INDEX A Affiliates, 48 51 Agreements, negotiation/disclosure clause, 57 Amortization schedule, accelerating, 11, 32 Analysis paralysis, 43, 249 Ancillary businesses, insider profits from, 245 Appraisals, 114 115, 133 Appraisers, 50, 111 Assignable/assumable loans, 249 250 Assignment clauses, purchase contracts, 24 Atlantic Richfield Oil Corporation (ARCO), 3 B Backup provisions, negotiation/ disclosure clause, 60 Balloon payments, 27, 29 30, 40 Banks. See Financing Breaching party, negotiation/disclosure clause, 59 Broker. See Real estate agents Brokerage fee, negotiation/disclosure clause, 59 Broom clean, 118 253 Bucket theory of investments: bucket one/two/three investments defined, 1 2 planning exercise (Form 3.1), 10, 11, 14 19 Porsche as premature bucket three investment, 5 Builders, partnerships with, 244 245 Building inspection: checklist (Form 13.2), 76 105 as closing roadblock, 115, 133 initial, 116, 117 kit, 72 73, 75 negotiation/disclosure clause, 57 58, 59 post-contract, 116 professional, 117 timing, 116 117 types of (four), 116 117 walk-through, negotiation/disclosure clause, 59 Building inspectors: amateur, 115 friendship with, 26, 115 professional, 117, 133 relatives as, 115 Burnout, real estate agents, 9 10, 247 Buyer(s): advantages of seller carryback for, 40 41 closing problem checklist, 130 131 COPYRIGHTED MATERIAL
254 INDEX Buyer(s) (Continued) converting tenants into, 161, 167, 201 202 credit reports, 60 finding, for deals you turn down, 61 giving seconds to, 53 making fast turns to waiting, 53 as mentors, 37 38 perspective on, real estate agent versus insider investor, 36 38 representing both sellers and, 24 shifting to lister from, 53 stepping in for dropouts, 21, 38 C California: escrows and escrow instructions, 116 real estate market (1979 1990s), 8, 9, 31 termites, 49 Campbell County, Wyoming, 3 Cash flow: improving property and paying off mortgages with, 32, 137 no negative before taxes, 27, 28 29 for real estate transactions, 8, 250 annual cash flow after taxes (Form 16.6), 150 before-tax financing analysis (Form 16.5), 149 City officials/planners, 111 Closing, 113 136 appraisals, 114 115, 133 buyer, 130 131 checklist (Form 15.1), 113 114, 120 127 checklist of items to take to (Form 15.4), 113, 119, 135 136 checklist of possible problems (Form 15.3), 115, 116, 129 134 cooperative agent, 130 cover letter (Form 15.2), 115, 128 escrow, 116, 126 127, 129 134 inspection and, 115, 116 117, 133 134 insurance, 114 lender, 129 refusing to complete settlement, 118 seller, 132 133 title company, 134 Commissions: effort required for, versus investments, 6 investing/planning for, 18, 19, 32 reinvesting in exchange for limited partnership in project, 244 245 Community decision makers as information sources, 111 112 Condition of premises, negotiation/ disclosure clause, 57 Cosigner agreement addendum to rental agreement (Form 18.8), 165, 192 Credit: building short-term borrowing ability, 250 buyer s credit report, negotiation/ disclosure clause, 60 reports/fico scores, 39, 40, 60, 247 signature line of, 250 D Decision tree, real estate, 138 Deed in lieu of foreclosure, 41 Demographics, seller, 33 34, 49 Depreciation, 28 Direct mailings, 37
