owner-occupants, if possible. Most will also prefer cash offers, and will require a higher down payment amount from investors. (Seems unfair, right?)

It’s also important to keep in mind that the bank is not trying to be your friend; they are trying to make the biggest profit possible. And even if you make a decent offer, banks are notorious for stalling—in an effort to elicit an even better offer from another interested buyer.

So, if I’ve officially scared you away from REOs, don’t stop reading here! There’s a lot more to be said about this property type. If you want to get a good idea of whether these houses are the right fit for your investing business, you need to see the whole picture.

The Good Stuff

There are some definite perks that you can benefit from when investing in REOs, such as:

The Bad Stuff

Every investing strategy has its ugly side. Here’s what to watch out for, if you choose to invest in REOs:

Next Step: Finding REOs

If you want to explore the idea of investing in REOs even more, you might want to start searching for deals in your market.

Check out these strategies for finding REOs:

Additional Strategies: When to Go the REO Route

When it comes down to it, assessing potential REO deals is like assessing any other property deal… you need to do your due diligence to determine if the payoff is worth any potential risk. Some REOs will be amazing deals and others will be the “avoid at all costs” types.

There are a few factors that—in general—may indicate a good REO deal. (Now, of course, these won’t apply to every single case; but they are good initial indicators to look into the property in more detail.)

First, if you find an REO that has been sitting on the MLS for a long time (30+ days), this could be a potentially awesome deal, because the bank is probably highly motivated to get rid of it. If you’re able to make a decent offer, you should have a shot at scoring the property.

Also, you might have good luck making offers on REOs that are located in markets or towns where there is a lot of real estate activity. Most traditional buyers won’t be interested in REOs if housing inventory is high in a specific area, which gives you the chance to be one of only a few interested parties (if not the only interested party).

Another thing to keep in mind: less experienced investors will probably be unlikely to put in offers on REOs (especially those that are priced high), because the amount of money required upfront is probably not do-able for them…

So, if you have adequate cash and some experience with REOs, you will usually have less competition when bidding on a higher-priced REO.

Rock ‘n’ REO’ll

If you’re ready to start pursuing REO deals, make sure you take ALL of these factors into consideration.

You can gain some very impressive assets, if you handle these transactions wisely.

Just be prepared:

Getting Started

If you’ve purchased an REO, what has been your experience? If you’re still on the fence, what questions or concerns are holding you back?

So, as a real estate investor, have you thought about investing in markets outside of your state or region?

Some investors think remote investing sounds like a truly horrifying prospect. Between the perceived risk, expense and fear of the unknown, it’s true that this type of investing isn’t for everyone.

But, for many of us, this can be a lucrative, game-changing opportunity to grow our businesses. And the success of your remote investing business all comes down to 1 single factor…

There’s nothing mind-blowing about this, but it’s so crucial that I want to talk more in-depth about it.

And here it is…the not-so-secret secret to building a profitable remote investing business is:

Having a reliable team on the ground.

Let me repeat: You NEED a reliable team on the ground.

If you rush through the step of building a team of trustworthy and experienced professionals (real estate agent, property manager, inspector, general contractor, etc.), you WILL set yourself up for failure.

In the end, remote investing really isn’t a high-risk venture—if you do your research and build a successful team in your chosen market.

So, let’s take a look at the prep work you’ll need to tackle if you’re serious about making this a profitable aspect of your REI biz…

Hit the Books

Your first step in this process (even before building your dream team) is to research, research and research some more. And then, after that, you need to research again.

Am I coming through clearly?

You can never be too informed when it comes to learning about markets that are out of your immediate area or state.

In fact, this is important even when you invest in your own area. Just because you are physically in a city, county or state, doesn’t mean your financial risk is less when you take on an investment property. Your knowledge, skills and team members are the factors that determine whether or not you’ll succeed.

And the good news is: We live in the wonderful age of the internet, folks!

You can find out a ton about a specific city, town, community or neighborhood with a few in-depth internet searches. Gather information about the obvious factors for the area:

Regardless of whether you’re buying a property in your own town or across the country, you’ll probably find the most valuable information online—which is awesome news if you’re interested in investing remotely.

