Baltimore Real Estate Investing Blog

Here is a fun video by Aaron Wilburn. Nothing about real estate here but is is about money a great fun. Enjoy.

Keep Laughing,

Ned

Perusing the web recently, I found a post about the Anne Arundel Tax sale. It reminded me of something you will sometimes see at a live tax auction. Anne Arundel’s tax lien sale instructions say that if someone is there to “clear the family title” they should speak up and others are asked not to bid against them. This is often misunderstood even by experienced bidders. I remember one obviously experienced man at the Anne Arundel auction that made snide comments like “why don’t you just pay your taxes”, every time someone stood up to do this. He clearly didn’t understand the concept.

Property title can get screwed up because of inheritances, divorces and broken partnerships etc. If one party who has a claim on the property abandons it, becomes uncooperative, dies and heirs disagree on what to do with the property, etc., any other owner can’t sell the property. This can go on for years, even generations, and leave the property with bad title. While it doesn’t happen often, there are a myriad of reasons that title can get clouded.

The usual process for clearing up a  clouded title or a bad chain of title, is to get quit claim deeds from any party that may have an interest clouding the title. Clearing up this bad title can be very tough as some parties may be dead or otherwise unreachable. If there was a John Smith on the deed many years ago, which John Smith, where is he now. This is especially common with ground rents. The ground rent holder becomes unknown.

Clearing Title With a Tax Lien

By buying the tax lien on your own property, you can foreclose on yourself and thereby clear up the title. You will have complete clean title after the foreclosure as all other interests are wiped out. Unfortunately, as many counties start to go to online bidding, the ability to stand up and ask others not to bid against you goes away.

There are pitfalls to this strategy. You are depending on the ability to buy back your own lien. That may not happen in all cases, remember liens are sold at auctions. This would mean you would have additional fees and interest for no benefit.

Keep this tucked away in your toolbox. It certainly shouldn’t be the first tool you grab, it won’t be a commonly used tool and frankly it’s not even the most reliable tool. However in some cases it might be the only tool that works. Sometimes buying a tax lien on your own property can be useful.

Happy investing,

Ned

I recommend if you are serious about real estate you should go to your local Real Estate Investor Association (REIA). It is a great place to network and meet successful investors. You only have to go to a handful of meetings however, before you are pulled in six different directions, because each month the speaker has a great new way to make money in real estate.

There are a thousand ways to make money in real estate!

Not really, but it can sure seem that way sometime. It can be confusing, especially if you are brand new to hear all the different methods and techniques. It is hard to focus when you are pulled in half a dozen different directions.

There are two basic kinds of strategies; ways to find properties, and ways to profit from them. The ways you profit from real estate are often called exit strategies,- what are you going to do with the property once you own it. It is easy to confuse strategies of how you find deals with exit strategies. The most successful investors generally focus on one or possibly two exit strategies. They refine their formula and build systems to where they can repeat it efficiently and profitably.

Let’s talk about those exit strategies.  There are four basic ways to make money in real estate:

1) Deal-maker:

This can be a bird dog, wholesaler or real estate agent. The basic concept is simple, you find great deals and make money by passing these deals on to others. This probably has the least risk and can be done with the least amount of money to start. While the concept is simple, this is also work. It is not passive income.

2) Add value:

You can renovate a single family home, reposition a commercial property or change the use of an existing property to a higher and better use.  Renovating properties will generally, earn you larger chunks of cash than wholesaling, involves more risk, and takes more money. It too is real work. It is definitely not a passive investment, it’s a job.

3) Buy and hold:

Being a landlord whether single family homes or commercial properties gives you current cash flow and future appreciation. Long term this is probably the place to be in real estate. This can take a modest amount of money or a ton of money depending the level you want to achieve.  You can minimize the capital required by using creative strategies to acquire the properties. There is definitely risk in holding rental properties however it generally less work than the first two strategies and can be truly passive if you are investing in commercial properties.

