Realty Pupil - Secrets of Real Estate

Ever notice the constant stream of “Real Estate Investor Seeks Apprentice” signs littering the offramps of most highways here in the west. These signs are generally cheap placards with nothing more than a promise of $5-10k monthly income, and a phone number that often goes to an equally vague voice mail.

These signs are the brilliant marketing strategy of a non-accredited school known as NRU, the Nouveau Riche University…. I know, I found their French method of spelling Rich offensive as well.

NRU is expensive. Casey Serin spent $16,000 to attend a few days of classes, which happens to be more than many people here in the midwest spend on a year’s tuition and board, and in some cases, an entire degree. Part of the reason these classes are so expensive results from the huge commissions (up to 50%) they offer to students who refer others to this ’school’.

Cleverly, NRU doesn’t seem to actually pay any commission until a student has referred three others. Just two, like in Casey’s case, means not a dime.

A quick glance on the internet will reveal many websites outlining the scam and mlm tactics of this school should be enough to dissuade almost anyone not already put off by the ridiculous signs littering the highway. Surprisingly, it doesn’t, as a steady stream of signs continue to appear.

As PT Barnum once so eloquently put it, there is one of them born every minute…

Now don’t get me wrong. NRU is like the magic tiger rock on the simpsons. They encourage their students to buy real estate in bulk, and throw every spare dollar into it. Many people have made their fortunes doing so, and so it is not entirely illogical that some people could very successful at this. That said, you don’t need to pay $16,000 to learn this. You’ll likely learn more about real estate reading this blog than attending any crazy MLM seminar. In fact, I will now proceed to explain a strategy that if followed, will make you significantly wealthier.

Step 1: Save $16,000. In order to do so, you should avoid any MLM scams, enrolling in nouveau riche university, or buying a new car.
Step 2: Actively walk around your neighborhood for exercise. Talk to neighbors to be friendly, all the while keeping an active eye for any homes that might be on the market, soon to be listed, or for sale by owner. Find a home that you can negotiate down to at at least 15% under market value.
Step 3: Use as little of the $16,000 as the bank will permit to buy the home. Proceed to either fix it up and flip it, or rent it out as finances and situation permit.
Step 4: Repeat step 2 and 3 until the $16,000 is spent. Hopefully Step 3 will lead to the occasional profit, permitting you to eventually own several properties that are cash flow positive from rent after expenses.

That’s it. Simple. Are you going to do it? Chances are no. You’d rather have that new car, besides…what rational person buys more than one home? Only wealthy people try to be landlords right?

Well if that’s how you feel, then maybe going to Nouveau Riche University is the right thing to do. If it takes wasting $16,000 to convince you that buying real estate (along with hard work) can be profitable, it may well be worth it. But if you can come to that realization without wasting spending half a year’s wages…more power to you.

Taking a shot at the declining home market, Stephen Colbert recently did a show offering the following sound advice on selecting a home to invest in: 3 rules of real estate: Location! Location! BEES! - Do not buy a house filled with bees.

While humorous, I must say, the opposite has been my experience.

Some time ago some relatives of mine moved into a very nice home which quite honestly, was infested with bees!

It took days of trying to chase them out, and there were many stingings, and one could never walk around the upstairs with their shoes off…but let me tell you, that home was a good investment!

When shopping for a home, it is important to recognize factors which can cause a seller to be truly motivated. If their place is run down, trashed, or best of all, full of bees…you have a motivated seller who will be much more likely to consider selling the home for less than it’s worth.

I guess my point is, the three things to look for in a home are location, location and bees. You WANT there to be bees, those bees will be worth more than ten thousand dollars. That’s sweeter than honey!

On a more serious note, I learned a term today that is important for the test. Blind listings are illegal in Utah. That is a listing made by an agent claiming to be selling their home for sale by owner.

Continuing from Lesson 25, we were told more stories about our instructor’s vast rental experience and actually covered some of the material regarding how to be a property manager and deal with renters/

We were told that it is difficult to budget for property management. This is true as stuff happens. Things break, and cost money to repair. Utah does NOT require one to maintain anything other than code violations and threats to life and safety.

Class started with a small argument as the teacher accused on the students of illegally managing other people’s property without a license. Agents seem bitter about this, since it probably seems unfair that they had to get their licenses, but hundreds of people manage illegally without doing so.

Our instructor confessed that Utah has less use for property managers than other states, as people here are very do-it-themselves…’cheapskates’ as he called them.

The rental market (like the home market) is hot right now. Rents are up roughly 25% over the last 6 months, and our instructor confessed that he plans to bring his rentals up to $700-800 for 2 bedroom units.

This is quite a bit higher than the $500 that many of these units were renting at two years ago.
He smiled as he told us that he likes to have his secretary call the larger apartment complexes and feign interest in learning the next year’s rent, and then he prices his rents slightly lower.

We were told that we can judge if our rent is too high or low based on the amount of demand and interest shown in a given price. Our insctructor told us that he’s tried to avoid renting BYU approved places in Provo, because BYU requires all sorts of difficult requirements of landlords (including prohibiting court action on tenants).