Check out online resources such as:

You’ll need to be as thorough as possible with your research. Find out the particular neighborhood’s crime stats and rental rates (if you plan to rent the property) and the property’s tax info.

Another beneficial site to check out is Rentometer, which will give you rent estimates on nearby properties, so you can get a better idea of the monthly income you can expect if you decide to rent it.

Keep detailed notes of all your research; even if you don’t make an offer on the property (or make one but it’s turned down), the information could be valuable when looking at other properties in that area.

No matter where you’re investing—your backyard or 1,000 miles away—if you are informed, you can move forward feeling confident.

Another crucial factor for feeling confident?

That on-site team I mentioned before. Let’s take a look at a few of the key players…

Proficient Property Manager

If you plan on taking in rental income, you cannot invest remotely without a highly reliable property manager who is physically located in your remote market of choice.

An awesome property manager (or property management company) will be your eyes and ears at your property. They will help keep the tenants happy and your investment property in good shape.

This is one person on your team who you probably want to meet in person. Make a trip to your remote market of choice and interview several property managers until you find the right one. You’ll know the good ones by how nicely kept their managed properties look, their client retention and how well they vet their subcontractors.

In the end, you need someone you can trust wholeheartedly. It’s nice to be able to look that person in the eyes, at least once.

Now, you may be thinking, “I don’t know, is it really worth the money to hire a property manager? Isn’t that going to cut into my profit a ton?”

To that I say: Most property managers will charge you 6%-12% of your monthly rental income. But, my friends, your time is extremely valuable—and this service, if you can afford it, will save you so much time.

You can say goodbye to:

Save your time for more important, impactful tasks like finding new properties and sealing new deals. Leave the property management to the professionals.

In fact, you might even save money—in the long run—if your property manager is able to avoid any of the legal fees, property vacancies and property damage that you might have experienced handling everything solo.

Reliable Real Estate Agent

If you’re not going to form a strong, solid working relationship with an agent in your targeted remote market, you may as well scrap this idea right now. Truth.

An experienced and capable agent who you can rely on is an essential member of your team.

An agent will not only help you find properties of interest, but they can also physically walk those properties for you.

So, how do you find an exceptional agent?

Well, if you have a property manager nailed down already, ask them for their recommendations of the best agents in their area. They’re probably going to have several they work with regularly and will know which ones to recommend.

Once you have a couple of options, make sure you interview those agents carefully (over the phone). Take super-super-thorough notes about their experience, the types of properties they typically buy/sell and the neighborhoods they are most active in.

Remember: The agent you choose will be your representative in any purchase transaction. Make sure you choose someone who aligns well with your goals and understands your preferences!

If you choose an agent before settling on a property manager, you can also ask your agent for property management recommendations in their area. Chances are they’ve worked with one (or several) before.

Champion Contractor

This one is pretty straightforward, so I won’t spend too much time on it: If you’ve selected a property management company, they typically will have contractors and subcontractors of choice. So, really, the work is done for you.

If you prefer to find your own general contractor, obviously you want to interview your candidates before making a final decision…

It’s always helpful to browse their reviews online, too. Make sure you choose someone who will do high-quality work for reasonable prices. Sometimes, it’s worth a little extra money to pay someone who you know will do the job right the first time.

Now, aside from a GC, you’ll also need some skilled specialists—located in your remote market—who you can rely on (plumbers, electricians, HVAC professionals, roofers, foundation repair experts, etc.). So take some time to research these as well.

Again, your property manager will probably have each of these professionals on speed dial, so they can make excellent recommendations.

Ready to Rock

Have you invested remotely? Let me know your experience in the comments section below. If you haven’t ventured into this opportunity yet, what else would you like to learn about successful remote investing?

Ingenious Inspector

Another person you need to be able to trust completely is your inspector. After all, they are the best source of firsthand information regarding your property. You can’t be there to inspect everything; but they can.