4) Lender, Tax liens, and other real estate instruments:

You can hold notes and mortgages, be a hard money lender, be a “money partner” in rehab deals, buy tax liens, tax deeds, or ground rents. There are probably more approaches I haven’t thought of. This group of strategies pretty much requires that you already have money. I invest in tax liens and I have some friends that swear by notes and mortgages.

That’s it folks. Pretty much any exit strategy can fit into one of these categories. You can combine some of these but it still fits into one of these strategies. As I said above, the most successful investors focus on one strategy. You need to figure out which category best fits your resources and interests. In future posts I’ll talk about some of these in more detail.

Until then, happy investing.

Ned

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I recently wrote about Blog Rush in my post A Cool New Tool a a blog promotion service. I just read on the Success With Languages blog that Blog Rush is shutting down immediately. Sure enough the widget on my sidebar is gone.  I was just starting to like it. I had started to get some traffic from it and I actually clicked on a lot of the links myself because it feeds a lot of interesting sounding posts.

John Reese of Blog Rush writes about it on his Income.com blog

Change is inevitable, best wishes to the people at Blog Rush.

Ned

I really admire Warren Buffett. Not just because of his success but because he is truly ethical and has a wonderful philosophy. He is also quite quotable. Below are five of my favorites. Mr Buffett said  these regarding the stock market yet we can apply these same lessons to real estate.

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

I am amazed how many crooks there are in real estate. There is plenty of money to be made by being honest and ethical.  I regularly see how treating people right has come back to benefit me in ways I didn’t expect. I also see crooks and charlatans that have no idea how many people avoid them and speak badly of them. They have no idea of how many deals they miss because of their bad reputations.

“Risk comes from not knowing what you’re doing.”

Forget what the late night TV gurus say, real estate is incredibly risky. The great thing about real estate is you can control that risk through knowledge. Unlike stocks, you have much more control in real estate. You have control over how you finance it.  You have control over which tenants you choose & how you manage it. You can upgrade the property. How much control do you have if you own 100 shares of Microsoft? But knowledge is the key. You must know what the risks are and how to assess and limit them.

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

With all of the turmoil in the markets many investors are are scared, but now is a terrific time to be buying real estate. I recently formed Arkad Group, LLC with some partners. We are getting ready to buy some apartment complexes. Our timing couldn’t be better. We feel now is an ideal time to by multi families. Money is moving out of the stock market and some investors are afraid of any type paper assets. This should help us raise funds as investors look to the steady cash flow and solid asset base of apartment buildings. Volatile markets mean opportunity.

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years” and “Our favorite holding period is forever.”

This is not a universal rule for real estate. Buying to rehab and flip is a legitimate strategy. However many investors got caught with their pants down because they overpaid hoping to do condo conversions. When the market changed and the condo market died they had no plan B. They couldn’t hold the buildings as rentals because they had overpaid based on condo conversions. Markets change, you should consider what happens if you get stuck holding a property because of that change.

“The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.”

Warren often speaks of “intrinsic” value. Real estate investors are taught to value properties by “comps” but is what others are willing to pay an indication of the true value of the property? If demand drives prices artificially high like in the last boom, does that make the properties intrinsically more valuable?

In the recent run up of prices I often saw landlords buying properties based on comps. But they were paying prices that would never cash flow. Frankly I couldn’t see why anyone even bought the properties they were using as comps. A few naive investors overpaid and then everyone thinks it’s OK to pay that much.  A good investor should be looking at the true value, not just the prices. Affordability indexes, cash flow analysis, and rental rates vs cost to own are all tools that can be used to asses the intrinsic value of properties.

If you have a favorite quote from Warren Buffett leave a comment and share it with us. If you like the post, please share it with some of the social networking sites like Stumbleupon or Digg.

Happy investing,

Ned

Quote of the Day:

“This is way worse than a divorce  .  .  .  I’ve lost half my net worth and I still have my wife.”

Keep laughing,

Ned

I just had a court case for an eviction. It was the easiest court date I have had. I didn’t go downtown, I didn’t go to my attorney, in fact I didn’t leave my office. I used RentNotices.com. They handled the filing, they went to court, they will file the eviction notice, they will also comply with the new Baltimore city tenant eviction notification law.