This can be difficult, as mediation tends to assume that both sides deserve something, so if a landlord is owed rent, chances are mediation is only going to get a partial collection.

He told us that he’s now in the process of buying a 24plex, which caters to immigrants, who he exclaimed are his favorite tenants.

He explained that the best way to check on a potential client and always get your rent is to charge $20-35 for a background check (which our instructor then credits to the rent if they pass). This he claimed, will discourage many undesirable applicants.

We were reminded that in order to keep good tenant relations we should in fact ALWAYS charge late fees. You must be uniform in your treatment to all tenants or risk offending the others.

Alrighty, lets get back into the classes.

Today’s class was taught by the principal broker over the brokerage that hosts our school. One of my classmates groaned “gah, he just tells stories and doesn’t even reference the chapter”

She proved correct, as the course was basically just a two hour extended story time covering our Broker’s gradual acquisition of 20+ rental properties since College.

It was pretty interesting, though some of it was rather redundant. The same classmate who had groaned earlier in the class shared her own particular experience with renting.

They had moved into a larger home, and decided to rent out their old one.

This is a brilliant idea, and the best way in my opinion to get started as a real estate investor. She however found herself desperate to fill the vacancy on the old home, possible as a result of trying to rent it at a slow time of year. No one wants to pay two mortgages.

This desperation led them to rent to the first renters they found, who turned out to be heavy drug users, ones who enjoyed knocking holes in the walls and trashing the home.

They had neglected to collect a security deposit, do a credit check (It’s only $20 people!) and had lost tens of thousands as a result. The renters ran off leaving a three month unpaid rent debt, which left my classmate in a rather desperate situation.

Our instructor remarked that most agents DO NOT act on deals that they find. He recommended selling them to favored clients to build goodwill if you weren’t going to take it anyway.

He also remarked that there is a HUGE turnaround on young agents in Utah and asked why we thought that was. I couldn’t resist.

I raised my hand “It’s a very difficult industry for new comers..”
He cut me off “Actually it’s a wonderful, one of the best industries for new agents”

I quipped back “But Brokers take such a huge portion of the commission and…”
Again I was cut off with nervous laughs, and the topics was changed ;-).

We were reminded that it IS ILLEGAL in Utah to manage a property other than up to 6 of your own, without a real estate license.

One useful bit, it is very wise to NOT live in one of your rental units. Doing so will lead to knocks on your door at all hours of the day whenever the tenant has a question or complaint. Management can be a headache.

Class concluded with a sample management agreement, which I will try to scan later. The moral of the many stories shared by our instructor was to always buy with bank’s funds, wait until a home has appreciated, then refinance and repeat.

Never use your own money as a down payment if it can be helped he stressed, it was better to refinance and use the excess cash to help buy the next home.

He advised keeping homes for as long as you could, in order to net the best possible benefit from bank financing. Inflation and tax benefits makes buying as much property as you can afford a very wise investment. If rental income covers your monthly payments, and appreciation allows you to pay down payments, it is possible for practically anyone to purchase several properties and own them outright by the time they retire at 65. Starting at age 20 can easily lead to you being a millionaire at 40.

Our Instructor warned that many agents have been schemed into joining pyramid and ponzi type scams that guarantee a retirement for agents by signing up other agents. This is a problem for many people in Utah.

Casper the not so friendly…

Today’s class began with a warning. “You will work with Leases”
Some agents choose to deal with Leasing as their unique specialty. They generally work during normal business hours, as most businesses lease rather than own their property. Real Estate agents are licensed to work with Leases in the state of Utah. At this point in class, I took out my lunch and began to munch on my fluffernutters, while the instructor gave the definition of Leases.

Be sure to get a lease in writing the instructor warned, as people in Utah seem to have a “selective memory” when it comes to things promised outside of a written contract. This brought about a story regarding an unsavory tenant whom our instructor had suffered with, “a black guy” our instructor shared, ironically named Casper who had tried unsuccessfully to “use the minority card” when he was denied his lease renewal.

We were warned that as Landlords, there is a solemn duty to get rid of tenants who deal drugs, as property can be seized by the government if you are found to be negligent. We then learned some interesting information regarding renting in Utah.

The slowest months (and thus the best ones for tenants) are April, May and June. For this reason, most landlords try to lease their properties out through those months, with most leases here lasting a year, and being initiated either August or September 1st. Our instructor recommended advising tenants from previous years two months ahead of time if you plan to give them another year lease, particularly at a higher rent.

We were told that it was a renter’s market a year and a half ago when home prices were still very low in Utah, and there was a strong housing boom in the rest of the nation. As a result, many young-would-be tenants bought homes instead. Home prices have since skyrocketed almost 25% since then which has caused rents to recover. Utah certainly appears backwards in this regard, rents freefalled during the bubble, now that the bubble has burst rents are rising.

Want to learn how to make money by being foreclosed upon?
Read part two of this lesson.