Monday, November 30, 2009

4 Things to Determine Market Value of a Home

DISCLAIMER: The author does not intend to offer any form of legal or financial advice. All real estate sales involve substantial risk. Consultation with a qualified attorney is recommended. Also, there may be significant tax consequences. Consultation with a qualified tax professional is recommended.

It may sound pretty basic, but before you try to buy a house at below market prices, you need to actually know what the market price is. To understand the market value of homes you have to look at several factors.

  1. What is happening in the broader market? All of these factors will have an effect on how much a home is actually worth.

    a. Are home prices in your area going up, down, or sideways?

    b. Is unemployment going up or down, or have there been any recent announcements of layoffs or hiring?

    c. How many houses are available all over the area?

  2. What is happening in the local market?

    a. Is the neighborhood going up down or sideways?

    i. Do you see vacant houses?

    ii. Do you see unmowed lawns and signs of repairs that haven’t been made?

    iii. Are there any developments happening near or in the neighborhood?

    iv. Is there easy access to commuting, shopping and schools?

    b. How many houses are available in your neighborhood and in adjoining neighborhoods?

    i. Do you see lots of “for sale” signs?

    ii. How many “for rent” signs are there?

  3. What is the condition of the house you want to buy and the homes immediately surrounding it? How much will it cost to buy the property, repair it, and pay for it while making the repairs (taxes, insurance, mortgage payments, HOA dues, etc.). If you fix the house up to make it your dream home, or just habitable, will it outclass the rest of the neighborhood? If the answer is yes, then you probably shouldn't buy this house. Even though you may plan to live here for the next 30 years, things happen and you could need to sell right away. If your house looks like a jewel in a pig's nose of a neighborhood, you won't get full value for the house because of the neighborhood.

  4. How much are comparable houses selling for?

    a. To be sure a recent sale is truly comparable to the house you are looking at,

    i. Make sure you look at three to six home sales within ½ mile, within the last six months.

    ii. Take note, foreclosure sales are almost always well below market value, but they pull down the resale value for all houses in an area. This is usually a false deflation because they usually need lots of repairs before they are ready for occupancy. Unfortunately the cost of repairs doesn’t show up in the sale records.

    iii. After you know the values and compute the value of the house you are looking at, drive by the comparable houses to make sure they actually are comparable in size, finish, features, and neighborhood with the home you are looking at.

Using all the information you have gathered above, figure out what is the going price for houses in the area where you want to buy. Now, you can begin to look for a house you want to buy. At the Gold Seal Homes Group, our team of experts examines all the factors above for every home we buy and sell. We do this for two reasons:

1. We don’t want to pay more for a home than we should, and

2. We want to be sure when we sell you a home, it is already priced below market.

You can spend a lot of time studying the market, studying the neighborhood, finding comparables, looking at comparables, driving neighborhoods looking for a home and then trying to buy it. Or, you can come to the Gold Seal Homes Group, tell us what you are looking for and where, and then sit back while we do all the hard work and bring a home to you for you to buy.

When we find a home, in addition to all the hard work above, then we check out the home itself to determine the quality of the home. Because we actually buy these homes and resell them to you, we are taking on the risk of buying, just like you. We don’t want to own a house that isn’t a quality home anymore than you do. That is why you can be assured when you buy a home from the Gold Seal Homes Group it is a quality home at an affordable price, below market. That gives you peace of mind.

Whether you are looking for your first home, another home, or you are looking for real estate investment properties, we can find what you are looking for and sell it to you at a price which is below market and affordable.

Contact us today at

Tom ~

Why Pay Retail?

Friday, November 13, 2009

Easy Money: Becoming a Landlord

1-2-3’s of Becoming a Landlord

Okay, so you have decided you want to rent out your house. Welcome to the world of the land lord. Allow me to help you avoid a couple of the most common pitfalls.

  • Don’t rent at a negative cashflow. This may sound like one of those “well duh!” statements, but do you really know how much rent you need to have a positive cashflow? If you said, enough to pay the mortgage – Congratulations you just flunked the exam.

    To get a positive cash flow, you have to add up your expenses and your debt payments and the amount you need to set aside for reserves and get more than all that in rent.

Expenses: These are the ordinary costs you have as a landlord such as marketing, insurance, taxes, utility bills, pest control, landscaping, postage, travel, and repairs. These happen on a monthly basis.