Index 255 Disclosure, full: examples, 23 24, 52, 53, 57 58 fiduciary duty and, 21, 57 lead-based paint hazards, 190 191 Discrimination, in tenant selection, 161 Divorce, 34, 159 Domino theory, informal, 22 23, 35 Down payments: no-money-down schemes, 1, 249 successful real estate brokerage business as machine for, 7 12 Dual agency position, 24 Due diligence, before buying property, 72 110 cultivating contacts as information sources, 111 112 expenses, requesting source records of, 73 inspection (see Building inspection) market rent survey (Form 13.5), 109 110 tenant estoppel statement (Form 13.4), 73, 107 108 tenant interviews (Form 13.3), 73, 106 D words, four, 34 E Equity paydown, 11, 32 Estoppel statement, tenant (Form 13.4), 73, 107 108 Ethical standards, 248 Exchange method, real estate decision tree, 137, 138 Exit interview, tenant (Form 18.34), 236 237 Expenses: deductible, 10 11 determining, 43 40-percent factor, 43 requesting source records of, 73 worksheet (Form 9.2), 45 47 Expired listings as leads, 33, 36 F Facts about Your Buyer (Form 12.4), 61, 68 69 Faith, 247 Family, 247 Fannie Mae, 39 FICO scores, 39, 40, 247 Fiduciary responsibilities, 20 23, 57 Finances, personal, 247 Financial statement, negotiation/ disclosure clause, 59 60 Financing: adjustable or variable rate mortgages, 27, 29 30 assignable/assumable loans, 249 250 balloon payments, 27, 29 30 bank presidents as information sources, 111 closing checklist, 123 equity paydown, 11, 32 foreclosure and short pay, 9 lenders as affiliates, 49, 50 long-term fixed, 26 non-owner-occupied investor loans, 39 property and investor data summary (Form 16.4), 147 148 Fitness, 247 Flipping, 21, 249 Foreclosure: deed in lieu of, 41 short pay and, 9 For sale by owner (FSBO), 33, 36 Freddie Mac, 3
256 INDEX Friends, 247 Full disclosure. See Disclosure, full Fun, 247 F words, six, 247, 248 G Goals, setting, 11, 31, 247 Bucket One Investments, planning exercise (Form 3.1), 14 19 Insider s Performance Commitment, 13 Greater fool theory, 249 H Heating system, 93 94, 118 Holding power, 7 8 Hold versus sell, real estate decision tree, 137, 138 Home warranty companies as affiliates, 50 Hot sheets, 20 21 Human resources departments as leads, 159 I Income: analysis of, from property under consideration for purchase, 42 47 income-to-price ratio, 30 net, after deductible expenses, 10 11 operating, net/gross, 149 personal planning, 16 17, 19 rental versus commission, 1, 32 sources, from a building (Form 9.1), 43, 44 taxable, 150 Indemnification, negotiation/disclosure clause, 59 Insiders. See Real estate insider investor Inspections: pre-purchase (see Building inspection; Building inspectors) rental property, inspection report (Form 18.26), 223 225 Insurance: closing and, 114 coverage summary (Form 16.3), 146 fix up (Form 16.2), 139, 144 145 negotiation/disclosure clause, 59 property/liability, 166 167 title, 123 Internal Revenue Code (IRC). See Tax(es) Interviews, tenants: due diligence before purchase (Form 13.3), 73, 106 exit (Form 18.34), 236 237 Investing: as insider (see Real estate insider investor) personal levels of (bucket theory), 1 2 speculating versus, 2, 5 6, 31, 40 Investment property: decision tree, 27 28 financing, 27, 29 30 (see also Financing) finding (see Properties, finding/qualifying) hold strategy, 27 28 income producing, versus appreciation-based, 9
Index 257 location, 27, 30 managing (see Property management) personal inspection of, 27, 30 31 purchase: negotiating (see Negotiations) price, 54 55, 57 terms, 39 41 rules/guidelines, 25 27 selling: automatic listing, 239, 240 checklist (Form 19.1), 240, 241 243 insider advantages as a seller, 239 243 real estate decision tree, 137, 138 reasons against, 240 taxes triggered by, 240 Lease: contract (Form 18.7), 164 165, 184 191 length of, 159, 161 pet owners agreement (Form 18.12), 166, 197 renewal application (Form 18.14), 200 tenants release from if they buy, 159 Lenders. See Financing Limited partnerships, 244 245 Loans. See Financing Location, 