Rent court is something that is easy to do yourself. In fact sitting in court and hearing some of the crazy excuses by both tenants and landlords can be kind of fun.  But is that a good use of your time? I have been very much a “do it myself” kind of guy. Fortunately I am learning to delegate. It is well worth the money to pay a pro to do something if it frees up my time to be more productive at what I am best at.

Rent Notices service was easy to use. I created a free account. I simply ordered the services I needed. They sent me an email to notify me of the court date. Afterwards they e-mailed me the results and told me the next step.  The eviction hasn’t happened yet, it’s a long process but it will be easier for me because of RentNotices.com. My experiences have been good so far and I recommend them.

I know I have many readers from out of the area. Unfortunately they only work in the Baltimore region. Right now RentNotices.com can handle Carroll, Howard and Baltimore Counties as well as in Baltimore City.

Happy land lording,

Ned

I found a cool new tool for both readers of my blog and other bloggers.  Actually it’s not all that new, but I haven’t seen it that much so I am going to test it out.  Scroll down and you will see a new feature on the right side of my blog. It’s a new “widget’ called Blog Rush. Each time you visit you will see 5 new links to posts from real estate blogs.  These are all real estate blogs and none of them are paid posts so there is a high likelihood that you will find value in these links.

My links get shown on other blogs in return for showing their links on my blog. The more my “widget’ get seen and the more clicks it gets, the more my links get shown on other sites.  It’s a win win. Readers find new sites of interest and bloggers get more traffic.

Click my widget, Get more traffic

If you are a blog owner this tool can drive traffic to your blog. Most importantly it is relevant traffic because they only send you traffic for the category you pick. It is sort of like Google AdSense but it is all blog posts, no paid ads. Best of all it’s free! You don’t get paid for the ads like AdSense but you don’t pay for the traffic either.

If you like the idea do me a favor, sign up through me. I’ll get a few extra links that way. Click the Blog Rush button on the bottom of the widget. It will take you to there site with full info. If you have a question leave a comment.

Happy investing and happy blogging,

Ned

© Aloysius Patrimonio|Dreamstime.com

This is a common question. Real estate is such a big field and there is so much to know. It can be confusing. Below is a guide to help. It’s not designed to answer all your questions but it should help you decide what you need to learn and in what order.

Decide what you want to do.

This means learning the strategies and techniques, and finding the ones that fit your personality and your resources. “Your resources” is key. Two key resources are time and money. Some methods need more time than money, some need more money than time. Make sure you are pursuing a strategy that can work for you.

Learn the skills, and techniques you will need.

If you want to be a rehabber and you don’t know how to estimate repairs, you are asking for trouble. Likewise if you want to be a landlord you better have a clue how to screen tenants and know the local landlord tenant laws. If you don’t have any money, you need to know the no money down techniques and understand creative financing.

Learn how to evaluate deals.

You need to know how to run the numbers. If you don’t know what makes a good deal, how can you make an offer? If you could consistently buy at 85% of fair market value, is that a good deal? Probably not in most cases. You should know the formulas that investors use to decide if a transaction is worth doing.

Learn the market.

Simply knowing the formulas is not enough. Valuing property is as much art as it is science. Do you know your neighborhoods? Are values going up or down? Are other investors buying there?

You have to know your neighborhood inside and out.  What are the expectations of buyers and tenants. Will buyers expect granite counter tops, hardwood floors and ceramic tile in this neighborhood? Or maybe you can get away with vinyl floors and Formica counter tops. That’s a difference that could make or break a rehab.

The same goes with tenants, how nice does the place have to be to be rented? Overspending is obviously bad but underspending may keep your place vacant for months and ultimately cost more.

There is something called the “100 House Rule.” Until you have gone in and checked out 100 houses you really don’t know the neighborhood well enough to answer the questions above. You should be checking out listings, open houses, for sale by owner, auctions, and deals from wholesalers.  This will give you an idea of both the retail and wholesale markets.

Line up the financing necessary for your strategy.

