Teaching Investors Complete Foreclosure & Real Estate Strategies Using Judgments, Forbearances, Buying Mortgages, Subject-to and Short Sales

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1 Mike Warren s Teaching Investors Complete Foreclosure & Real Estate Strategies Using Judgments, Forbearances, Buying Mortgages, Subject-to and Short Sales Volume 7, Issue 10 October 2008 About The Author Mike Warren Mike Warren and are dedicated to providing the best educational training for real estate investors across the United States and Canada. We specialize in several areas. They are: 1. Judgments & Judgment Liens 2. Forbearance Agreements 3. Loan Modifications 4. Short Sales 5. Defaulted Mortgages We accomplish this by actively participating in the real estate community and by networking with successful investors. We constantly watch the real estate market for trends, hot spots and changes in the legal environment. Every year millions of dollars are made by people working at home using the systems I teach. Whether you are looking for a way to supplement your income using a purely part-time effort or hoping for a full time income we can get you started and help you build a business that you can run and be proud of. T H E US F I N A N C I A L M E L T D O W N If you want to be an effective real estate investor one thing you have to make sure you do on a regular basis is pay attention to what s going on in the news. You really have to be in a cave somewhere if you have no idea what is going on with the United States financial meltdown that is taking place. It all started with the subprime lending crisis that took place in August of As a result of record numbers of home loans defaulted, lending institutions that specialized in offering lending products for buyers with less than stellar credit took a financial beating. As a result, subprime lending institutions went out of business. Thousands of jobs were lost and homes that were foreclosed upon continued to pile up in excess inventory. Continued on page 3- The US Financial Meltdown I N S I D E T H I S I S S U E 1 About the Author 1 The US Financial Meltdown 2 Incorporation vs Liability Insurance 3 Why Now Is The Best Time To Get Into Note Buying 3 The US Financial Meltdown (continued) 4 The US Financial Meltdown (continued) 5 Best Time To Get Into Note Buying (continued) 6 Balancing Real Estate & Family Life I N S I D E T H I S I S S U E 8 Focus Is King In This Market 9 Focus Is King In This Market (continued) 10 How To Build Your Team 11 How To Build Your Team (continued) 12 How To Build Your Team (continued) 13 Real Estate Lessons From Monopoly 14 Real Estate Lessons From Monopoly (continued) 7 Balancing Real Estate & Family Life (continued) Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-1

2 I N C O R P O R A T I O N V S L I A B I L I T Y I N S U R A N C E Which one should you get? When getting started in real estate investing one common question asked by new investors is the difference between setting up a corporate entity to hold your properties vs. purchasing liability insurance. There are significant differences between the two. Your individual specific financial situation needs to be considered when making this decision. This is why the advice of a competent attorney and/or tax professional is extremely important when making this decision. With that said, here are some general rules of thumb that will help you when deciding the best strategy for protecting yourself and your properties. When you incorporate what you are in effect doing is creating a separate business entity from you personally. Corporations were used as early as the 1400 s and 1500 s when voyages were made from Europe to the American continents, which were known as The New World. There was a tremendous amount of risk for these voyages. Therefore the wealthy owners of the ships set up corporations. This way if a ship was lost, the losses would be restricted to the corporation and the personal assets of the owner couldn t be seized. This is exactly one of the main purposes of setting up a corporation. It is designed to protect your personal liability. Typically any challenges that occur when operating under a corporation will not affect your personal assets and vice versa. For instance, if you are sued personally and you lose the lawsuit, the winning party can come after your personal assets. However, if your property is owned by a corporation, they will not be able to take the property away from you. If someone sues your corporation and they win, they will be able to go after the corporation. However, they won t be able to go after your personal assets. The second benefit towards incorporating is the tax benefits. There are a number of tax benefits that are available to you though a corporation that are not available if you run your real estate business as a sole proprietorship with liability insurance for your property. For example, as a corporation you are able to offer fringe benefits to employees that are considered expenses to the corporation but are not considered income to the employees. You can offer to pay all health related expenses as a benefit that is not covered by insurance. You can offer to pay for all educational pursuits as long as the education benefits the company. This works well particularly if your real estate company has no employees other than family members as these benefits have to be made available to all employees. Liability insurance is just that, insurance against liability that occurs as the result of a lawsuit. Therefore if you have 3 million dollars of liability insurance and you lose a 2 million dollar lawsuit, the insurance will pay the judgment of the lawsuit for you. This way you can continue to run your business and you are not forced to shut down as a result of a lawsuit. So which one is better for you? Many investors prefer not to incorporate. The reason why is because they can acquire more attractive financing for certain types of properties operating under their own name than they could if they operated under a corporation. Therefore, they would rather operate under a sole proprietorship and purchase liability insurance for protection The problem with that is if you are sued personally and you lose, they can come after all of your properties as well because you have no protection. Also keep in mind a corporation is no guarantee that you can t be sued personally. Many attorneys will simply sue both the corporation and the owners personally and if you lose, you will still need liability insurance. Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-2