7 Long Beach, California, 5, 37, 50, 240 Los Angeles, 4 Lottery, 3 K Kankakee, Illinois, 165 Key receipts (Form 18.11), 166, 196 L Land banking, 26 Lead-based paint disclosure, 190 191 Lead generation: bird dogs, 51 hot-sheet monitoring, 20 21 human resources departments, relocation moves, 159 insider communication systems, 158 letter to tenants (Form 18.15), 201 202 off-market sources of inventory, 22 sellers, 9, 21 22, 33 35 M Mailing lists, professional, 159 Mailings, direct, 37 Maintenance of properties, 169 move-in/move-out inspection checklist (Form 18.25), 220 222 notice to enter dwelling (Form 18.20), 211 preventive, 161 property inspection report (Form 18.26), 223 225 resident s maintenance repair request (Form 18.21), 212 213 semiannual safety and maintenance update (Form 18.24), 217 219 time estimate for repairs (Form 18.22), 214 unit maintenance record (Form 18.23), 215 216 unit make-ready report (Form 18.17), 205 206
258 INDEX Mentoring, 10, 33, 37 Money, net present value of, 245. See also Cash flow Moral/ethical standards, 248 Mortgage, escrow, or title businesses, 245 Move-out management, 167, 168 checklist (Form 18.16), 168, 203 204 cleaning instructions to tenant (Form 18.19), 209 210 exit interview (Form 18.34), 236 237 move-in/move-out inspection checklist (Form 18.25), 220 222 move-out closing statement (Form 18.35), 238 move-out instructions (Form 18.19), 168 move-out letter to tenant (Form 18.33), 235 Multiple offers, negotiation/disclosure clause, 60 N Negotiations, 54 61 agreement of sale checklist (Form 12.3), 56, 65 67 contracts, 37 38, 57 disclosures/clauses: agreements, 57 backup provisions, 60 breaching party, 59 brokerage fee, 59 condition of premises, 57 credit (buyer s credit report), 60 financial statement, 59 60 indemnification, 59 inspections, 57 58 Internal Revenue Code (IRC) section 1031 exchange, 57 multiple offers, 60 purchase price, 57 referrals, 58 59 representation, 61 seventy-two hours (continue to offer), 60 short sale/notice of default, 60 verifications, 59 walk-through, 59 emotions and, 56 Facts about your Buyer (Form 12.4), 61, 68 69 insider financing checklist (Form 12.2), 56, 64 items to determine prior to: initial higher price and terms, 56 target price and terms, 56 worst price and terms, 56 loan questionnaire (Form 12.1), 56, 62 63 participants in, 56 purchase price, 54 55, 57 seller s net sheet, estimated proceeds on sale/exchange of property (Form 12.5), 61, 70 71 throw away items list, for making concessions, 55 unacceptable counterproposal, finding buyer for, 61 Net present value of money, 245 No-money-down schemes, 249, 250 Non-smoking clause, 187 Notice to enter dwelling (Form 18.20), 211
Index 259 O Off-market inventory, finding sources of, 22 Owner-broker management agreement (Form 18.1), 170 172 Owner demographics, as leads, 33 34 P Paperwork. See Property ownership paperwork Parking: building inspection checklist, 79 monitoring, on premises, 165 166, 195 space for, as investment plus, 25 vehicle registration (Form 18.10), 195 Partnerships: avoiding, 8 profiting from, 244 245 Performance Commitment, 12, 13 Pet owners agreement (Form 18.12), 166, 197 Pool, rules for community (Form 18.13), 167, 198 199 Professional condominiums near major hospitals, 37 Professional mailing lists, 159 Promissory notes, purchase/or sale of, 245 Properties, finding/qualifying, 7, 25 32. See also Due diligence, before buying property; Lead generation age of buildings, 25 appliances, 26 condition, 7 guidelines, rules, 25 26 income analysis, 42 47 inspectors/contractors and, 26 location, 7 long-term fixed financing, 