robert allen's money power system for making your real estate fortune

491 Pages·2001·0.93 MB·English

by  Brom M. Stevens

ROBERT ALLEN'S MONEY
POWER SYSTEM
FOR MAKING YOUR REAL
ESTATE FORTUNE
“STRATEGY UNITS”
TABLE OF CONTENTS
UNIT ONE: THE BIG PICTURE: THE CASE FOR REAL ESTATE AS A WEALTH-
BUILDING VEHICLE
General Considerations 1
Uncle Sam's Tax Reform 3
Real Estate: Still The Golden Opportunity 4
Income Potential 4
Depreciation (Tax Benefits) 5
Equity Buildup 6
Appreciation 7
Leverage 8
How Much Can I Make? 8
What Does It Take To Succeed In Real Estate? 9
What Is The Action Model For Real Estate? 12
General Considerations 12
Surprise: Real Estate Has An Action Model, Too 13
Put On Your Thinking Cap: PICNIC CAP 17
Chinese Boxes 18
An Assignment 19
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What Kinds Of Properties Are In Your Future? 20
UNIT TWO: HOW TO LOCATE ULTRA-BARGAINS
General Considerations 1
A Few Terms You Should Know 2
Key Points About Finding Flexible Sellers 4
Two Kinds Of Flexible Sellers 5
What Causes Sellers To Be Flexible? 7
Personal Causes of Flexibility 9
Property Causes of Flexibility 11
Economic Causes of Flexibility 12
How Curable Is The Problem? 13
Narrow Down Your Search 15
How To Find The Bargains 15
Newspaper Advertising 16
Realtors 20
Referrals 26
Personal Research 28
Other Advertising 37
Efficiency Factors In Finding Flexible Sellers 38
A Note About the Win/Win Philosophy 40
How Well Have Your Learned? 40
Putting It All Into Practice 41
The Ten Most Asked Questions About Finding Flexible Sellers 44
UNIT THREE: ANALYSIS MADE EASY
General Considerations 1
The Governing Focal Points 2
The Property Selection Grid 3
Four Test Cases 4
The Bargain Finder Form 5
Bargain Finder Checklist 5
Questions For The Seller 11
Assignments 11
UNIT FOUR: NEGOTIATING A WIN/WIN DEAL: THE "HIGH TOUCH" OF REAL
ESTATE
General Considerations 1
A Few Terms You Should Know 2
Key Points About Negotiating 4
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How To Negotiate To Win 5
Three Major Objectives Of The Initial Contact 7
What Questions Should I Ask? 10
Fourteen Rules for Successful Negotiation 10
Rule 1: Negotiate In Person 10
Rule 2: Negotiate Price, Rates, Payments, and Dates 16
Rule 3: Ask Questions 20
Rule 4: Be Patient 23
Rule 5: Build Trust By Being Sensitive To The Seller's Interests 24
Rule 6: Use Pre-established Boundaries of Price/Terms Tolerance 30
Rule 7: The First One To Mention A Number Loses 31
Rule 8: Keep It Simple 34
Rule 9: Remind The Seller Of The Problems You Are Saving Him From 36
Rule 10: Explore "Stab-In-The-Dark" Offers 37
Rule 11: Persist and Persist Again 39
Rule 12: Take Time--Time Lessens Tensions 42
Rule 13: Be Flexible, Be Creative, Be Ready With Alternatives 44
Rule 14: Step Back And Give Yourself A Chance To Think 46
Negotiating Checklist 47
Reasons For Flexibility: And How To Turn Them To Your Advantage 50
Three Tactics To Try When All Else Fails 51
Applying The Win/Win Philosophy In Negotiation 55
How Well Have Your Learned? 56
Putting It All Into Practice 57
The Ten Most Asked Questions About Negotiation 60
UNIT FIVE: CREATIVE FINANCE
General Considerations 1
The Major Factors Of Creative Finance 4
At What Price? 4
Using Whose Financial Resources To Buy? 5
How Soft Or Hard Are The "Other People" Involved? 5
With What Size Of Down Payment? 6
When Is The Down Payment Due? 6
In What Form Of Consideration? 7
At What Rate Of Interest On The Unpaid Balance? 7
For What Repayment Terms? 8
Creative Finance Score Card 8
A Hypothetical Case Study 9
Tricks Of The Trade 12
The Big Secret 13
Creative Footnotes 14
Six Universal Creative Finance Cookie Cutters 15
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The Ultimate Paper Out 15
Blanket Mortgage 17
The Second Mortgage Crank 18
Wrap-Around Mortgage 21
Creating Paper 23
Lease Option 24
Assignments 25
Practicum 26
Chart: Situation Analysis Matrix 27
UNIT SIX: MAKING RISK-FREE OFFERS
The Five Major Benefits Of The Written Offer 1
A Few Terms You Should Know 3
Key Points About Offers and Documentation 6
How To Document Real Estate Offers 6
Steps For Real Estate Documentation 9
Seven Common Mistakes Often Made By Beginning Investors 10
Negotiating The Ranges 14