This business takes money. It doesn’t have to be your money but you better have a clue where the money is coming from.  Some investors with great credit come into this business assuming they could get financing. But they don’t understand that different types of deals need different types of financing.  They go to the wrong lenders and get turned down.

Commercial properties, rehab deals, buy and hold, and whether in your name or held by an LLC would all require different types of loans and perhaps from totally different lenders. You need to build relationships with lenders and learn what they will and just as importantly what they will not finance.

Caution: Most mortgage brokers primarily lend to homeowners. They will say they can finance anything when there is no way they can lend on your deal.

Learn these things to become ready.

Earl Nightingale said “Luck is when preparedness meets opportunity” Will you be prepared?

If you look at what I have said above it is basically; know what you want to do, know how to do it, know where the money is coming from, and most importantly know how to evaluate the deal. Until you know those four things you are not ready to invest. Your number one goal should be to learn those things. If you try to buy before you get to that point, you are not investing, you are guessing.

Happy investing,

Ned

Have you heard of ePerks? They are one of the many new alternatives to the traditional multiple listing services run by Realtors. There are many great new alternatives to consumers to find real estate on the Net. Some of them have much more powerful tools for free than I pay high dollars to get as an agent.

EPerks apparently isn’t one of them. They have a bad reputation spread over the net.  One blogger Vlad Zablotskyy reviewed them on his Go Beyond MLS website. He had numerous agents comment on his post about their experiences with ePerks.  EPerks didn’t like this and have sued Vlad. Their claim – that Mr Zablotskyy made up the negative comments about their company. It’s an absurd claim as there were hundreds of comments both negative and positive.  Many of the positive ones and ones critical of Vlad came from IP addresses apparently related to ePerks.

This is truly a case of bullying. In fact BrokerScience.com posted a recording of Ben Behrouzi the owner of ePerks threatening an employee of a former company. He said “My new goal in life is going to become to ruin your name across this entire East Bay” That sounds like a bully to me. 

It would appear from IP addresses that someone from ePerks that put a false post on Answers.com that Vlad was a child molester. It is scary to think that simply posting an honest opinion on a little known website could have your good reputation trashed in a way that would be very hard to recover from. Sounds more like e-Jerks to me.

Of course, I don’t know if the allegations against ePerks are true, they may not be. I do know that how they have handled this is a public relations nightmare. I never saw any of the negative press against them until they started bullying Vlad. I don’t think much of them now, mainly from their actions, not anything Vlad did.

What happened to freedom of speech? I not only write on my blog, I often comment on other blogs. Is the threat of being sued going to damper blogging and comments? If you want to read more about this, Greg Swan wrote an article about it with lots of links at the Bloodhound Blog.

You can help preserve free speech on the net by donating to Vlad Zablotskyy’s legal aid fund on the bloodhound blog. I did.

PS: Don’t be afraid to comment on my blog, ePerks doesn’t read it. Just click the comments link.

Happy investing,

Ned

I often tell people I am a full time real estate investor. The reality is that is a lie. There is no such thing as a full time real estate investor. You see, “full time” implies you are doing work. Investing implies your money is working for you. Working is not investing.

Since this is my only job, I guess I have to call it full time. Flipping houses, rehabbing, wholesaling are all work. If you ever managed a rehab and tried to keep your contractor on schedule you know what I mean. But how many people, who want to invest in real estate, watch “Flip This House” on TV and decide to rehab houses? That is not investing, it’s a job. It may be a very well paying job. You may make more on evenings and weekends than you make in your 9 to 5, but it’s still a job. I am not saying that is a bad thing. Making big bucks doing a rehab is a good thing. Investing is what you should do with you big checks when you get them.

I guess I am as guilty as anyone about calling the entire real estate field “investing.” Many people think they are investing when they really have a part time job. Take rentals for example, that is investing. Oh, unless of course you manage them yourself. Now we are back to it being a job. Many people manage their rentals themselves because there would be no money left over if they paid a management firm. What that means is their cash investment in their rental provides NO CASH FLOW. The only reason they have cash flow is they are doing the work of managing the property themselves. Heck, they could manage rentals for other people. They wouldn’t have to buy the property and take the risk of owning real estate.