If you’re buying older homes, especially (but really, this can apply to any property), make sure you understand zoning codes in your remote market, and figure out which of the home’s past repairs/upgrades were permitted. Know which aspects of the property will need to be brought up to code.

Choose an inspector who will take their time and do an awesome job. If they are in and out of the house in 30 minutes, that’s not a good sign. Find someone who is willing to explore every single nook and cranny. You want the guy or gal who crawls into every crawlspace, ventures into the attic in 100+ degree temps, tests the outlets and lights, and examines each door and window.

In the end, you need an inspector who can give you a crystal-clear depiction of the property—someone who is very familiar with how investors like to flip homes is also a bonus.

Other Dream Team Pros

As your remote business grows, you’ll probably be adding paid team members, such as:

The Bright Side

When you think about it, remote investing really isn’t any more risky than investing in properties in your own area. In either case, if you do your research and have an amazing team in place, you’ll mitigate most of your risk.

One benefit of remote investing is that it helps you diversify your portfolio…

If you have properties in 3 different areas of the nation, for instance, you’ll be less likely to suffer financially if one of those markets starts to decline—because you have the other 2 to fall back on.

Even if the real estate market where you live is a thriving one, the opportunities you find there might not align exactly with your long-term goals. By selecting a remote market, you can choose an area that fits perfectly with your timeline, budget, property preferences and needs.

So, when considering joining a local REI club, you might be wondering, “Is it worth my time?”

The answer, in most cases, is a resounding YES!

Today, I’m going to tell you all the reasons why…

But the overall gist is this: Local REI clubs will present you with resources and opportunities that you’re not going to find anywhere else.

Let’s dive right in…

What Qualifies as a REI Club?

So, first off, let’s put a definition on this.

According to Wikipedia (I know, legit resource, right?), REI clubs are:

Clubs formed by individuals who want to invest specifically in real estate.

Mind blowing, right?

Okay, so while that definition is pretty obvious… all you need to know is that some REI clubs are non-profit and others are for-profit groups.

Some may be fairly informal, while others (such as Real Estate Investing Association “REIA” clubs) are more structured groups, as they usually have membership guidelines, rules, etc. A group could be an extension of a national organization, or it could be entirely unique to your location.

But every REI club has something in common or, if it’s a good club, it should have this quality: They have a value that you cannot put a price on.

So, let’s take a look at the specific benefits you can expect when you join a REI club.

Education

“An investment in knowledge pays the best interest.”
~Benjamin Franklin

People in many professions have opportunities for ongoing or continued education. These may be in the form of conferences, seminars, courses or more. Why should you, as an entrepreneur, be any different?

Even those who excel in their businesses will always benefit from continuing education in their field. Those people who seem to “have it all together” (you know who I’m talking about) can learn a great deal from a good REI club.

On a casual level, an excellent REI club will have local speakers (such as other investors or experts in relevant industries). This will give you the opportunity to hear success stories (and hopefully some disaster stories too) from people who started out just like you.

On a bigger scale, your REI club should also bring in some more prominent speakers, on occasion. These may be investors who have built highly successful businesses, started their own coaching or mentoring programs, etc.

In all cases, the presentations or seminars offered through your REI club will give you valuable, first-hand exposure to experts who you may not have met otherwise. And, since these groups often allow time for informal conversations/networking before or after the speaker’s presentation, you should have a good chunk of time to ask the speaker your burning questions.

These one-of-a-kind learning experiences can’t compare to REI books, online courses, etc. (although those things do have their own value). The information that you’ll glean from personal interactions with these local and national experts will be immensely beneficial for your own business.

Networking

“If you want to go fast, go alone. If you want to go far, go with others.”
~African proverb

The educational component of REI clubs ties in closely with the next advantage of these groups: The awesome networking opportunities.

I think the word “networking” gets a bad rap sometimes…

When most of us hear the word, we imagine a conference or career fair of some sort, with nervous people walking around in business suits, making small talk and wishing for dear life they could be at home on their couch watching Netflix instead.

You won’t experience this negative stereotype at most REI clubs. In fact, many of them are casual environments. You should feel comfortable and welcomed – and there shouldn’t be any pressure to be stuffy or formal.