Establishing The Value Of A Property 20
Which Elements Are Essential To The Real Estate Offer? 22
Documenting The Purchase Agreement Terms 28
Earnest Money Agreement 31
Detailed Explanation Of The Earnest Money Agreement 35
Using A Documentation Checklist 43
Providing For Contingencies 44
How To Make The Counter Offer Your Tool 46
A Note On The Need For Making Offers 48
How Well Have You Learned? 48
UNIT SEVEN: CLOSING THE REAL ESTATE TRANSACTION
General Considerations 1
A Few Terms You Should Know 2
Key Points About Closing The Real Estate Transaction 3
Closing The Real Estate Transaction 4
A Typical Closing or Settlement Meeting 5
Closing Through Escrow 6
Help From Professionals 8
Considerations Before Closing 10
Checklist of Key Action Items In The Closing Process 11
Important Documents 17
Escrow Agreement 27
Making The Closing Go Smoothly 29
Considerations After Closing 32
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A Title Closing Checklist 32
How Well Have You Learned? 34
Putting It All Into Practice 35
The Ten Most Asked Questions About Closings 37
UNIT EIGHT: CREATIVE MANAGEMENT PART A
General Considerations 1
A Few Terms You Should Know 2
Vital Points About Managing Real Estate 3
Keys For Managing Real Estate 4
Key 1: Prepare The Property 5
Beware Of Yuppies 7
Look For Stable Workers 8
How To Find Out What Tenants Want And Are Willing To Pay 8
How To Outdo The Competition 12
How To Get Out Of Doing The Work 14
Key 2: Setting Your Rental Policies 16
An Aside: Consider The Lease Option 25
Key 3: Advertising 27
Key 4: Showing The Property 35
Key 5: Pre-Screening Your Applicants 40
Controlling The Appointment 43
How Well Have You Learned From Part A? 44
Putting Part A Into Practice 46
UNIT EIGHT: CREATIVE MANAGEMENT PART B
A Quick Review 1
A Few More Terms You Should Know 3
More Vital Points About Managing Properties 4
How To Be An Effective Property Manager 5
Key 6: Watch For The Little Things 7
Key 7: A Good Application Is A Must 9
Verification Permission Forms 12
Key 8: Verify The Facts 14
Key 9: Choosing The Right Tenant 17
Key 10: Finalizing The Rental 20
Tenant Policies (Sample) 23
Key 11: You Are Running A Business 27
Key 12: Tenant Relations 34
Key 13: The Responsibility For Profits Is All Yours 38
Key 14: Your Tenants Have Responsibilities, Too 42
Key 15: Don't Forget To Say Thank You 47
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Key 16: Help Your Tenants Leave 50
Move Out Checklist 52
Key 17: When You Invite Tenants To Leave 55
Key 18: Stop Managing 61
A Note On Effective Management 62
How Well Have You Learned From Part B? 64
Putting Part B Into Practice 68
The Most Frequently Asked Questions About Managing Properties 71
Rental Application 79
Residential Rental Agreement 81
UNIT NINE: PORTFOLIO BALANCE AND CONTROL: CREATIVE ENDGAMES
What You Will Learn In This Unit 1
A Few Terms You Should Know 2
Key Points About Portfolio Balance And Control 4
How To Balance Your Portfolio And Control Its Profits 5
How To Define Your Investment Objectives 8
Expanded Goals Of Portfolio Ownership 11
Basic Investment Criteria 17
How To Build A Portfolio 18
Creative Endgames: Strategies To Increase Profits 20
Split and Double 21
Controlling Your Portfolio Growth Through Diversification 22
Exercising Risk Control 24
Using Teams To Help You Control Your Portfolio 26
Using Options 28
Developing Real Estate For Profit 31
How To Recognize Good Development Real Estate And Turn It Into A Profit 33
What is a Good Development Property 33
How Do You Estimate Market Acceptance? 41
Site Analysis Form 42
What Makes Zoning The Key To Success? 49
How Do You Write An Offer For Development Property That Makes Sense? 53
How Do You Arrange Financing That Protects Your Profits? 56
A Note On The Risks And Rewards Of Developing Real Estate 59
How Well Have You Learned? 60
Putting It All Into Practice 63
The Ten Most Asked Questions About Material In This Unit 68
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UNIT ONE
THE BIG PICTURE
The Case For Real Estate
As A Wealth-Building Vehicle
UNIT ONE
THE BIG PICTURE
The Case For Real Estate
As A Wealth-Building Vehicle
1. GENERAL CONSIDERATIONS
There are compelling reasons to be active in the real estate
investing field today.