Don’t get me wrong, there is nothing wrong with managing your own rentals. Just recognize that the money you invest in the property should have a return AND the time you spend managing should also have a return. If the only return comes from managing the property, that means your cash investment is giving you no return.

My ultimate goal is to have enough passive income so I can sit on the beach drinking Pina coladas while waiting for the checks to roll in. That is why I am moving in the direction of Commercial real estate – this is truly passive income. Single family rentals can be passive too if you have good management in place. But if you manage them yourself, don’t fool yourself, you have an extra part time job.

See you at the beach, I’ll be the one under the umbrella with a drink in my hand.

Ned

beach image© Mark Rasmussen | Dreamstime.com

Motivational speaker Jim Rohn says “Rich people have large libraries, poor people have large TVs.” Reading is one of the best ways of improving oneself and your real estate knowledge. On the various real estate forums I go to, a common question is “What are the best real estate books?” One of my goals for this blog is to help answer that question.

Perhaps an even better question is “What types of books should I read?” To be successful you need more than just real estate skills and knowledge. As I read questions from new investors, I see they often lack knowledge not only in real estate, but general business, finance, and marketing.

Although I say books, many of the ones below are available as audio programs. I like to shop at Amazon.com. because they list other versions if they are available. You can often choose between a soft cover, hardcover, audio CD, or even a used book. Audio books are great because you can listen to them while driving or on you iPod. To make it easy for you I have linked directly to some of the books mentioned.

Motivational and Success Books

If you want to be and do your best you should be reading this type of book. A true classic in this category is Think and Grow Rich by Napoleon Hill. Another example of this type of book would be Rich Dad, Poor Dad by Robert T. Kiyosaki. In this book Kiyosaki talks about the contrast between his real dad who followed the traditional get a good education, get a good job and work hard all you life routine vs. his best friend’s dad, who taught him about how money works and how to become wealthy. There is a whole series of “Rich Dad” books but the original or The Cash Flow Quadrant would be a great place to start.

Steven Covey’s The 7 Habits of Highly Effective People fits this category also. Books by, Jim Rohn, Brian Tracy, and Zig Ziglar should also all be on your shelves.

Sales and Marketing

Selling is the key to success in any business. Even if you plan to be a buy and hold investor you need selling and marketing skills. You need to market for leads of properties to buy. You need to be able to sell your self to a bank for fianancing. Every business, every person needs selling skills. It is the power of persuasion.

This is a large category and there are plenty of books here. Zig Ziglar, Tom Hopkins, Brian Tracy all have many books on selling. It would be hard to go wrong with anything those guys wrote. These are the guys that I studied when I was in sales. Ogilvy on Advertising by David Ogilvy or Positioning, The Battle for Your Mind by Al Ries and Jack Trout are both classics and outstanding in the marketing arena.

Business and Finance

Real estate is a business and you need business skills in addition to real estate knowledge to continually grow your business. The E-Myth Revisited by Micheal Gerber is very popular but I liked his E-Myth Contractor much better. Since he is talking about contractors it is easier to relate to. It is shorter, easier to read and I think simply does a better job of getting the point across. Another recent read which was quick and fun was Escaping the Self-Employment Trap by Victor Cheng.

There are books for just about any specific skill or aspect of business you want to learn about; hiring, firing, organization, accounting, taxes, the law etc. For example, many real estate investors want to know about LLCs. Do they need one? How do they create one? A good book in this area is Form Your Own Limited Liability Company by Nolo Press

Real Estate Books

OK, you probably want some books that are actually about real estate. Again there are a ton of options and you can choose from general books or books for a specific aspect investing. One of my favorite general books is Investing in Real Estate by Andrew McLean and Gary Eldred. I loved the book and my copy is filled with highlighted passages. I remember the review I read said it wasn’t for beginners. They probably said that because it’s not a “rah, rah, real estate is great” motivational book, but I think it is a great choice when getting started because it is chock full of useful info. It covers a wide variety of investing techniques and info.