Debt Payments: This is the payments you make on the mortgage, principal and interest payments to the lender.

Reserves: This is the money you need to set aside to cover unexpected repairs and other expenses that won’t be covered when the property is not rented out (vacancy expenses). These include mortgage payments (when there is no rental income), costs to paint and put in new carpet or vinyl, a new roof, or a new heater or air conditioner, a broken toilet, or to repair termite damage.

Reserves are the first place most people go wrong when renting out a house; they don’t think about reserves.

If you can add up the rent, subtract expenses, reserves, and debt payments and still have money left over, that is positive cash flow. If you subtract out all those numbers and you end up with a negative result, you have negative cash flow. Negative cash flow is not what you want with rental property.
  • Always, always, always, do a background check and financially qualify your prospective tenants. If you rent long enough, it is inevitable that you will eventually have a bad tenant. You can put that off a long time by having good management practices such as background checks, a tight lease, and qualifying your tenants financially.
I always check to make sure my tenants don’t have a history of drug crimes, sex crimes or violent crimes. I make sure tenants have a gross household income that is at least three times more than the monthly rent. All prospective tenants have to complete a rental application with a non-refundable application fee. If they won’t pay the fee, they aren’t going to pay the rent.

You can do a lot more in a background check if you want, looking at credit scores, evictions, etc. I don’t, because it isn’t worth all the extra trouble to avoid the few deadbeats that I might eliminate.

  • Know your rights and know the tenant’s rights. Make sure your lease is very tight and grants you all the rights you have under the law. On top of that, study the rental laws so that you don’t accidentally violate tenant rights and get yourself on the wrong side of a lawsuit. Your tenants will sue you if they think they can win, and there are a lot of ways you can violate their rights without meaning to. Knowing the law on these points will also allow you to set up systems to quickly and effectively deal with tenants who fail to pay their rent.

I know this post seems a bit negative about renting. There are many downsides of being a landlord. You will get late night calls and weekend calls. You will make appointments to show your place and have the confirmed appointment fail to show up. You will have tenants tear up your unit, forcing you make costly repairs.

However, you will also get some great tax breaks and can even get a tax loss while enjoying a positive cash flow (thanks to the magic of depreciation). You can also have the satisfaction of providing people with a decent home at an affordable price and helping them along their way to economic freedom.

The beauty of having a residual cash flow from a rental property, having someone else pay down your mortgage for you, and having tax write offs that decrease your taxable income are wonderful things. To enjoy them, you must be willing to pay the price.

I don’t mind the troubles of being a landlord. I find the rewards are sufficient to offset the risks. But, think about both before you take the plunge.

Tom ~

Why Pay Retail?

Saturday, November 7, 2009

Easy Money: Why Buy Real Estate?

Real Estate is the Best Investment

Real estate has been the basis for the wealth of more millionaires than any other form of investment. This is true because real estate is probably the best of all possible investments.

You can make money and have a tax loss, legally with real estate. If your annual depreciation amount exceeds the amount of income you have from the property, it will result in a reduction of your taxable income, even though you actually made money.

Banks will lend you money to buy real estate, sometimes more than 100% of the present value of the real estate. See how many bankers will lend you $100,000 to buy $100,000 worth of stocks.

A good real estate investment will give you dividends and appreciation (growth), not just one or the other as most stock brokers will try to convince you to settle for when buying stocks. Rent payments can be the equivalent of dividends for the smart investor and in spite of the recent downturn in real estate values, the historical average appreciation of real estate exceeds the historical average gains in the stock market.

The value of real estate does not disappear overnight like it can with stocks and bonds. At worst case, if you own it, you can always go live in it. Try that with a stock certificate!

Like they say in buying stocks, the secret to making money is to buy low and sell high. In real estate, we say that money is made in real estate when it is bought, not when it is sold. If you buy low and ensure you have a positive cash flow, it is pretty hard to miss in real estate.

It is a simple formula, but a challenging one to execute. Most professional real estate investors spend a lot of time understanding their markets. They see a lot of houses for sale that they won't make offers on. They know how to tell the winning deal from a loser, because of their experience and training.

Unfortunately, the amateur investor often gets taken in real estate, just as they do in the stock market. Anyone who hopes to consistently make money in real estate investing has to be prepared to pay their dues by getting the right education, getting a good mentor, and then following directions to do deals the right way instead of trying to make it all up on their own, or improvise their own approach to the market.

