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“William Bronchick” You’ve seen the late-night infomercials with self-anointed gurus promising you millions in real estate profits with no money down. The truth is that many of these charlatans never made a dime in real estate, but instead built their fortunes through selling over-priced or useless information to unsophisticated investors suffering from insomnia.

Most of us are smart enough to realize that no real estate “system” is foolproof, and if anything seems to be good to be true, it probably is. However, that doesn’t mean that you need excellent credit and a surplus of cash to get started in real estate. Here are some strategies for financially-constrained aspiring investors to begin generating real estate cash flow.

You Don’t Have to Own a Property to Make Money from It – Be a Dealer

There are two types of quick-sale real estate investors – retailers and dealers. Retailers buy properties outright and sell them for a quick profit. Their risk is highest, but so is their potential reward. Contrary to the late-night realty televangelists, retailers typically need substantial cash for a down payment, and at least decent credit.

Dealers, by contrast, buy and sell contracts, not properties. They find bargain properties and sign purchase contracts with their sellers. Dealers then sell these purchase contracts to retailers, making a solid profit in the process. This is known as “assignment of contract.” Usually, the only cash required is the earnest money to secure the deal. A good dealer can then flip the contract for a quick $1,000 to $3,000 without ever taking possession of the deed.

Use a Double Closing for Greater Profit Potential

A double closing allows a dealer to earn a higher profit margin than an assignment of contract. With an assignment of contract, there is always potential that the deal will ultimately fall through. The dealer is protected in this case because she has already received her proceeds from the sale of the contract, but the retailer who buys the contract from her is wary of the deal falling through, and thus, will factor it into the price he is willing to pay. With a double closing, the dealer assumes more risk, because if the deal falls through, she receives nothing. However, with this greater risk comes a greater reward.

A double closing begins with the dealer signing a purchase contract with the property owner. Then the dealer signs a contract with the retailer, in which the retailer agrees to buy the property from the dealer at a higher price, and deposits that amount in escrow. The property owner signs the deed to the dealer, who then signs it to the retailer. The retailer then signs the loan documents, and the process is complete – the property owner is paid his asking price, and the dealer is paid the difference. Note that the dealer came to the table with no money, and her credit was never an issue.

Be a Scout – No Cash or Credit Required

In addition to dealers and retailers, scouts are a third type of real estate “flipper.” Instead of flipping actual properties or contracts, scouts flip information.

Scouts face even less risk than dealers, and have almost no cash or credit concerns. They simply gather information about distressed properties and sell it to interested dealers and retailers. In effect, scouts do the dirty work for real estate investors, and investors are willing to pay them handsomely for doing it. Typically a scout will gather the following data on a potential deal: The owner’s name and contact information, the asking price, information about the mortgage and whether payments are current, outstanding liens on the property, a photograph of the house, and pertinent information about the owner’s motivation to sell – i.e. is he in the middle of a divorce, foreclosure, job transfer, etc.

Investors typically pay scouts between $500 and $1,000 for good information, but what happens if an investor doesn’t pay? Simple – don’t take any more deals to them. Successful investors realize the value of good information, and they are more than willing to pay for it.

Take over the Seller’s Mortgage Payments

Prior to 1989, almost all home loans were freely assumable. This meant that anyone could take over the payment of the loans without objection from the lender. However, due to a climate of rising interest rates that began in the late eighties, virtually all home loans issued since then contain a “due-on-sale” clause. This means that when ownership of a property is transferred, the lender can demand payment, in-full, of the outstanding loan.

However, “due-on-sale” is merely a contract clause – not a law. It is the lender’s prerogative as to whether or not this clause is exercised. If you buy a property and take over the loan payments, there is a distinct possibility that the lender won’t even notice. There’s an even greater chance that the lender will choose not to exercise the due-on-sale clause, so long as you make timely payments. After all, the cost of enforcing the clause is significant, and as long as the lender is being paid, it is unlikely to care who signs the monthly checks. Armed with this knowledge, you can potentially buy properties without a credit check.