Sometimes you don’t want a general book. You need information about a specific topic. A good example here would be, Inspecting a House by Carson Dunlop & Associates LTD.  By the time I read this book I felt pretty confident about doing my own inspections, yet I learned an incredible amount. The book has many diagrams of what to look for, is easy to understand and is well written. As an investor I usually write contracts with NO contingency for inspections. It’s vital for me to know what to look for before I write that contract. A book like this can really help.

Obviously there are many other excellent books on real estate available and I hope to review many of them over time. So stop back regularly and happy reading.

Ned
Image above © Jose Manuel Gelpi Diaz | Dreamstime.com

The mainstream media has regularly reported the weakness of the real estate market. The statement is often made that it will take some time to move through the backlog of unsold homes. As you know all real estate is local. What is happening to that backlog of unsold homes here in our Baltimore market?

According to Metropolitan Regional Information Systems, Inc.  (MRIS) the local multiple listing service. The inventory of listings for Baltimore City is rising. Every month this year the unsold inventory has increased. January had 5400 active listings and the most current report showed June as having 5722 active listings.

Number of Listings by Month, Baltimore City:

Month            listings          Sales
January           5400           362
February         5458            400
March              5509            441
April                 5684            450
May                  5697             508
June                 5722             526

But this doesn’t tell the whole story. In June 1299 new listings were added and only 526 were sold. Similar numbers happened every month this year, the May numbers were 1208 new listings and only 508 were sold.

New listings are being added at over twice the rate that homes are being sold. This should indicate that the unsold inventory should be rising at a significantly faster rate. Why isn’t the inventory rising faster?

The answer lies in the listing status; either Expired or Withdrawn. In June 2008,  794 listings were categorized as expired or withdrawn. There can be many reasons a listing is expired or withdrawn but certainly some are sellers who have simply given up on the idea of selling.  

A more extreme example is January where 1026 listings were expired or withdrawn. Compare that to only 362 sales in January. In other words almost three times as many sellers gave up on the idea of selling vs. the number that actually sold a house.

So what does this mean to investors?

The bottom line is that the inventory and backlog are growing.There should be a lot of motivated sellers out there. Just because a seller should be motivated doesn’t mean that they are. Use this info to negotiate.

Doesn’t that mean this is a risky time to buy?

Four to five hundred homes are selling each month. That number has been growing slowly every month. The average days on market was 106. This number has been trending downward slightly, a good thing. Here is an important key, about 1/3 of all sales sell in 1-30 days each month. Properties that are renovated right and priced right can and do move quickly. Smart investors should be able to buy at great prices. If you do a good job, you should be able to resell quickly and profitably.

Happy investing,

Ned

Supply and demand image © Richard Thomas | Dreamstime.com

I bought this book based on a recommendation from Robert Kiyosaki in his Rich Dad’s Cash Flow Quadrant book. In it he calls The Worldly Philosophers one of the most important books he has read and calls it a must read for those who are in business or investors.

The book is about the history of Economics by describing the times, lives and philosophy’s of the great (and some not so great) economists. While I have certainly heard the names of many famous economists, Adam Smith, Marx, John Maynard Keynes etc I never really knew much about their exact philosophies. Thanks to this book I have a better understanding of what they taught. So when I hear the term “Keynesian Economics” I now know they are referring to government tinkering with the economy.

The book is interesting but not what I was expecting. The stories are more about the lives of the economists and how that shaped their theories, rather than a discussion of the theories themselves. If you want a book about the how to nuts and bolts of economics that you can apply in your life and business, this is not it. If you want a book that is interesting, that will challenge you, and will give you a solid background in history and economics this could be just the ticket.

You can buy it from Amazon.com here

Happy reading,

Ned

I previously wrote about the good service I got from Goodwich, Stoller and Associates my CPA. Well I just received an amended return for 2005 from them. I made a lot of money in 2005 and paid a good amount in taxes too.

Thanks to Jeff Stoller’s excellent number crunching I will be getting back $10,000 from the federal government and $2,000+ from the state.

That will buy me a big pile of sushi. Thanks Jeff.

Happy investing,

Ned