3 W H Y N O W I S T H E B EST T I M E T O G ET I N T O N O T E B U Y I N G In this current real estate market there are some strategies that are going to work extremely well. There are other strategies that will not work that well. One of the strategies that you should strongly consider implementing in today s market is buying non-performing notes. A non-performing note is typically a mortgage or other loan that the person has stop paying. In today s current market there are certainly plenty of non-performing paper to choose from. Unlike the investment derivatives that caused the downfall of many of these investment institutions, a non-performing note is actually backed by a hard asset, in this case a specific real estate property. There has never been a better time than today to get started in the purchasing of real estate notes. Banks do not want to foreclose on the house and have these properties go on their inventory. They are literally giving these properties away. By purchasing the note from the bank you can literally pick up a number of properties from the bank at a significant discount. There are two types of notes that banks are looking to part with in this market. They are subperforming notes and non-performing notes. A sub-performing note is when the borrower is current but is constantly making late payments and having trouble paying their mortgage on time. A non-performing note is when the borrower is not making payments at all and the bank is now threatening to foreclose on the property. Both of these types of notes are excellent for real estate investors because as an investor you have the flexibility of a variety of different options that you can take that are significantly profitable to you. These same options are actually costly for a bank to implement. Continued from page 1- The US Financial Meltdown What s really surprising a lot of people is that most of us, including the experts had no idea how much the subprime leading meltdown and the foreclosure crisis created an impact on so many different types of companies. There s the obvious ones like real estate brokerages, mortgage brokerages, the home builders who built all of these houses and now can t sell them and so on. However who knew that the problems in the real estate market would affect companies like Bear Sterns, Lehman Brothers and even American International Group? The AIG story is particularly shocking. That company has a ton of very profitable business units. Now many of those units will have to be sold off so they can pay back that huge government bailout they were forced to take. So why are all these companies being negatively impacted by the mortgage crisis? The reason is unknown to many of us, these companies were heavily leveraged in the mortgage market. Basically what these companies were doing was securing the debts of subprime loans. Known as structured credit derivatives, the investment banks would secure the loans being written with these derivatives. So for example, if the mortgage on the house is $100,000, the risk might be spread four ways and each sold separately. Investors thought that all of these derivatives were backed as secured loans by the property itself. They weren t. As a result, when the properties started getting foreclosed upon many of these derivatives were the equivalent of a junior lien on a home that got foreclosed upon by the primary mortgage holder. If you know anything about junior liens you know they get wiped out if the lender forecloses upon the property. Continued on page 5- Best Time to Get Into Note Buying Continued on page 4- The US Financial Meltdown Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-3

4 Continued from page 3- The US Financial Meltdown With the large number of properties going into foreclosure, these investment and insurance companies became responsible for paying off a substantial amount of these special securities. These losses were in the billions each quarter. No matter how successful your company is, there s no way you can continue to lose billions of dollars every 90 days and continue to stay in business. As a result, this caused the downfall of many of these companies. This isn t the end of the challenges by any stretch of the imagination. The real estate market isn t the only place that is overleveraged. The average family has very little savings. Previously they could rely on that Automatic Teller Machine known as refinancing to free up needed cash. However, with property values continuing to decline and lending requirements becoming more stringent, that simply isn t a possibility. The only thing keeping the United States out of a recession has been the resilience of the consumer to continue to spend. However, without the ability to tap home equity, little savings stored up and a mountain load of debt, the consumer will have no choice but to cut spending. When that occurs, it will have an effect well beyond the current financial industry. House prices will continue to plummet as with little assets stored up, decreasing property values and tougher lending requirements, consumers will be hesitant to purchase property. Decreased revenues will have an impact on a variety of different companies. Stock prices will continue to fall due to reduced corporate profits as a result of lower consumer spending. Unemployment will continue to increase and we will see the full impact this lending crisis will have on this country. However, all is not bad, especially for you as a real estate investor. During these unprecedented difficulties in the market, there is a tremendous amount of opportunity for you to capitalize on as well. As a real estate investor, the service that you offer to the overall public will become even more valuable than ever before. Where are all of these people going to live that are losing their homes? They will have no choice but to rent. If you are a