Real Estate Success Always Requires an Investment

There are ways to profit from real estate without significant financial investment, however, that is not to say that success comes free and easy. At the very least, you will need to make a substantial investment in yourself. In order to succeed, you must be willing to work hard. Even with a million dollar real estate portfolio, your brain will always be your #1 asset. Be sure to invest in your education on a daily basis, and learn as much as possible about your local market, real estate law, and investment strategies.

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William Bronchick: People settle claims out of court all the time, and that is often the smart thing to do. But, most people forget the one simple step that is crucial to the process. This simple step, if omitted, can result in a future lawsuit against you, even if you allegedly settled the claim.

Consider the act of settling with a tenant who his behind on his rent: you accept the keys, waive his back rent and he moves out quietly. But, the tenant can always come back and sue you years later regarding damage to his property because of a leaky pipe. There is a simple way to avoid this lawsuit from happening.

Consider the times you may have accepted or given an earnest money deposit on a real estate contract. The closing never happened, and you either kept or forfeited the earnest money. Does this mean you can’t be sued in the future for breach of the contract? Don’t bet on it!

Consider the times you may have settled a claim with your neighbor regarding any controversy that may have allowed him to sue you. It may have been a situation where he fell on your property and was injured. You offered to pay his medical bills and he graciously accepted. However, two years later, what is to stop him from suing you for additional damages for pain and suffering? The answer: nothing! OK, so now you are begging me to reveal the secret of how to avoid future liability on transactions such as these. The answer is simple: you need to get a written release of liability.

A release, also known as a “general release,” is a simple document by which someone agrees to release you from all liability. A properly drafted release will prevent the signor of the document (the “releaser”) from bringing any claims against you in the future that he had as of the date of the release. Keep in mind that the release will not prevent the releaser from suing you for new claims related to events that arose after he signed the release by William Bronchick.

So, whenever you have a dispute with any other party that is settled, make sure you have that party sign a general release form before you give any money or consideration. And, speaking of consideration, there must be consideration given for the release to make it legally binding. In other words, you can’t just get someone to sign a release with nothing in return. A promise to waive your own legal rights against the releaser is sufficient consideration (i.e., you may have to sign a release against the other party as well). If you can’t think of any consideration, consider any counterclaim you may have against the opposing party, and threaten legal action to create a “dispute.”

For example, if someone threatens to sue you over monies owed for services, consider questioning any part of the services provided that may have been performed inadequately. Of course, you may have to visit with a lawyer to determine what claims, if any, you may have against the party threatening you. In other words, don’t lie or make something up. Do what lawyers do: use your imagination, find a creative argument that might hold water, then bluff! Even if you have a very small chance of winning on your counterclaim in court, it is sufficient consideration to waive that claim in exchange for the opposing party waiving their own claim.

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William Bronchick: The land trust is a very powerful tool for the savvy real estate investor, and there are many reasons to use land trusts in Colorado. A Colorado land trust is a revocable, living trust used specifically for holding title to real estate. Each property is titled in a separate trust, affording maximum privacy and protection.  Also known as an “Illinois Land Trust”, the title-holding land trust is recognized by statute in Florida, Georgia, Hawaii, Illinois, Indiana, Montana, North Dakota, South Dakota, and Virginia.

Colorado does not have a land trust statute, but since a land trust is a basic revocable, living trust, it would be recognized under common law trust principles.

Here are seven good reasons to use a Colorado land trust for titling property to real estate.

Privacy

In today’s information age, anyone with an internet connection can look up your ownership of real estate. Privacy is extremely important to most people who don’t want others knowing what they own. For example, if you own several properties within a city that has strict code enforcement, you could end up being hauled into court for too many violations, even minor ones. Having your real estate titled in land trusts makes it difficult for city code enforcement to find who the owner is, since the trust agreement is not public record for everyone to see.