By attending REI club meetings, you’ll meet a variety of investors. This will give you multiple opportunities to schmooze with:

I should also note that finding partners for joint ventures is a great way to diversify your portfolio and to pursue deals that you wouldn’t be able to handle – financially and/or in terms of management, rehabbing, etc. – on your own.

Support & Motivation

“We rise by lifting others.”
~Robert G. Ingersoll, 19th-century U.S. lawyer

I think one challenging aspect of being an investor – especially when you’re first starting out – is that it can sometimes feel isolating.

You may have friends and family who are heading to their “regular” office jobs every day, working 9-5 and enjoying their work-free weekends. A lot of times, it can be difficult for an investor – whose “typical” day is all over the place – to relate to these individuals. (Not that you can’t have friends with traditional jobs – I sure do!)

But my point is: It can be refreshing to meet with like-minded people at your REI club, who are facing career challenges and victories that are similar to your own.

Plus, it can be highly motivating to cheer each other on and to encourage one another through the failures and mess-ups (we all have them).

You may even find a mentor at your REI club, who you can rely on for wisdom and advice. And, as you become more experienced, you can return the favor by mentoring a newbie investor. The great thing is – regardless of whether you’re the mentor or the mentee – there’s a lot to be gained from the relationship.

Local Knowledge

“There are two kinds of knowledge: local and universal.”
~Ursula K. Le Guin, novelist

The knowledge that you gain from REI groups about your local market is something that you’re probably not going to find online (at least, you might never come across it online).

When local laws/policies that affect real estate investors are changed or created, you’ll most likely hear about these first at your local REI group. It can save you a lot of headaches if you know the information right away, as opposed to finding out about it halfway through a rehab, for instance.

Other examples of info you might hear at REI clubs are:

• The houses on Chestnut Street are having issues with leaking basements.
• Contractor Joe Schmoe is known for doing cheap, faulty work.
• A new Walmart and Home Depot are going up on the east side of town.
• The Taylor Park neighborhood is starting to go downhill; two people were arrested there last week.

…you get the point. Hearing this type of information can be incredibly beneficial as you look for property deals in your local neighborhoods.

The Downside?

Every good thing has a downside (doesn’t it?)

In the case of REI clubs, really the only downside is that you may need to pay membership fees (depending on how the club is structured).

Now, as with anything in life, you get what you pay for. Expect clubs that have higher membership fees to be bringing in top-notch experts and speakers. If you find that this isn’t the case, move on to another group.

Most groups will charge between $50-$200 per year, which – in the grand scheme of things – is nothing. Considering that you’ll likely find several property deals through connections at your club, the membership dues will more than pay for themselves.

Watch out for groups that are charging an arm and a leg. This is usually a bad sign. REI clubs are designed to be informational and educational in nature. Anything that has an extravagant price tag is probably not in your best interests.

Also, make sure it’s not a “club” that promotes the leader’s specific program, books, software, etc. that they just want to sell you. Those types of events might be helpful, on rare occasions, but they don’t offer the benefits that you’re looking to get out of a genuine REI club.

Sign Me Up!

That’s really all there is to it. This topic certainly isn’t rocket science. If you’re able to put some time – and maybe a little bit of money – into joining and attending a REI club, you’ll most likely gain knowledge, emotional support, motivation, resources, connections, and much, much more.

What has been your experience with REI clubs?

Let me know (the good and the bad!) below.

In reality, property scouts (that term just sounds so much cooler than “bird dogs,” in my opinion), can add a TON of value to your team – and ultimately to your business.

By doing the preliminary work of finding properties and motivated sellers, property scouts can save you a lot of valuable time, and bring in deals that really increase your profits.

So, when it comes to recruiting and training property scouts, I think it’s really important to take the process seriously. The more effort you put into finding and teaching these individuals, the more benefits you’ll ultimately reap.

Today, let’s take a look at what you’ll need to find, train, and retain the best of the best.