landlord, they will be able to rent from you and you will be able to earn a profit. As long as you charge more for rent than you pay for mortgage and other expenses related to owning the house, it doesn t matter what happens to the real estate market. You will continue to make money. What about all of these banks looking to unload all of this excess property? As an investor you will be able to purchase properties at discounts you only dreamed about. You may have to hold on to them for several years, but when the real estate market eventually goes back up, you will be able to capitalize significantly. Remember, similar lending crisis have happened before. There was the savings and loan crisis that took place in the late 80 s. Investors that brought up properties at fire sale prices back then made an absolute fortune when the real estate market recovered. Unprecedented opportunity will be available in this market as well for those investors that are able to capitalize and take advantage of it. However, what you don t want to do is be overly aggressive in this market either. It is over aggressive investments that caused much of these challenges to begin with. Don t make the same mistakes as these financial institutions when you plot out your investment strategies. If you invest with the mindset of I make my money when I buy and not having to hold and sell to make your money, you should do well in this market. Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-4

5 Continued from page 3- Best Time to Get Into Note Buying There are several ways that you can locate notes to buy. The first way is to contact note brokers. These are people who are in the business of selling off notes for their clients. By contacting them and seeing what they have available, you can purchase the good ones from them. If you personally don t want to buy the notes yourself but you are looking to make some extra money in the process, you can find either investors looking to buy notes and find brokers looking to sell notes. By bringing the two parties together you can earn a referral fee for your services. Another common strategy for locating notes is to look at the public records for potential note holders who might be interested in selling their notes for cash. For example, in this current market, you will most certainly see a return of sellers financing. Because it s harder for buyers to qualify for loans some sellers may offer financing to the buyer so that their house will sell faster. However, many of these sellers might be interested in getting cash for their note. You can contact them, make an offer and purchase notes that way. There are some notes that are actually advertised for sale in a newspaper or on the internet. By checking these sources for notes, you can potentially find some great deals. Particularly on the internet there are a lot of so-called note holders who really are a number of people away from the actual seller. However, if you are willing to put in a little legwork, you will eventually find the right contacts of people who actually hold notes that you will be able to purchase for at a profit. Of course, there s always good old fashion advertising. By advertising that you are a note buyer looking for notes to purchase you can have note holders calling and contacting you with the notes that they wish to sell. Once you identify and create several sources for securing notes, the next step is to have the financing necessary to purchase notes. Obviously if you have your own money this is much easier. However, you don t necessarily need to have your own money in order to invest and profit from notes. There are a number of private investors who will give you their money to invest in notes in exchange for a return on investment and a cut in the profits. The key is you need to prove to them that you know what you are talking about and that you know what you are doing. The best way to do this is to do a couple of deals where you find investors looking to buy notes and refer them to brokers looking to sell notes. While you certainly won t make as much money as if you had your own financing and a money partner to work with, what you will do is build up that necessary experience so that a potential money partner will feel confident in working with you. If you are able to show examples of buyers and brokers you brought together and made deals happen, the money partner will feel more comfortable working with you and you will be able to secure financing for your note buying efforts. Now that you have money to work with, you need to know how to evaluate and determine the good notes from the bad notes. The first thing you need to know is that you always want to purchase notes that are secured by real estate. There are a number of different types of notes out there and not all of them are secured by real estate. This is important, particularly if you are buying in bulk. Some note brokers will sell you note packages where some of the paper in the package is secured by real estate and others are not (i.e. nonperforming credit card debt, etc). You obviously need to disregard those and evaluate the package strength based on the notes that are secured by real estate only. Next month, in part 2 of this article, you will learn how to evaluate a note and determine what is a good price to pay for the note. You will also learn what options you have available to you to profit from the note. Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-5