Because real estate is a capital intensive field, it is easy to loose a lot of money investing foolishly. There are three ways people can profitably get involved in and benefit from real estate investing.

1) Become a private lender. Find an experienced, successful and reputable real estate investor in your area and ask him if he could use a private lender. Use your IRA, move the money in your old 401K into an IRA, or use excess cash you have parked in CDs or less profitable investments. Make it available to this investor to use. Don't try to tell him or her how to find houses or which houses to buy, but require that you get four things every time your money is used:

  • A promissory note for the amount loaned, personally guaranteed by the investor

  • A deed of trust on the property with your loan in the first lien position

  • Lenders title insurance with you (0r your IRA) as the named beneficiary

  • Hazard insurance with you (or your IRA) as a named beneficiary/lender

As I mentioned, don't try to tell the investor where or what to buy. But, do feel free to ask why she or he bought the house they did. Learn all you can from the investor and don't begrudge her or him their profits. You are getting paid to learn from them by getting a nice interest rate return on your money.

2) Become an equity partner with an experienced, successful real estate investor. Seek out this investor and tell him or her that you have a sizable chunk of money (this better be at least $500K) and you want to get into the real estate investing business. You commit to providing the capital in exchange for a 50% share of the profits on each deal you do with them.

Again, be sure to pick the brain of the investor as you do each deal so that you can learn how the investor picks the winners, how s/he acquires the property and profits from the deal. Once again you are getting paid to learn.

3) Become a professional (part-time or full-time) real estate investor. First, you will need to set aside about $30K to $50K and invest it wisely in the best real estate investing training you can find (if you ask me, I will provide a confidential list of the best I have seen and some to avoid). As soon as you complete the very first course, apply it, apply it, and then apply it some more - before you attend or sign up for any additional training. Do not sign up for any additional training until after you have worked solid for six months trying to do everything the first course taught you to do. I will make an exception for a coaching program and a mentoring program that can help you apply what you have learned. You probably should sign up for those right away and work them for everything they will give you during that six month startup period.

After you have successfully used your training to buy and profit from three to six deals, then it is safe to go back in the water to sign up for additional courses.

In another post I will discuss the perils of real estate training and how it can distract you from making money.

Of the three ways I mention above to make money in real estate investing, the first two require the least amount of time and effort. The third, even if you do it only part-time, requires a tremendous amount of work, dedication, persistence and applied knowledge. The rewards are greater and so are the risks. Decide for yourself which approach suits you.

If you would like more information on:

  1. How to be a private lender see the Investors page of

  2. How to become an equity partner, contact me directly at

  3. How to become a successful real estate investor, keep reading these blogs or contact me directly at

Tom ~

Why Buy Retail?

Thursday, November 5, 2009

Easy Money: Investors Buy Right

Four Universal Keys (plus one) for Investors to Buy a House Right

In my last post, I discussed four universal keys to buying real estate right. In that post I addressed those who are buying a house to live in. Today, I will address those who are looking to buy a house as an investment. I will show you how those same four keys apply, but in a slightly different manner.

Why do I give different advice to investors than for homebuyers? Because there are different tradeoffs each faces. For the investor this is business (or it should be) while for the homeowner pleasure plays a big role.

As you will see from my discussion, savvy investors must always consider cash flow on a property. Homebuyers should consider affordability, but also consider the pleasure they get from living in the home. Since the investor rarely lives in a home they buy, the cash flow has to be enough pleasure.

So, lets get to the discussion.

To recap, there are four universal keys in buying a house right. The first is to avoid falling in love with the house. The second is to not overpay for the house. The third is to avoid overborrowing (overleveraging). The fourth is to not overpay for the loan. And for investors there is a fifth, critical key, never buy for appreciation.

I. Don't fall in love with the house. If the numbers don't work, then don't work the numbers, just move on. This is business, not pleasure. This house is not your one, true love. There will be other houses. It is an investment and one day you will sell it.

II. Don't overpay for the house. Never pay retail. When you buy a house for investment, your calculus is different. You must start with the retail value of the home and work backward to figure out what is the most you should pay. Here is the calculation if you plan to sell the house:

  • Retail Value - Seller Discount - Cost of Repairs - Carrying Costs - Desired Profit = Maximum Offer
Here are the calculations if you want to hold it and rent it out:

  • (Annual Rent - Operating Costs) / Purchase Price = Return on Investment (aka ROI)
but this isn't all:

  • Annual Rent - Operating Costs - Debt Payments - Reserves = Net Income Before Taxes (aka annual cash flow).