Protection from liens

Real estate titled in a trust name is not subject to liens against the beneficiary of the trust. For example, if you are dealing with a seller in foreclosure, a judgment holder or the IRS can file a claim against the property in the name of the seller. If the property is titled into trust, the personal judgments or liens of the seller will not attach to the property.  This is because of the unique nature of land trusts, which make the beneficiary’s interest in the trust “personal property”, and vests all legal and equitable title in the trustee.  Thus, a judgment against X is not a lien on the property held in a land trust for X.

Protection from title claims

If you sign a warranty deed in your own name, you are subject to potential title claims against you if there is a problem with title to the property. For example, a lien filed without your knowledge could result in liability against you, even if you purchased title insurance. A land trust in your place as seller will protect you personally against many types of title claims because the claim will be limited to the trust. If the trust already sold the property, it has no assets and thus limits your exposure to title claims.

Discouraging Litigation

Let’s face it, people tend to only sue others who appear to have money. Attorneys who work on contingency are only likely to take cases which they can not only win, but collect, since their fee is based on collection. If your properties are hard to find, you will appear “broke” and less worth suing. Even if a potential plaintiff thinks you have assets, the difficult prospect of finding and attaching these assets will discourage litigation against you.

Protection from HOA Claims

When you take title to a property in a homeowner’s association (HOA), you become personally liable for all dues and assessments. This means if you buy a condo in your own name and the association asseses an amount due, they can place a lien on the property and/or sue you PERSONALLY for the obligation! Don’t take title in your name in an HOA, but instead take title in a land trust so that the trust itself (and thus the property) will be the sole recourse for the homeowner’s association’s debts.

Making contracts assignable

The ownership of a land trust (called the “beneficial interest”) is assignable, similar to the way stock in a corporation is assignable. Once property is title in trust, the beneficiary of the trust can be changed without changing title to the property. This can be very advantageous in the case of a real estate contract that is non-assignable, such as in the case of a bank-owned or HUD property. Instead of making your offer in your own name, make the offer in the name of a land trust, then assign your interest in the land trust to a third party.

Colorado’s Unique Trust Statute

In most states, a property in trust must be held in the name of the trustee, for example, “John Jones, as trustee under a declaration of trust dated June 2, 2011”.  Colorado law (CRS C.R.S. 38-30-108.5) allows a trust to take title in its name, then the trustee may file a “statement of authority” identifying the trustee (CRS 38-30-172).  If you want to change trustees in Colorado, you do not need a new deed, just amend the land trust and file a new statement of authority with the County Clerk and Recorder.

William Bronchick: As you can see, the title-holding land trust can be very beneficial for the owner of real estate in Colorado.

William Bronchick: Have you ever had a tenant leave in the middle of the night or the middle of an eviction? Did you ever wonder what to do when the tenant abandons the property?

Basically, when a tenant abandons the property, you do not need to file an eviction or wait for the sheriff. You can change the locks.

HOWEVER…

If you are not certain whether the tenant has abandoned the property, you should not change the locks. If you have the keys and your lease allows it, you could enter the premises, but KNOCK FIRST. Whether or not the tenant has abandoned is often a judgment call, looking at a combination of factors, such as:

·         Did the neighbors see them move?

·         Are the utilities shut off?

·         Did the tenant put in a change of address at the post office?

·         Is there any significant furniture left?

·         If you have access, are there sheets on the beds?

Even if the tenant is not sleeping there, they are still “in possession” if they have their personal belongings in the unit and have not shown an intent to abandon these items.

If you do intend to claim abandonment, take pictures, gather evidence and cover all bases to prepare for a possible wrongful lockout claim.

Definitely, give the tenant notice in writing where you have stored their stuff (if you have anything) and give them adequate time to come get it. If you have ANY doubts, call your landlord–tenant attorney and do the proper legal eviction proceeding. Or, here’s another possibility… said by William Bronchick.

PAY THE TENANTS TO LEAVE!!