6 B A L A N C I N G R E A L E S T A T E & F A M I L Y L I F E So you ve launched your real estate career. You ve spent every available hour in the day looking for deals. You ve finally closed some deals and are in a groove. Then suddenly you come home one day and find the house empty. There is a note from your wife that says the following John, I m leaving you and I m taking the kids. I m sick and tired of playing second fiddle to your get rich quick ideas. My attorney will be contacting you to start divorce proceedings. Jane Think it can t happen to you? It certainly can if you don t learn how to balance your real estate endeavors with giving your family the time and attention they deserve. The first thing you should do when you start your real estate investing career is you should sit down with your wife and your children if they are old enough to understand. You should explain to them that you are starting your real estate investing business. You should share with them the reasons why you are doing this and you should let them know the benefits that the family will be able to enjoy if the new business is successful. You should also share with them the costs to the family if you don t act now and start this business. Many people are more motivated by a fear of loss as oppose to a sense of gain so make sure you share this in your initial conversation. Next, you want to get feedback from your family about this decision. Find out from them what some of the concerns are with your newfound business. Whenever possible work together to identify solutions and compromises to some of these concerns. By addressing these issues early in the process, you will save yourself untold frustrations and headaches in the future than if you wait until things get out of control to address these issues. Balancing your real estate investment business with family time can be extremely difficult when you re building a full time real estate investment business. It can even be more difficult if you are trying to build this business on the side while working a full time job in the process. However, it can most certainly be done. The key is to have a good system in place to make sure you get done what you need to do in your business while not abandoning your family in the process. So how do you get this done? The key is to communicate openly and honestly with your family and to make sure you treat the time you spend with them like you would treat a business appointment. Explain to your family that there may be some sacrifices that need to be made as a result of you starting this business. However, explain to them that these sacrifices will be well worth it when you have build a successful real estate investment business and you are able to provide better options for the family as a result of the newfound wealth that you have created from the business. Offer them the opportunity to help out in the business if at all possible. Many times your family will be more supportive if they are able to play a role in the process and help you build the business than they would be if you do the business on your own. They don t have to necessarily call motivated sellers and negotiate with banks to help you out. They can help you out with simple tasks like working on your mail outs, or even writing down the addresses to properties they see in the neighborhood that appear to be abandoned or are in bad shape. Continued on page 7- Balancing Real Estate & Family Life Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-6

7 Continued from page 6- Balancing Real Estate & Family Life If your spouse takes a particular interest in your real estate investment business don t exclude him or her. You never know, your spouse may turn out to be a better asset to your real estate investment business than you are and you will both be able to experience the benefits. At the same time if your spouse and/or children are not interested in real estate don t force it upon them either. Otherwise, this will create unnecessary resentment for you as well as your real estate business. One of the most important things you should do with effectively managing your real estate investment business is to not create unnecessary disruptions between your real estate investment career and the time you spend with your family. For example, if you normally pick up your child from school or the babysitter and you normally listen to a favorite CD, don t all of a sudden make your child listen to your favorite guru s real estate investing CD if there is another time you can listen to that. Your real estate investing business is already going to require that some sacrifices be made by your family. There s no reason to require them to make additional sacrifices that are unnecessary. If you are financially in the position to do so, try to turn your business trips into business trips/vacations for you and your family. For instance, if you are going to a real estate bootcamp in Orlando, Florida, try to plan your trip so that you leave a couple of days before and/or a couple of days after. This way you can take your spouse and the kids to all of the attractions prior to or after your boot-camp and they can do things on their own while you are at the boot-camp. Besides spending quality time with your family, this is an excellent way to turn your family vacations into a tax write-off! As the owner of your own real estate investing business if you don t plan and schedule time for your family, you will find that you will never have any time for your family. Any available time will get filled with business related activities. Therefore, you want to specifically plan time to spend with your family and write it down in your appointment book just as if you would write a business appointment or a doctor s appointment. Some people may see that as a bad thing. However, this is actually the biggest complement you could pay your family. The fact that you value their relationship and time with them so much that you treat it like any business appointment is a huge bonus. What is also does is lock in that time so that you will make sure your family gets the time with you that they need and deserve. Many people try to multi-task between their real estate investing business and time with their family. For example, you might play with the kids while looking up properties on the MLS. This is logical in theory because you feel that you are getting more done at the same time. However, believe it or not, you are actually WASTING time when you do this. Here s why The brain actually works best when you are focused on one task at a time. By trying to focus on multiple tasks at the same time, what you are in effect doing is diluting the power of the brain. As a result, you actually get less done than you would if you simply took the time to focus on the task at hand. Therefore when you are working, you should spend that time working and limit distractions from the family as much as possible. When you are spending time with the family, you should spend that time with the family and limit work disruptions as much as possible. By doing these things you will achieve balance and have a happy family and a prosperous real estate business as a result. Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-7