  • Net Income Before Taxes - Depreciation Deduction = Net Taxable Income (in this case a negative number is not a bad thing)
The variables in these formulae are driven by a variety of factors. It would take too much space to explain here, so I will explain how to get those in another post. Still, you can see that investing in real estate requires a basic understanding of the math of investing.

III. Don't overborrow. Many real estate investment course tout buying property with no money down. That can be done, I have done it. But, it is often a dangerous game and can lead to financial disaster for the unwary. When you buy a property and you owe 100% of what it is worth, you have no room for error. Also, if you look at the formulae above you will note that debt payments play a role in determining your net income. If you cannot earn $1.20 in net income for every dollar in debt payments you are making, you should probably not make the investment. If you borrow so much that every dime of net income has to go to pay your debt, you don't have any income to make your life better. You can be a real estate millionaire and not have two nickels to rub together - You are four tires away from bankruptcy.

IV. Don't overpay for the loan. Borrowing to purchase investment property is a different animal from borrowing to buy your own home. Rates are higher, payment terms are often shorter, and the demand for a down payment is much stronger. The best way to keep your lending costs low is to borrow private money. It is good for you and it is good for the lender. The only loser in this scenario is the bank, because they don't get to turn your money and the lender's money into their money. There is a lot of great win-win opportunities with private lending. I will discuss it in another post or you can go to the "Investors" tab at and request an information packet.

V. Never buy for appreciation. This is the single biggest cause of failure for real new estate investors. If you buy a property and are figuring that you will make all your money on the deal when it goes up in value and you sell it, you are not investing, you are simply gambling. I know of people who bought a duplex that they could not rent for enough money to cover the mortgage payments. "It's OK!" they said, "with the market in this area, we will sell it in six months and make back all our money and still get a huge payday." The market collapsed and they lost the duplex, their savings, their credit rating, and much more.

I started actively investing in real estate in 2001. I weathered this market downturn without a problem because of this one simple rule. I never buy a property that does not have a reasonable expectation of giving me a positive cash flow.

At we sell beautiful homes to home buyers. We also sell package deals to investors - a beautiful home with a tenant already in it at a price that will cash flow.

Tom ~

Why Pay Retail?

Easy Money: The 10 Second Formula to Get Rich

The Simple 10 Second Formula to Get Rich

Last time, I promised to provide you a simple 10-second formula for getting rich, and here it is (drum roll please)...

Buy low and sell high.

Honestly it really is just that simple. Unfortunately although it is simple, it is not easy. If it were easy, everyone would be filthy rich.

Whether you are dealing in real estate, cars, services, stocks, or what ever, the formula for wealth is the same. Buy it at a low price and sell it at a higher price. It is because of this simple truth that many say that money is made in real estate when it is bought.

If you buy real estate the right way, you will make money on it if the values go up, down, or sideways. If you are buying a home to live in, the calculation is a little different, but it still holds true.

There are four universal keys to buying right that apply to home buyers and investors. They have slightly different applications for each, but the keys are the same. The first universal key is to avoid falling in love with the home before you buy. The second is to avoid paying too much, always buy below market value. The third universal key is to avoid overleveraging (don't borrow too much). The fourth is to avoid paying too much for your loan.

In this post, I will break this down for those who are buying a home where they want to live. In another post I will do this for investors.

I. Don't fall in love with the house. When buying a home, don't get your heart set on just one house. Pick out two or three that would all be great for you. Then, if you cannot get one, you have two fall back positions. This is one secret why investors get great deals and retail buyers often don't. Investors don't fall in love with the house. They have three more just like it waiting in the wings.

II. Don't overpay for the house. Never offer retail value. Never make an offer that is more than 91% of the retail value of the home (savvy investors offer much less). Even if the market is hot. If you buy the home at retail value you stand an 80% chance that two years later the home will not be worth what you paid for it. This is one of the problems plagueing the housing market today. Many folks bought high and are having to sell low.

III. Don't over borrow. I cannot count the times I have heard people talk about stretching to make a mortgage payment because it would pay off in the future. Many of those folks are facing foreclosure today. Never borrow more than 80% of the purchase price of your new home, including any fees financed. As soon as you pass the magic threshold of 80% your mortgage payment shoots up. This is because of private mortgage insurance (PMI) that is tacked on as well as a higher interest rate, it can also increase your insurance premiums in some cases. This double and triple witching occurs when you cross the 80% mark.