Who to Look For

When it comes to finding property scouts, there are two camps of thought…

1) It’s better to hire people who have real estate experience (agents, mortgage professionals, etc.) OR

2) It’s more strategic to hire people with very little real estate experience and who are ready and willing to learn.

This is totally up to you. Sometimes, people with real estate experience will dive right in and have the expertise you’re looking for; other times, it can backfire, because they already have their own preconceived notions about the market and it may take some time for them to understand how to do things “your way.”

If you choose to go the non-real estate expert route, you may decide to hire college students, stay-at-home parents, or other individuals who are looking to make some money on the side.

Either way, make sure the property scouts you choose are HIGHLY motivated individuals who are excited to start their work. Expertise isn’t necessarily a requirement for this job, but enthusiasm is.

They should also be receptive to constructive criticism, and willing to learn how they can improve over time. It’s a huge bonus if they have a genuine interest in real estate, and are hoping to venture into a similar career in their future.

How to Recruit

When you’re ready to hire a property scout, it’s time to place some good-old-fashioned ads. (Except, maybe nix the “old-fashioned” part – it’s time for something more modern.)

You might want to put out some info on Facebook, LinkedIn, or even at your local REIA groups, explaining that you’re hiring. If you have some popular newspapers in your community, this could be another route.

But my mostly highly recommended method would be to place an ad on Craigslist. These are my favorite categories:

Make your ad exciting, down-to-earth, and enticing. It’s also important not to give away all of the information about yourself and the gig. Create something that will make readers curious enough to visit your website and read more.

Here’s a good example:

Earn $2,000+ a Month Finding Houses in Your Neighborhood!

I’m a local real estate investor who is looking to hire someone (to start immediately) who can scout properties for me in the Atlanta area. No real estate experience is necessary, and I will provide all the training you need. You must be local, but there’s no need to come into an office – work remotely! This is a great way to earn extra cash and learn about real estate in the process! Visit my website to learn more. www.JoeSmithInvesting.com

Make sure your ad is a reflection of YOU, and keep it simple. And now, you’re ready to rock and roll!

If you end up needing to post your ad multiple times (in order to find the right person), just remember to keep your content unique. Craiglist’s filters will ghost your ad (translation: remove it) if you post the same exact thing too many times… especially if you’re posting from the same computer and/or same email address. So, each time you post, you want to change up your text a little bit – and maybe even use multiple email addresses or computers just in case.

How to Win Them Over

Now, there are SO many components to an investor’s website (it would take me a long time to cover them all). So, today, I want to focus specifically on your website’s landing page and registration page – which are the two most important pages for recruiting property scouts.

Once an interested person clicks on the website link in your Craigslist ad (or Facebook, etc.), they should be directed to your landing page. The landing page should offer more information than your ad, but still shouldn’t give away every single detail. When creating this page on your website, keep these pointers in mind:

On the registration page, provide information along these lines:

You get the idea.

Someone who goes far enough to submit their contact information is probably fairly serious about becoming a property scout. Remember, they were “funneled” through your ad, then your landing page, then your registration page, and still decided to submit their information.

From here, you’ll want to select a few of the most promising candidates, go through some brief interviews, and then make your final selection(s).

How to Train

You’re on to the next step – congratulations! It’s time to train your new property scouts.

Now, training might sound like a time-sucking, annoying prospect. BUT – if you have prepared thorough training materials in advance, you will actually need to spend very little time – if any – actually training your new property scout.

So, how do you do it? Let me explain…

Now, you’ll want to customize this to your own preferences and business model, but – in general – here are the 3 components of a good training program:

The key to successful emails is to break down topics into small, easily-understood segments. Remember, this person may have ZERO real estate knowledge. Start with the absolute basics and work your way up to more complex topics later in your email sequence.

Your emails should be specific but pretty brief. Don’t write a novel – because it could become overwhelming for the property scout. Instead, include hard-hitting, helpful, and concise info, and then include a link to the “members only,” password-protected section of your website, where the property scout can access your training manual and multimedia materials.

While your training emails should be brief, your training manual should be very detailed. This is where your property scouts can find more information on the topics they would like to learn more about. Divide your training manual into clearly defined sections, so it’s easy for your property scouts to find what they’re looking for.