8 F O C U S I S K I N G I N T H I S M A R K E T In this unique market many investors are dropping out and giving up on their dreams through real estate. Many investors falsely believe that you cannot make money in this market. This couldn t be further than the truth! There is still money to be made in this market, as well as ANY type of market. However, what you must realize is the strategies that you have been using up until now may need to be modified. For example, previously we were in a very hot real estate market. The rate of appreciation for many properties was incredible. You could literally buy a property in some of the hotter markets, never rent it out, pay the mortgage every month with NO income coming in and still make a profit! Those days are long gone. So what s the best approach in this new market? The best approach is to get more focused. When I say focused, I m referring to the ability to specialize your real estate investment business. Even though a lot of people are dropping out the competition that remains is going to be fierce. Therefore you are going to need something that is going to give you a serious advantage over the competition. The best way to get an advantage over the competition in real estate is to become more specialized. By becoming more specialized, you will be able to spot opportunities that are available well before other investors spot those same opportunities. By the time your competition even realizes that there is an opportunity, you would have already made your money on the deal and be on your way to working on the next deal. What are some ways you can specialize your business? The first way you can specialize your business is to dominate a specific location. By picking a specific location and focusing your marketing efforts on that location, you can position yourself to pick up the lion share of deals that take place in that giving area. How does this work? Let s say you live in a neighborhood that is located in the suburbs outside a major metropolitan city. One way you can focus is to decide to focus your marketing efforts on the deals that are available in your particular neighborhood. By opting to focus specifically on a certain neighborhood, you can create a marketing message that the residence in that neighborhood will see on a repeated basis. What this does is brand your business in the mind of that neighborhood s citizens. As a result, when they find themselves in a situation where they need your services, you will be the one they contact first. So for example, if you are in the stop foreclosure business model and you are using the neighborhood focus strategy to establish a competitive advantage in the marketplace what you want to do is brand yourself through as many marketing vehicles in the neighborhood as possible. Here are some examples of how you can brand yourself in a particular neighborhood People cannot master every single market and every single strategy. That s why in this market if you want to get a huge advantage, you want to look for ways you can specialize your business so that you can dominate the sphere of influence that you choose to market your services towards. Continued on page 9- Focus Is King In This Market Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-8

9 Continued from page 8- Focus Is King In This Market 1. Advertise on signs posted in various areas throughout the neighborhood. I personally wouldn t recommend using bandit signs unless you get permission from the property owner or its legal to do so in your local neighborhood. However there may be legal places where you can purchase signs where you can advertise your business. For example, there s a realtor that advertises her short sale services on advertising signs that are placed on the public buses that serve a specific neighborhood. Therefore every time the bus goes through that neighborhood, the people in it are being branded to know that she is the short sale expert in that particular neighborhood. 2. Advertise in community newspapers that serve your neighborhood. There are a number of local newspapers that are delivered or distributed throughout the community. By advertising in these papers you will have another method to brand yourself in the particular neighborhood that you are targeting. 3. Do mail-outs or have flyers or postcards delivered door to door in a specific neighborhood. This is one way to get some of the best deals. By having mail-outs or postcards delivered to houses in the particular neighborhood that you are targeting, you can pick up a number of deals that other investors don t even know about. If someone is behind on their mortgage but they haven t entered pre-foreclosure status as of yet, there is a good chance that they will respond to one of your marketing pieces and contact you first. 4. Door knocking on targeted properties in your neighborhood. You can target properties by looking at their condition or you can do a search for properties in pre-foreclosure at the county court house and target those properties for door knocking efforts. Some people shy away from this, but by being bold and doing this, you can pick up a number of deals other investors miss out on. Another way that you can focus your marketing efforts is to target a specific type of property that you are interested in purchasing. For example, if you are a short sales specialist, one strategy that you can use is to target all properties that are in pre-foreclosure with mortgage balances that are higher than the average sales price of homes in a given area. By making your marketing more specific, this allows you to craft a marketing message that will be more powerful as a result. This is because you can craft your message to specifically attract the prospect that you are targeting. For instance, with the short sale strategy of targeting property owners in pre-foreclosure with high mortgage balances, you know right off the bat that these people are in many cases good