IV. Don't over pay for the loan. Make sure your all-in payments are never more than 30% of your gross monthly income. If it is more than that, you can be four car tires away from foreclosure. Pay attention to your credit score and learn how to keep it high. A good credit rating will get you lower interest rates that will make a huge difference in the monthly payments you make - and that high credit score may even help you get the job you want.

Summary for Home Buyers

The 20% safety cushion on your loan, added to the 10% discount on the price you pay gives you 30% of the home value to protect yourself against declining home values, or discounts you might have to take if you need to sell fast.

That same 30% cushion means that when you walk in the door of your new home you have 30% of its value in equity. With a $100,000 home, that means you just increased your net worth by $30,000 by buying right.

Now, if the housing market goes down or sideways, you can still do fine. And, if it goes up, you can make a killing when you sell high, because you bought low.

At, we sell beautiful homes at below market prices. These are not fixer-uppers (once in a while we have those, but we let you know that up front). We carefully examine the market and figure out what is the retail value of each home we sell. Then we deliberately discount the price at least 10% below retail, sometimes more.

Further, our team will teach you what you need to know to get the lowest loan rate and best terms you can so that you won't overborrow.

Tom ~

Why Pay Retail?

Wednesday, November 4, 2009

Easy Money: Read This Before You Buy ANY Real Estate Course

Before You Buy ANY Real Estate Course - Read This!

Have you ever heard one of those commercials/webinars/presentations for real estate that tell you how you can become a real estate millionaire without money or credit? Before you whip out your credit card to buy and start planning how to spend all that dough, consider this...

Switch gears for just a moment and try to stay with me. All food has three ingredients that give it flavor: fat, sugar, and salt. Diet foods that say "fat free" have compensated by adding sugar or salt. Those that say, "sodium (salt) free" have likewise compensated by adding sugar or fat. And, "sugar free" means they have put in extra fat or salt, or both. If you have food that is fat-free, sugar-free, and salt-free, it is also flavor-free.

Liken these three ingredients, fat, sugar, and salt to buying real estate. To buy real estate you need money, credit, and work. If you don't have money or credit, then you better be prepared to compensate by doing a whole lot of work! Oh, did I mention knowledge too? Because if you don't know what you are doing when buying real estate you will either lose a lot of money, go to jail, or both.

Lots of folks spend money every day buying get rich quick schemes. Most of these are either targeted at making money on the internet or in real estate.

As a guy who has made money and is working right now in the real estate industry, I am here to tell you that there is no such thing as easy money and getting rich quick is usually a prelude to getting poor fast, and maybe going to jail.

The fastest and easiest way to make a lot of money really fast is by robbing people. You see my point?

Over the past few years I have spent a lot of money on seminars and courses about how to buy and sell real estate. Nearly all of them were prefaced by a pitch that made it seem like it would be fast and easy to make money. Those parts of the program were lies.

Don't get me wrong. I have made money in real estate. I have successfully used much of what I learned in those seminars. However, making that money was neither fast nor easy.

Before you buy any real estate course you need to understand that no matter what the ad says, to make the program work you will need to dedicate a significant amount of time and energy over an extended period to make it work. In many cases, you also need to be prepared to pay out substantial sums to prime the pump. Your best bet is not to quit your day job just yet. If you cannot make enough money in real estate working at it part time, you won't do any better working at it full time, in fact you will do worse.

"But Tom," you exclaim, "they say I can make money selling real estate without money or credit. Are you saying they are lying?" No, they aren't lieing. But you aren't understanding the whole truth either.

I have made money in real estate without money (or without much) and without credit. I bought a $537,000 complex with no money down and only the lawyers and I got a check at closing. It can be done. But, it takes a lot of work and courage. It would have been a lot easier if I had money and credit.

So, here is the bottom line. Before you decide to try making money in real estate with no money and no credit, be prepared to work very, very hard. Be prepared to make a lot of offers that get rejected, and be prepared to invest time and energy to offset that lack of money and credit.

I did it and it works. But I still work hard at it.

Next time - The 10 Second Formula for Getting Rich

Tom ~

Buy a house now, to invest or to live in, either way don't pay RETAIL!