A few sections to include in your training manual might be:

The multimedia training materials are awesome for two main reasons:

Full Speed Ahead

And there you have it… you’ve now successfully hired and trained a new property scout. As you can tell, this process really requires a lot of upfront effort on your part. You need to take the recruiting process and the development of your training materials very seriously – and devote the necessary time to each.

Once you have a solid recruiting process and informative, engaging training materials in place, the rest will be easy-breezy. You’ll soon be reaping the benefits of having a well-trained, motivated property scout on your team.

While that was a lot of information to chew on, I’m sure there are a million other ideas out there. What are your tried-and-true tactics for finding and training property scouts?

Good news—you can. But is multifamily investing really every real estate investor’s dream? And how do you find the multifamily property that’s sure to be a win for you and your private money lenders?

Before we dive into the steps to apartment investing success, we need to start with the pros of investing in multifamily properties.

First, The Money

Of course, the most obvious (and attractive) pro is the money. If you’re collecting rent from ten families or 50 families or 100 families, you’re going to make more money than if you’re collecting rent from one family in a single-family home.

But it’s not just about the number of rent collections. There’s the multiplication factor. If you’ve got one tenant and you raise the rent 3%, that doesn’t add up to much for you. But if you have 10 tenants and you raise all of their rent rates 3%, your cash flow is going up by hundreds instead of tens. And consider what happens when you have 100 tenants and you raise the rates even 1%.

Your tax benefits also multiply. You can apply depreciation, including the depreciation of each set of appliances in each rental unit, to your cash-on-cash return (they sure don’t last forever). All of that adds up to a huge tax benefit.

Your maintenance and repair bill goes up with a multifamily property. But you’re also only maintaining one roof, one boiler system, and so on. And the cost of one roof split between 10 rental units is no big deal compared to one roof and one rent check.

Easy Peasy

Multifamily properties can be passive income generators (even more so than a single-family property). Why? Hire a property manager to take care of your property for you and suddenly your multi-million-dollar investment is generating income every month and you’re totally hands off.

Multifamily properties also tend to be less market dependent, so your investment is likely to continue generating the return you’ve been looking for without much variation (and more than likely an increase in value that will generate even more of a return).

Okay, all those benefits sound great, but how does this work practically? It’s time for the Steps to Multifamily Success.

1. Talk the Talk

When you jump into the multifamily investing business, you need to know what you’re doing….or at least sound like you do.

Spend time talking with other investors. Read as much as you can. Learn the terminology for multifamily investing so you can impress a broker and navigate multifamily investment conversations confidently.

And if you are new to multifamily investing, make sure you’re not going it alone. You should have people around you to ask questions and learn from, whether they’re other investors or mentors.

2. Learn How to Comp It

What makes a good multifamily property investment? One right answer is always location. Plus, a property needs to make sense compared to the comps.

Calculate the value of the property accurately. For smaller multifamily properties (such as duplexes) figure out the loan-to-value ratio. For larger properties, figure out the capitalization (cap) rate. The cap rate is the net operating income divided by the cost of the property.

Find a few similar multifamily properties near the property you’re considering and call the property manager to ask a few questions. Ask about the rent prices, vacancy rate, and any recent improvements. This will give you a few different insights. First, you’ll get an idea of how much you can probably charge; is that going to bring in enough of a profit?

Second, if the vacancy rate at the comp properties is high, you might need to rethink your investment. Maybe the location isn’t what you thought.

Third, recent improvements will give you an idea on what kinds of features renters are looking for. This is particularly important because the best kind of multifamily property to buy is an underperforming property.

If you can find a property that’s got plenty of potential but is being sold at a discount, you’ve got an opportunity to add value quickly. Maybe the long-term property owner hasn’t made any improvements in years and the vacancy rate is high. You can bring that down with some updates, especially if you know what’s attracted other local renters.

3. Where’s the Money?

As with all deals, you need to determine how you’re going to pay for your investment. There’s bank funding, and then there’s private money.

