REAL ESTATE MARKET VALUES APPRECIATION BASIC INFORMATION AND TUTORIALS

Appreciation in Market Values

Over periods of 5 to 10 years, nearly all types of properties gain in value because population, jobs, incomes, and wealth (buying power) grow faster than the amount of new construction. Over the long term, more people with more money consistently push real estate prices up.

“Okay,” you retort,“but that was then and this is now. Surely prices can’t continue to increase as they have in the past?” I answer,“They can and they will.” To see the future, just weigh together these dominant trends:
1. Population growth. During the next 20 years, the population of the United States will increase by 40 million people.

2. Incomes. During the next 20 years, employees, entrepreneurs, professionals, and business owners will see their incomes rise by over 50 percent.

3. Vacation homes. During the next 20 years, at least 10 million more Americans (and foreign nationals) will choose to buy vacation homes within the United States.
4. Echo boomers. During the next 20 years, more than 60 million echo boomers (children and grandchildren of the baby boomers) will enter the housing market to buy homes.
5. Restrictions on development. During the next 20 years, zoning, environmental laws, building regulations, and land shortages will continue to restrict development in those areas where most people want to live.

6. Construction costs. During the next 20 years, the costs to construct houses (and other types of buildings) will follow their past trend line upward.
7. Immigrants and minorities. Currently only 40 percent of our fastest growing immigrant and minority groups (Hispanics, blacks, Asians) own their own homes. In contrast, more than 75 percent of whites live in homes they own.

With government programs and lender outreach efforts in full swing, during the next 20 years people in these minority and immigrant groups will continue to buy homes in record numbers. Federal, state, and local governments in cooperation with private lenders will be working hard to close the home ownership gap.
8. Investors. During the next 20 years, more than 60 million baby boomers will need a retirement income. They will increasingly turn to investment real estate to meet this need. Demand for property as an investment will continue to explode—as it has during the past 5 years.
You don’t need advanced knowledge of economics and demographics to recognize the fact that every major social trend is pushing real estate prices upward.

Twenty Key Provisions That Must Be Included in Your Master Lease Agreement

Always use separate master lease and real estate option agreements to document your LASH transaction. Whether you buy a sample copy of a valid lease agreement from a professional association or hire a competent real estate attorney to prepare one for you, make sure that all of your master lease agreements include the following 20 key provisions:

1. Parties.
2. Agreement to lease.
3. Legal description of the property.
4. Term of the lease.
5. Holdover.
6. Lease rental rate.
7. Security deposit.
8. Services and utilities.
9. Use of premises.
10. Signs.
11. Waste, nuisance, and illegal use.
12. Maintenance, repairs, and alterations.
13. Entry and inspection.
14. Damage or destruction by fire, storms, and earthquakes.
15. Condemnation.
16. Notices.
17. Applicable law.
18. Arbitration of disputes.
19. Legal costs.
20. Execution of the lease agreement by landlord and tenant.

TWENTY REASONS MOST PEOPLE FAIL TO MAKE IT AS REAL ESTATE INVESTORS

I always strive to tell it to my readers as it really is. I do not believe in sugarcoating the truth. And that is why I want you to know that most people— more than 51 percent—fail miserably as real estate investors. I am telling you this not to discourage you, but to warn you about the consequences of investing in real estate in a haphazard manner.

I attribute this relatively high failure rate to the fact that the real estate investment business does not have any of the so-called barriers to entry, which many other businesses have. In other words, there are no background, educational, competency-testing, licensing, insurance, or capital requirements to set up shop as a real estate investor.

Anyone can enter the business at any time, without the slightest clue as to how to operate a profitable real estate investment business. As a result, most people usually fail to make it as real estate investors for one or more of the following reasons:

Reason 1: Paying above market value for property.

Reason 2: Lack of persistence.

Reason 3: Lack of organizational skills.

Reason 4: Lack of local real estate market knowledge.

Reason 5: Inability to stay focused on a single objective.

Reason 6: Failure to act in a timely manner.

Reason 7: No clearly defined exit strategy.

Reason 8: Lack of capital and credit.

Reason 9: Lack of clearly defined investment goals.

Reason 10: Unrealistic expectations.

Reason 11: Bad advice from unreliable sources.

Reason 12: Lack of planning.

Reason 13: Poor record keeping.

Reason 14: Lack of self-discipline.

Reason 15: Lack of basic real estate investment knowledge.

Reason 16: Lack of patience.

Reason 17: Lack of mental toughness.

Reason 18: Inability to manage time.

Reason 19: Failure to perform adequate due diligence inspections.

Reason 20: Failure to prioritize tasks in accordance with their importance.