candidates for a short sale. They may not realize that there is anything they can do when they owe more on the property than what it s worth. Therefore your marketing message can be specific towards letting these people know that they can stop foreclosure. Include such phrases as STOP FORECLOSURE!!! High mortgage balances OK! Save Your Credit & Start Over Again! When your marketing isn t as focused you cannot create marketing messages that are as powerful towards reaching a specific type of prospect. As a result, your marketing efforts will not create as big a response as they will when you get more targeted with your message. Knowing how to focus your efforts is the key to dominating in this current market environment. When you focus your marketing efforts you are able to get better results, make more money, invest less money to get deals and dominate the competition. So focus your real estate business and obliterate the competition in the process! Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-9

10 H O W T O B U I L D Y O U R T E A M They say no man is an island and this statement is never more true than it is in real estate investing. It is literally impossible to be a successful real estate investor without having a strong team in place to help you facilitate your real estate transactions. You need to have a good team to assist you from the time you start looking for deals to the time you finally sell the house and pocket the money. A team is certainly not free as the type of professionals that you will need to hire is going to charge you for the privilege. However, this should not dissuade you from building a team. Some of these professionals don t get paid until after the deal closes. Even for the ones that you need to pay up-front, it is well worth it over the long haul. Without these professionals you will either not make any money or you will literally profit hundreds, even thousands of dollars less than you would have if you had these professionals in place. That being said, it doesn t necessarily mean that you can t run your real estate business on your own. There are a number of successful real estate investors who currently run six, seven, even eight figure annual real estate businesses on their own. By that I mean they are the one that has the final say on everything. You can most certainly find a partner that can run the business with you, but just know and understand it is not required. What I am referring to when I talk about the team are the professionals that you are going to hire to help you put together your deals. So in general what should you look for in good team members? You want to find people who are experts at their particular area of specialty. However you also want to have people who understand real estate. You can have a great accountant, but if he or she doesn t understand real estate, you will be at a tremendous disadvantage. Let s take a look at some of the team members that you will need for your real estate investing team. 1. Accountant An accountant is an absolute requirement as part of your real estate team. You are going to be dealing with some very large numbers. Having a good accountant will help you sort through the numbers so that you can make sure you are making the right decisions financially. Having a good accountant is also going to save you a tremendous amount of money when it comes down to paying taxes. A good accountant will help you to be able to take advantage of all of the tax deductions that are available when you invest in real estate. Each and every one of us have different tax situations and this is where a good accountant becomes well worth the money. For instance, you might see another real estate investor operate as an LLC. Therefore you decide that you should operate as an LLC. However, what you don t recognize is that because of your tax situation you actually would be better off operating as an S corporation instead. You accountant can guide you through these situations. 2. Attorney An attorney is also a requirement in order to successfully do real estate, especially if you are doing any type of creative real estate. Finding a good attorney is going to be one of your biggest challenges to building your team. When selecting an attorney you want to find an one that is going to be a good fit for what you are trying to accomplish. You don t want an attorney that s going to tell you everything in creative real estate is illegal just because he or she is conservative. However, you also don t want an attorney that is going to do anything to make the deal work even if it is illegal or an extremely questionable transaction. You want to find an attorney that falls in the middle of that equation. Continued on page 11- How To Build Your Team Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-10

11 Continued from page 10- How To Build Your Team Your attorney or your accountant will be the ones to help you with entity selection for your business. Your attorney will also review all of those contracts you will need to sign as well as help you to prepare the paperwork that is necessary for making your transactions legal. In certain markets it is even more important that you have a good attorney that understands foreclosure law if you are using pre-foreclosures as an acquisition strategy. The reason why is because due to the high number of foreclosures many states have now passed home equity theft laws. You need to know what those laws are and make sure you have the paperwork to show that you are in compliance with those laws. The penalties are very costly if you fail to comply with these laws. In some cases you can even serve jail time! 3. Real Estate Agent A real estate agent is also an important team member. He or she can be used to help you find properties that you can purchase for your investment purposes. A real estate agent can provide you with comps so that you know the true market value for a particular location. If you are renting out a property a real estate agent can help you find tenants for your property. A real estate agent can also help you sell your property as well. 4. Mortgage Representative Unless you plan on purchasing property all cash, there is a good chance that you will need a mortgage