Keep it professional, in both funding situations. If you’re making a pitch, know your market research, know the property, and be ready with information from any property inspections. You want to be an expert, even on your first deal, as much as possible.

And as with all private money deals, networking is key. If you’re going the private money route, set up those relationships before you’ve got your first deal in play so that you’ve got people to call as soon as you’ve found a property. And get a system in place early to keep track of those relationships. Keep calling and checking in on investors.

At the multifamily property level, deals will run into the millions. This opens up a new opportunity for your private investors. You might find some investors at this level (investing half a million or a million) who want to be more involved. These could be retired or semiretired professionals who’ve always been interested in real estate but haven’t had the time.

With this group, consider setting up a more hands-on approach. Act as a coach to provide training on multifamily investing, offer guidance on setting goals for wealth generation, host private events such as guided tours of multifamily properties with explanations of the features you look for in a multifamily deal, and offer exclusive access to any new deals that come your way.

4. Persist…But Don’t Perspire

It’s normal to spend more time hunting for multifamily deals than for single-family properties. There aren’t as many out there, so it’s going to take more patience to find the right deal. Don’t sweat it if you’re not finding as many multifamily properties. Keep networking (look for relationships that might get you inside info on multifamily properties about to hit the market too) and hold out for the right deal.

5. Hire Talent

Once you’ve found that multifamily property and closed on it, turn the operation over to your property manager. This really should be a passive income generator, so take the time to hire someone you trust to run this property for you. Don’t try to do it all yourself or you won’t be able to continue to scale your operation. Remember how much time it takes to find a multifamily property and get started looking for your next investment.

But do stay in touch with your property manager. Keep them accountable and check in regularly to make sure your priorities are their priorities.

6. Pocket Some Pennies

Every property is going to break from time to time, so make sure you set aside some funds for unexpected repairs. Plus, plan for updates you know need to happen, like a new roof, plumbing work, or new windows.

Build some cushion into your initial funding; make sure you’ve got any early repairs and maintenance covered. Then, when you start collecting rent, set aside some of that (a good rule of thumb is 10% of what you expect to collect) to cover improvements.

Time to Hear from You

Do you have any multifamily properties in your portfolio? What’s been the secret to your multifamily investing success? Let me know below.

That dreaded word… Financing.

(Wait, what did you think I was going to say?)

Financing your real estate investments is an essential part of your business. But it can be a tough and confusing process.

Especially as a new or new-ish investor, finding ways to fund your property deals can feel overwhelming. Most investors don’t start off with a huge chunk of change that can be used for an all-cash purchase. So the only other option remains… finding the financing solution that will work well for you.

When it comes down to it, you have 3 primary options:

Just like a portfolio of various property types creates a strong business, various financing options also typically foster a more profitable business.

So, let’s take a quick look at each of these 3 financing choices, so you can get the gears turning in your brain…

What’s the Big Difference? Hard Money vs. Private

You’ve probably heard the terms “hard money lender” and “private lender” used interchangeably. So let me clearly define what I’m talking about here.

A hard money lender is either a person or a company that is in the business of financing property deals (in other words, this is their primary business – to fund deals). They operate from a business standpoint, and their business can only be sustained if they continue to fund successful real estate transactions – as opposed to a private lender, who is looking for personal opportunities for financial growth.

Hard money lenders also finance deals based on the property itself. Private lenders, on the other hand, might finance a deal more so because of their relationship with you – the real estate investor (of course, that doesn’t mean they don’t consider the property too, but the relationship is usually the dominant determining factor).

Hopefully that’s clear as mud. To summarize:

Now, let’s get into more detail.

Hard Money Lenders

A few other characteristics of hard money lenders can be:

Hard money lenders, in general, will be more flexible with their lending guidelines than a traditional lender. They typically don’t use a “one-size-fits-all” underwriting system, and will evaluate deals on a case by case basis.

On this same note, they usually lend based on collateral, not based on your credit score/income/etc. So, if you don’t have a pristine credit history, this won’t matter as much to a hard money lender; they’re more concerned about the value of your collateral (the property itself).