The Seven Most Profitable Types of Properties to Buy Options On

The real trick to being a successful option investor is in knowing which properties to put under option so that you can create instant equity without having to spend oodles of time and gobs of money on an extreme property makeover. And over the years, I have been able to take the same derelict properties, which most uninformed investors reject out of hand as being hopeless cases, and by using just a smidgen of imagination and some old-fashioned creative thinking,

I have turned them into profitable option properties. From my experiences, the seven most profitable types of properties to buy real estate options on are:

1. Properties that can be rezoned for more profitable uses.
2. Small mismanaged rental properties that can be turned around.
3. Properties condemned for demolition because of code violations.
4. Dirty, filthy, run-down properties that can be cleaned up.
5. Properties with correctable problems that make them non-marketable.
6. Properties that have been stigmatized.
7. Properties with obsolescent f laws that can be put to other uses.

What the preceding seven types of properties have in common is that they are all well below the radar screens of the so-called big guy investors, such as publicly traded real estate investment companies, and they usually:

1. Belong to absentee owners.
2. Are in a filthy, neglected, run-down condition.
3. Have f laws that make them non-marketable.
4. Are not being put to their most profitable use.
5. Can be bought at prices at least 20 percent below their current market value.
6. Have immediate resale profit potential when marketed to a targeted group of prospective buyers.

In most real estate markets nationwide, savvy, knowledgeable real estate option investors who really know what they are doing have very little real competition from other individual real estate investors for these types of properties.

This is because the average real estate investor is not very sophisticated when it comes to putting relatively complex deals together. Plus, they are generally intimidated by any property other than a single-family house or duplex and are reluctant to make offers on properties that are not for sale by the owner or listed with a broker.

Five Obstacles That Investors Must Overcome When Flipping Properties

To read most of the property-f lipping books, you would think that flipping a piece of property is as easy as changing clothes. I hate to be a spoil sport, but in reality nothing could be further from the truth.

The fact of the matter is that most authors fail to point out the potential deal-killing obstacles that investors must overcome when using conventional property-f lipping strategies. And they never bother to mention anything about:

1. Title seasoning.

2. Loan seasoning.

3. Property appraisals.

4. Overzealous scrutiny from lenders and title and escrow agents for possible fraud.

5. Stringent financial tests, which investors must pass in order to qualif y for a mortgage or deed of trust loan on a non-owner-occupied property.

I can tell you from firsthand observations that most of the investors who try their hand at f lipping properties usually end up spinning their wheels. While I was writing this, I received a telephone call from an investor here in Tampa who wanted to know if I was interested in buying a small commercial property that he had under contract to purchase.

As I found out, this guy was unable to finance the purchase of the property, and his purchase agreement was due to expire in five days. He was in a panic mode, frantically trying to find someone to buy his agreement before he lost his earnest money deposit and the seller filed a lawsuit against him for failing to purchase the property as agreed.

I passed on the deal but took down the property’s street address for future reference. Who knows, if the property fits my needs, I may contact the owner later on and try to negotiate an option to purchase.

TWENTY-FOUR GOOD REASONS TO BUY OPTIONS INSTEAD OF PROPERTIES

I am willing to bet anyone an ice cold case of Beck’s Beer that the numerous commercial real estate market meltdowns that have occurred during the past 30 years would not have been so severe if the high rollers had bought more real estate options instead of properties.

In this way, if they did not want to exercise their real estate options, they could have simply let them expire, and that would have been the end of it. And they would not have incurred any of the transaction, maintenance, management, holding, and debt service costs that eventually forced them to go belly-up.

In other words, they would not have been saddled with the financial responsibility and personal liability that go along with outright property ownership, and they automatically would have avoided having to:

1. Fill out intrusive loan applications.
2. Qualif y for new loans.
3. Make monthly loan payments.
4. Circumvent loan due-on-sale clauses.
5. Worry about liability lawsuits.
6. Support negative cash f lows.
7. Contemplate being foreclosed on.
8. Collect tenant rental payments.
9. File tenant eviction lawsuits.
10. Chase deadbeat tenants.
11. Go into debt.
12. Buy any property.
13. Pay outrageous loan fees.
14. Assume existing loans.
15. Make expensive property repairs.
16. Babysit tenants.
17. Fret over escalating property taxes.
18. Fill vacancies.
19. Pay exorbitant property insurance premiums.
20. Maintain property and tenant records.
21. Clean up after messy tenants.
22. Pay transaction costs.
23. Assume financial and personal liability.
24. Manage property.

THE SEVEN KEY ELEMENTS OF A REAL ESTATE OPTION TRANSACTION

A real estate option transaction consists of the following seven key elements:

1. Optionee: Optionee is the party buying a real estate option. Once a real estate option is exercised, the optionee becomes the buyer.

2. Optionor: Optionor is the party selling a real estate option. Once a real estate option is exercised, the optionor becomes the seller.

3. Real estate option: When an optionee buys a real estate option, he or she buys an exclusive, unrestricted, and irrevocable right and option to purchase a property at a fixed purchase price within a specified option period.

4. Option consideration: Option consideration is the amount of money paid by an optionee to buy a real estate option from an optionor.