representative on your team as well. This person will help you to acquire mortgages and financing for your properties. This person can literally make or break you on many deals, so it is important that you find someone who understands investing in properties and creative financing if that is what you are focusing on. The last thing you want is to have a mortgage representative tell you that they can do a deal only to find out a week before the property is scheduled to be sold at auction that they cannot do the deal. 5. Title Agent A good title agent is also a very valuable member of your team. This person will check every property that you are considering purchasing and make sure there are no outstanding liens. If there are, they will make you aware of those before you close on the property so that you will be able to address them. A good title agent is worth his or her weight in gold, so make sure you have a good one on your team. 6. Property Manager If you are going to be buying and holding properties, particularly if you are purchasing properties that are not within driving distance from where you live, having a good property manager is essential. Even if you are buying properties locally, you still may want to have a property manager. One of the biggest reasons why people don t want to be landlords is because they say I don t want to fix toilets. If you hire a good property manager, that will be their responsibility. A property manager manages all aspects of the property for you. They make sure the tenants pay their rent and collect it for you. They make sure the property is maintained properly, seeing that the grass is cut, snow is removed, etc. A property manager also completes all necessary repairs for the property. They typically will charge you a percentage of the overall rent collected for this service. 7. Contractor If you are going to be rehabbing properties, you must have a great contractor. A contractor will help you by inspecting all properties and letting you know what needs to be repaired. Contractors can give you the most headaches regardless of how successful you are as a real estate investor. Ask Donald Trump about contractors! However, they are absolutely vital to your real estate investing efforts. Without a good contractor, you won t be able to get the property in the condition that it needs to be in order to be able to sell it at a profit or rent it out at a profit so you want to make sure you have a good contractor as part of your overall team. Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-11

12 8. Money or Credit Partner A money partner is someone that can provide you with financing necessary to help you close deals more effectively. With many deals it will be easier to close a deal if you have access to capital. For instance, if you are able to purchase a property all cash, you can close a deal dramatically faster than if you have to secure financing to close a deal. Typically with a money partner, the partner provides the cash and you provide a return or a cut of the deal. Your money partner is usually someone who has lots of cash on hand but either doesn t know a lot about real estate or doesn t have an interest in getting involved in the details of a real estate deal. A credit partner is someone that can provide you with good credit to help you obtain favorable financing terms for your real estate deals. If you have poor credit, you must have a credit partner in order to close your deals. Even if your credit is good, it still may be beneficial to secure a credit partner for your real estate deals. A credit partner can help you secure financing at more favorable terms if they have excellent credit. A credit partner can also help you to overcome challenges with having too many properties in your name, thus limiting your ability to get more financing for your real estate deals. 9. Bird Dog or Scout The role of the bird dog or scout is to find potential deals that you can invest in. Once you have implemented your system in place to acquire deals much of the leg work doesn t have to be done by you. There are a number of different types of people that you can bring into your organization, train them and pay them a commission by helping you to find potential deals to invest in. For instance, if you attend real estate investing seminars in your area, there is a good chance that you will find new investors at those seminars. They make excellent candidates for bird dog or scouts for your business. It gives them a safe way to learn the business and you get someone who can go out and find deals for you. 10. Investors Investors are vital to your team if you are in the business of wholesaling (flipping) properties. You need to build a list of buyers for your properties and this is where other investors come into play. Investors are also important if you do very large deals that require having multiple partners to make the deal work. Not all investors are created equal. The best investors to have on your team are investors that can do all cash deals. This way when you find a deal you can close it quickly. However, that certainly doesn t mean that if an investors is financing a deal that they can t be a part of your team. As long as they have the capability to close deals in a reasonable amount of time, they can still be very beneficial team members. Having a good team in place separates the serious investors from the ones that don t accomplish much in the real estate investing industry. A good team gives you the capability to see your deals through friction. When you are getting started in your real estate investing business, it is going to take a while for you to find the right people for your team. Some team members that you initially use, you will discover that they are not the right fit for your team. However, once you get the right team members in place it will make your real estate investing efforts significantly easier to complete. Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-12