26 master-metered buildings, 26 number of bedrooms, 25 off-market sources of inventory, 22 paralysis of analysis, 43 parking space, 25 pools, 26 positive cash flow, 7 rules, six inviolate, 26 27 school districts, 25 Property maintenance. See Maintenance of properties Property management, 160 169 cosigner agreement addendum to rental agreement (Form 18.8), 165, 192 discrimination, 161 finding tenants (see Tenants) golden rules of, 160 161 hiring; owner-broker management agreement (Form 18.1), 161, 162, 170 172 income from, versus commission income, 1, 32 inspection report (Form 18.26), 223 225 insurance, 166 167 key receipt (Form 18.11), 166, 196 lead-based paint disclosure, hazards, 190 191 lease: contract (Form 18.7), 164 165, 184 191 length of, 159, 161 renewal application (Form 18.14), 200 tenants release from if they buy, 159
260 INDEX Property management (Continued) maintenance/repairs (see Maintenance of properties) marketing/promotions, 162, 163 move-out management, 167, 168 checklist (Form 18.16), 168, 203 204 cleaning instructions to tenant (Form 18.19), 209 210 exit interview (Form 18.34), 236 237 move-in/move-out inspection checklist (Form 18.25), 220 222 move-out closing statement (Form 18.35), 238 move-out instructions (Form 18.19), 168, 209 210 move-out letter to tenant (Form 18.33), 235 non-smoking clause, 187 notice to enter dwelling (Form 18.20), 211 parking, monitoring, on premises, 165 166, 195 pet owners lease agreement (Form 18.12), 166, 197 pool rules and regulations (Form 18.13), 167, 198 199 promoting/marketing rental property, 162 rental agent performance report (Form 18.3), 176 177 rental checklist (Form 18.16), 203 204 rental inquiry (Form 18.5), 179 rental record (Form 18.18), 168, 207 208 rent delinquency report, monthly (Form 18.29), 169, 228 rent payments, agreement for partial (Form 18.30), 169, 229 residential questionnaire (Form 18.31), 166, 230 233 safety/maintenance update, semiannual (Form 18.24), 217 219 safety precautions, 166 167 systems/checklists for, 161 172 traffic report (Form 18.2), 173 175 unit availability list (Form 18.4), 163, 178 unit ledger card (Form 18.27), 169, 226 unit maintenance record (Form 18.23), 215 216 unit make-ready report (Form 18.17), 168, 205 206 vehicle registration (Form 18.10), 166, 195 warning notice, complaints from neighborhood/residents (Form 18.32), 234 waterbed and/or liquid-filled furniture agreement (Form 18.9), 165, 193 194 Web site marketing, rental property, 162 Property ownership paperwork, 137 145 decision tree, 137 138 insurance coverage summary (Form 16.3), 146 insurance/fix up (Form 16.2), 139, 144 145 photo of property, 138, 140 Property Summary (Form 16.1), 138, 140 143 Property Summary Folder, 138 139 replacement reserve worksheet (Form 16.9), 139, 154 157
Index 261 worksheets, 139 after-tax proceeds from sale (Form 16.7), 151 152 before-tax financing analysis (Form 16.5), 149 performance summary (Form 16.8), 153 property and investor data summary (Form 16.4), 147 148 Purchase price, negotiation/disclosure clause, 57 Refinance equation, 137, 138 Relocation moves, 159 Rental property. See Property management; Tenants Repairs: pre-purchase estimate for, 26 property management (see Maintenance of properties) Representation, negotiation/disclosure clause, 61 Retirement, 10, 35 Rumors, 22, 37 R Real estate agents: burnout, 9 10, 247 perspective on buyers, 36 representing both buyer and seller (dual agency), 24 Real estate decision tree, 138 Real estate insider investor: advantages, 20 24, 25 32, 33 35, 38 affiliates, 48 51 becoming, 246 250 buyers, perspective on (versus