If the tenant has NOT abandoned your property, or you aren’t sure, or you messed up and they are coming back for their stuff, you should consider giving “Cash for Keys” to bribe the tenant to give up possession. While not deserving if they are behind on rent, it is smart BUSINESS because you avoid an eviction and possible damage to the property by the tenant.  If you do this, however, make CERTAIN you get the tenant to sign a general release of liability form.  This form, when signed by the tenant, will waive their rights to sue you (even if you messed up and they have a claim).

Make sure you contact an attorney to prepare a good general release of liability form.

William Bronchick: Any major endeavor worth doing right requires some sort of organized plan. Starting a business and getting it off on the right foot is no different. It’s amazing to me that most folks that are starting a business spend more time planning a 1-week vacation that they do laying out the steps of a business they intend to support them for many years into the future!

In order to help you on your journey, we will explore 7 key ingredients that are essential in a complete real estate business plan.

1. How Much Are You Going to Invest Initially?

It’s important for business plan purposes to at least allocate an amount of money that you wish to invest at first. This can be cash on hand, savings, a line of credit, IRA money, partner’s money or other. It’s not important to have an exact amount, just a starting point. The amount can be changed as needed.

2. Entities and Principals

I am always amazed in my roles as both an investor and business consultant at a number of investors, even those experienced, that do all of their business and hold all or most of their assets in their own names! A proper business entity (LLC, S- Corp., C-Corp. or other) can provide asset protection and help with your tax situation- in a BIG way! Most investors start out with an LLC, which is fine but there may be other entities, such as an S-Corp. that are better suited for their particular investment strategies. Many of us, that do a variety of investment strategies, have at least a couple (NOTE: Everyone is a bit different so, we recommend consulting an attorney, tax advisor; mentor or accountant versed in real estate for what will be the best option for their business). You also need to list the folks who will be part of your entities, their positions, and percentages of ownership.

3. Investing Strategies

Real estate is a business with many potential investing strategies. Some strategies work better in different types of markets and locations. It’s up to you to pick a few that make sense to you, depending on your education, available funds, location, type of market and more. Joining a local REIA (Real Estate Investing Association) or seeking the advice of a mentor is a good way to narrow down your choices. Educating yourself will help determine what may be a good fit for you and your partners.

4. Goals and Income for 1, 3 and 5 Years

It is also important to have an idea of your goals as to what you wish to accomplish over a period of time and the potential income that you can derive from those efforts. As far as goals, what do you want to do? Replace current income? Retire? Build an empire? It’s important to relate your business plan with your goals and to figure out what kind of income one can derive from that. Short term strategies such as Wholesaling, Rehabs etc. can yield anywhere from $3k to $40K + per deal. Long-term strategies such as Buy & Hold ($300- $500 per month) will take longer and yield less income annually but pay off big time after a few years. As far as goals, you obviously should be making quite a bit more in 5 years than at year 1.

5. Investment Areas and Target Sellers/Buyers

It’s important to figure out the area or areas where you will invest. Most of us start with areas close to where we live, but it is possible with the right team and plan in place to successfully invest in other states and other areas. Depending on your investing strategy, you will also want to identify who your target seller will be and market to them accordingly.

6. Marketing Plan

You can know all there is about real estate and have unlimited funds, but without a Marketing Plan, you have NO business! There are a variety of types of marketing within the grasp of the average investor and it’s up to you to try a variety of methods, track what works, and pursue it relentlessly! Your business plan should list the various marketing tactics you plan to use and maybe even include some potential marketing ideas for the future.

7. Exit Strategies

Nothing is forever. A great business plan also includes when and how you plan to exit the business. Some choices are; Closing the Business, Selling It, Giving it to Your Heirs and more. This can also be changed as time and circumstances dictate.

Hopefully, these 7 Tips will help you formulate a solid business plan that rockets you to success! Remember, a business plan is like a map. It can be changed, tweaked, adjusted and revised as your circumstances or the market circumstances change.

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