13 R E A L E S T A T E L E S S O N S F R O M M O N O P O L Y If you are looking for a safe environment to learn how to invest in real estate, one of the best ways to do this is play board games. Board games provide a safe environment for you to learn the basic concepts of getting started in real estate investing without having to risk all of your money. Many people fail to get started in real estate investing because they feel that they don t know enough. As a result, they never get started and they fail to build a successful real estate business. By playing board games that teach real estate strategies this can often serve as a confidence builder for people to give them what they need to begin taking the first steps. One of the most common board games that teach basic real estate principles is Monopoly. In Monopoly, your goal is to become the most powerful real estate mogul by purchasing, building up property and making deals and trades to wipe out the competition. There are a number of lessons you can learn about being a successful real estate investor by playing the game of Monopoly. The first lesson that Monopoly teaches you is that a real estate empire is built one property at a time. If you want to be successful in investing in real estate, you must first of all start off with your first deal. Too many people fail to build a successful real estate investment portfolio simply because they never get started. In Monopoly, one of the fastest ways to lose the game is to never purchase property. If all of your opponents purchase up property before you, there s no way you can make your money work for you. As a result, you will run out of money and you will typically be one of the first people to lose the game. The second lesson that Monopoly teaches you is the secret to wealth. The secret to wealth is to convert earned income into passive income. In Monopoly you start out with $1500. Since your salary for passing go is $200, you start out with 7.5 paychecks to invest. You continue to earn a salary each time you are able to pass GO on the gameboard. Income that you earn from a job is considered earned income. This is income that you receive by trading your time for money. You spend time completing a task on your job and your job rewards you with money in return. Earned income is a great way to pay your bills. However, it is a terrible way to create wealth because you always have a limited amount of time to work. In Monopoly and in real life the way you create wealth is to take your earned income and convert it to passive income. Passive income is income that you earn from businesses and investments that are not dependent upon you trading your time for money. Real estate is a passive income stream because it produces income from renting out property to a tenant, not from you having to specificially complete a task. In Monopoly if you are able to take the income that you start out with and do a good job at purchasing the right combination of property to create a return on investment and wealth more effectively than your opponents, you win the game. If you are able to do this effectively in real life, you win the game of investing in real life as well. The third lesson that Monopoly teaches you about successful real estate investing is the effectiveness of starting small and working your way up in terms of your investments. For instance, in Monopoly the first two sides of the board are properties that cost lower to purchase and lower to build up. The second two sides of the board are properties that cost higher to purchase and higher to build up. Continued on page 14- Real Estate Lessons From Monopoly Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-13

14 Continued on page 13- Real Estate Lessons From Monopoly In Monopoly one of the best investing strategies is to secure a Monopoly on the first two sides of the board first. The reason why is because these properties are easier to build. The houses and the hotels cost significantly less to build up than the properties on the second two sides of the board. If you purchase a Monopoly on the second two sides of the boards, it will typically take a significant amount of time longer to build up than it would to build up a property on the first two sides of the board. As a result, by the time you build up one of these properties to a point where you are able to earn enough money from rent, your opponents would have already built up the other properties and you will be paying significantly more money. In real estate investing it is also very wise to build up your investment portfolio by starting out small. In many cases you won t have any choice because you will need to create additional cash flow before you can even get involved in bigger real estate deals. The final lesson that Monopoly teaches about real estate investing is the three most important factors to success in real estate. In Monopoly there are three factors that most contribute to your success in winning the game. They are strategy, luck and people skills. Strategy is the most important factor to success in Monopoly. You must have a sound strategy in place in order to win the game. The same applies to real estate investing. If your strategy isn t sound you won t make any money. Monopoly also requires people skills as well. If you want to get the properties you need to make a Monopoly, you will need to negotiate with other players to get the properties that you need. You also will need to have people skills as well. Monopoly is a great game to teach you how to be successful in real estate investing. By taking the skills and techniques that you learn from Monopoly and applying them to real estate you will go far in investing. Quote of the Month: "You must do the things today that others will not do so that you can have the things tomorrow that others will not have." -- Anonymous C A L E N D A R O F E V E N T S SPECIAL EVENT LAS VEGAS, OCTOBER 22-24, Day Multiple Streams of Income Bootcamp Coaching Club Forum/Newsgroup: Get access to training webinars, questions and answers on your individual situation and more. This site is free to all coaching club members. Please visit our website: and click login. MIKE HELP DAY SCHEDULE (Dates Subject to change) Oct. 2, El Paso, TX Future Training Webinar Ideas Wholesaling using the Internet Self Storage units Send me you ideas for topics you want covered to support@shortsalemasters.com Copyright2008 Mike Warren & ShortSaleMasters.com. All Rights reserved. Page-14