that of real estate agent), 36 down payment machine, 7 12 fiduciary responsibilities, 20 23, 57 Insider s Performance Commitment, 12, 13 perspective on buyers, 36 38 properties (see Investment property; Property management) relationship with peers in area, 50 rules (nine) in business plan, 246 247 tactics/opportunities, 52 53, 111 112 team/staff, 48 51, 163 Referrals, 38, 58 59 S Satellite/cable television, 186 School districts, 25 Self-assessment/monitoring, 246 250 Seller(s): burnout, 34 carryback financing, 39 41 divorce, death, disillusion, and debt, 34 financial conditions, 35 hot demographics, 33 34 informal domino theory, 35 lead generation systems, 9, 33 35, 158 life-changing event, 34 needing emergency home, 158 reasons for selling, 34 35 retirement, 35 Selling investment property: automatic listing, 239, 240 checklist (Form 19.1), 240, 241 243 insider advantages as a seller, 239 243 real estate decision tree, 137, 138 reasons against, 240 taxes triggered by, 240
262 INDEX Settlement. See Closing Seventy-two hours (continue to offer), negotiation/disclosure clause, 60 Short pay, 9 Short sale/notice of default, negotiation/disclosure clause, 60 Short-term solutions/flipping, 31, 249 Signature line of credit, 250 Snowball effect/theory, 9, 32, 240 Speculation versus investing, 2, 5 6, 31, 40 T Tax(es): deductible expenses, 10 11 negotiations and sellers tax situation/bracket, 55 after-tax proceeds from sale (Form 16.7), 151 152 annual cash flow, after taxes (Form 16.6), 150 before-tax financing analysis (Form 16.5), 149 performance summary (Form 16.8), 153 selling property triggering, 240 tax deferred exchange, 34 35, 55, 57 Team/staff, 48 51, 163 Temporary housing, 158 159 Tenants. See also Property management: acquisition/selection, 158 159, 160, 161 discrimination in tenant selection, 161 looking at where they live, 161 qualifying, 163 164 real estate insider leads/ communication systems, 158 as buyers, 161, 167, 201 202 interviewing: due diligence before purchase (Form 13.3), 73, 106 exit (Form 18.34), 236 237 lease renewal (Form 18.14), 167, 200 ledger card (Form 18.28), 227 move-out management, 167, 168 checklist (Form 18.16), 168, 203 204 cleaning instructions to tenant (Form 18.19), 209 210 exit interview (Form 18.34), 236 237 move-in/move-out inspection checklist (Form 18.25), 220 222 move-out closing statement (Form 18.35), 238 move-out instructions (Form 18.19), 168 move-out letter to tenant (Form 18.33), 235 notice to enter dwelling (Form 18.20), 211 personal and credit information (Form 18.6), 180 183 pet owners agreement (Form 18.12), 166, 197 rental questionnaire (Form 18.31), 166, 230 233 resident s maintenance repair request (Form 18.21), 212 213 unit make-ready report (Form 18.17), 205 206 Termites, 49 Terms of real estate purchase, 39 41 Title companies as affiliates, 49 Title insurance, 123
Index 263 Too-good-to-be-true gurus, 249, 250 Traffic report (Form 18.2), 173 175 U Umbrella policy, 167 Unit availability list (Form 18.4), 163, 178 Unit ledger card (Form 18.27), 169, 226 Unit maintenance record (Form 18.23), 215 216 Unit make-ready report (Form 18.17), 168, 205 206 Utilities: lease agreement, 189 net income analysis, 46 Utility room inspection checklist, 92 95 W Walk-through, negotiation/disclosure clause, 59 Warning notice, complaints from neighborhood/residents (Form 18.32), 234 Warranty companies, home, 50 Waterbed and/or liquid-filled furniture agreement (Form 18.9), 165, 193 194 Weasel clauses, 72 Web site marketing, 162 V Vehicle registration (Form 18.10), 166, 195 Verifications, negotiation/disclosure clause, 59