For many years, real estate investors have spoken of income
property as the "ideal" investment. They have used the word "ideal" as
an acronym for the five key factors of real estate investing that have
made it attractive over the years as an investment alternative: (1)
income generation, (2) depreciation (tax advantages), (3) equity buildup
through tenant debt service, (4) appreciation, and (5) leverage.
By now, most people who have been active in this field or who
are now in training for it are familiar with this succinct formula:
Unit One, Page 2
I = Income from rents
D = Depreciation (tax benefits allowed
by Uncle Sam)
E = Equity buildup as tenants make
their payments
A = Appreciation as the value of real
estate grows
L = Leverage through the use of "other
people's money"
For historical reasons, we have to conclude that this formula is
in part true, and in part misleading. It is important to enter the real
estate field with a clear picture in mind of its advantages and
disadvantages. That is why we begin this course with a little reality
therapy.
There have indeed been times during the past quarter century
when equal weight could have been placed on all five of these important
factors as dimensions of profit potential. For example, during the
heyday of speculative real estate investing by throngs of beginners in the
mid to late 1970's and early 1980's, even novices with only the most
fundamental knowledge of this field stood a good chance to make a
profit.
The reason was that all five of the "ideal" factors were at work
at the same time. Income from rents were not yet widely under pressure
from factors like rent control. The government gave generous
preferential treatment to real estate investors through tax write-offs in
Unit One, Page 3
the real property arena. Equity could build up relatively quickly.
Appreciation was advancing with unprecedented vigor in many sectors
of the economy, such as California. And leverage was just becoming a
household word as a number of celebrated "gurus" were active
introducing the secrets of OPM to millions of receptive would-be
investors. Such ambitious investors were being enticed out of the side
streets of Everywhere, USA, by ambitions to create for themselves a
higher quality of life via the American Dream.
But a funny thing happened on the way to the real estate
closing.
1.2. UNCLE SAM'S TAX "REFORM"
In 1986, the government "reformed" the tax laws in a major
way and, for all intents and purposes, clipped the wings of this kind of
investing, except for a few lingering and selective advantages. At the
same time, appreciation took a U-turn in many areas of the country.
And thousands of new investors who had jumped into the fray with
minimal business sense found themselves enrolled in the School of Hard
Knocks--without a scholarship.
All of this (believe it or not) was really for the best.
It meant that the "IDEAL" investment had to be spelled a little
differently: "I-d-E-a-L," with a small "d" and a small "a." Let's see why.
Today's real estate investors can still enjoy the benefits of
income generation through tenant debt-service. They can still enjoy
equity build-up (even while they are asleep at night). And leverage is
still a vitally important dimension (in many respects the most important
dimension) of this type of wealth building.
However, the tax benefits of owning income real estate have
been seriously reduced when compared with those available in the
"good old days," and appreciation is at best regional and unpredictable
because of the downward economic trends of the past five years.
The consequence of this historical shift has been to place real
estate investing forcefully into the only context where it makes any kind
Unit One, Page 4