Also, because they don’t follow a rigid underwriting process, they usually make quick decisions – meaning you aren’t waiting forever to find out if they’re interested in financing your property deal.

The disadvantage? The cost, obviously. Those super-high interest rates could become a nightmare for unprepared, inexperienced investors.

The bottom line: Hard money loans can be ideal for investors who fix and flip properties, because you’re not holding on to the property for an extended period of time. Once you increase the value of the home, you can quickly sell it and pay off your high-interest, short term loan – and have a good chunk of profit to walk away with.

Private Lenders

Anyone who you personally know who is willing to lend you money for a property would be considered a private lender. It could be your doctor, your former co-worker, a guy you bump into regularly at the gym, your son’s soccer coach, or your wealthy great aunt Bertha – you get the idea.

They might lend you money because they have past real estate experience and are interested in your work, or they simply have extra money and are ready to multiply it. In any case, they are using their own personal money.

One advantage of working with a private lender is that they’re the most likely to be lenient and flexible with you, should your timeline or circumstances change. A hard money lender or conventional lender will often drop you in a hot minute if you have any roadblock along the way, but a private lender will probably be more patient.

Another huge benefit is the expertise your private lender can share. Even if they don’t have past real estate experience, they are financially successful – and have probably held prominent roles in their companies (or even started their own business). The connections and knowledge they can provide you will be invaluable as you build your investing business.

The downside of private lender? Because they are investing their own, hard-earned money, they may expect to have a significant amount of control over the decisions concerning the property. Still – by outlining your expectations upfront, you can avoid any uncomfortable misunderstandings that might jeopardize the relationship with your private lender.

The bottom line: Private loans can be a great choice for a variety of investing situations – whether you’re looking to fix and flip, buy and hold for rental income, or a combination of the two.

Conventional Lenders

And now, at the opposite end of the spectrum, we have conventional lenders – such as banks and mortgage companies. These often get a bad rap with investors, but there are some situations where a loan from a conventional lender is a great choice.

One of the most significant advantages of working with a conventional lender is that they know the industry inside and out. They have all the connections you could possibly dream of: title companies, agents, appraisers, and more. Plus, local conventional lenders will know your market well, which means they could potentially help you steer clear of areas where investing might not be as profitable.

Plus, with a conventional lender, you’ll likely get a good interest rate (although they are higher for investors than for owner-occupants). If you plan to keep a property long-term, this means your rental income from tenants could far exceed your mortgage – maximizing your cash flow.

Now for the bad stuff… conventional lenders can be painstakingly slow when it comes to approving you for a mortgage. As an investor, it’s highly likely you don’t have time to waste – and the slower pace of a conventional lender could jeopardize your chance to score an awesome property deal.

They’re also not lenient – like, at all. If your credit score, income, etc. doesn’t fit their guidelines, you’re probably not getting a mortgage from a conventional lender. Another roadblock you might run into: many traditional lenders have a maximum # of loans that investors are allowed. If you own more than 10-ish properties (the exact number varies state to state), you’ll be hard-pressed to find a conventional lender who is willing to finance your next property.

The bottom line: Conventional loans probably won’t be your #1 source of financing, but they do have their merit. If you plan to hold onto a property for many years to come, a conventional loan with a low interest rate could be a good fit for you. As long as you can establish a positive cash flow, you’ll be easily able to pay off your loan and still make a solid profit.

Finding Your Finance Solution

In the end, your choice of a lender will depend on your business model, the property itself, and your long-term goals. As I mentioned before, many investors benefit from using a combination of private lenders, hard money lenders, and conventional lenders.

Just make sure you do your due diligence and never make a decision in a rush. It doesn’t matter if your lender is ABC Mortgage Corporation or great aunt Bertha – you should still ensure that the lender has a trustworthy reputation and a proven track record. Because, if you can’t rely on your source of funds, you can’t continue to run your business. It’s as simple as that.

How About You?

What has been your experience with private lenders, hard money lenders, and/or conventional lenders? Comment below to let me know the pros and cons I might have missed.