5. Option period: The option period is the specific period of time stated in the real estate option agreement in which the option is in effect.

6. Exercise of option: The exercising of a real estate option occurs when the optionee notifies the optionor, in writing, that he or she is going to exercise the real estate option and purchase the property under option.

7. Expiration of option: A real estate option expires when an optionee fails to exercise his or her real estate option within the option period stated in the real estate option agreement.

How a Real Estate Option Transaction Works

Here is a sequential outline of the mechanics of a real estate option transaction:
Step 1: The optionee pays a real estate option fee to the optionor.

Step 2: The optionor grants the optionee the exclusive, unrestricted, and irrevocable right and option to purchase a property at a fixed purchase price during the option period by executing a real estate option  agreement with the optionee.

Step 3: The optionee assigns or exercises his or her real estate option or lets it expire.

Step 4: Once exercised, a real estate option agreement turns into a bilateral agreement in which the optionee becomes the buyer and the optionor becomes the seller.

Step 5: The seller transfers the property’s title to the buyer at the closing.

REAL ESTATE OPTIONS BASIC INFORMATION AND TUTORIALS

Real estate options are a little known and seldom used investment strategy probably because the only time that most people ever read or hear anything about real estate options is when they are bandied about, willy-nilly, on real estate web site message boards or discussed at real estate investment club meetings by people
whose collective knowledge of the subject would not fill a thimble.

However, when fully understood, properly prepared, and used correctly, real estate options are an excellent way to conserve capital, create leverage, reduce risks, and gain control of properties with immediate resale profit potential. But, to avoid the potential problems and pitfalls that plague most uninformed and unsuspecting real estate option investors, you first need to know:

1. The difference between a straight or naked real estate option and a leaseoption.
2. What a real estate option is.
3. The seven elements of a real estate option transaction.
4. How a real estate option transaction works.
5. The legal status of real estate options in your state.

The Difference between a Straight
Real Estate Option and a Lease-Option
First things first: There is a world of difference between the straight or naked real estate options that I am writing about in this book and the rather ubiquitous lease-options that everyone and their brother has written about over the past 10 years. For starters, the real estate option agreement that I am writing about is a stand-alone document, which is not part of a lease agreement.

Second, under the terms of a lease-option agreement, the lessee-optionee takes possession of the
property under lease and is legally obligated to pay a monthly lease payment. The only payment required on a real estate option is a one-time option consideration fee. And unlike real estate options, lease-options violate the loan due-on-sale clause contained in residential mortgage or deed of trust loans.

In other words, in the event that a lender discovers that a property owner has entered into a lease option agreement, the lender could call the mortgage or deed of trust loan due and foreclose if the loan was not paid off in full.

Often, people confuse a real estate option with a right of first refusal. The main difference between a straight or naked real estate option and a right of first refusal is that a right of first refusal is the right to match a bonafide purchase offer from a third party, whereas a real estate option is an irrevocable right to purchase property, usually at a pre-determined price, within a specified time period.

For example, most commercial leases include a right of first refusal that gives the lessee the right to match any written offers that the owner may receive to purchase the property under lease.


The Definition of a Real Estate Option
In general legal terms, a real estate option grants the party owning the option, the optionee, the exclusive, \ unrestricted, and irrevocable right to purchase property from the party selling the option, the optionor, during the specified period of time that the real estate option is in effect.

REAL ESTATE MARKET VALUE APPRECIATION BASIC INFORMATION

Why Real Estate Market Value Appreciates?

Over periods of 5 to 10 years, nearly all types of properties gain in value because population, jobs, incomes, and wealth (buying power) grow faster than the amount of new construction. Over the long term, more people with more money consistently push real estate prices up.

“Okay,” you retort,“but that was then and this is now. Surely prices can’t continue to increase as they have in the past?” I answer,“They can and they will.” To see the future, just weigh together these dominant trends:

1. Population growth. During the next 20 years, the population of the United States will increase by 40 million people.

2. Incomes. During the next 20 years, employees, entrepreneurs, professionals, and business owners will see their incomes rise by over 50 percent.

3. Vacation homes. During the next 20 years, at least 10 million more Americans (and foreign nationals) will choose to buy vacation homes within the United States.

4. Echo boomers. During the next 20 years, more than 60 million echo boomers (children and grandchildren of the baby boomers) will enter the housing market to buy homes.

5. Restrictions on development.During the next 20 years, zoning, environmental laws, building regulations, and land shortages will continue to restrict development in those areas where most people want to live.

6. Construction costs. During the next 20 years, the costs to construct houses (and other types of buildings) will follow their past trend line upward.

7. Immigrants and minorities.Currently only 40 percent of our fastest growing immigrant and minority groups (Hispanics, blacks, Asians) own their own homes. In contrast, more than 75 percent of whites live in homes they own.

With government programs and lender outreach efforts in full swing, during the next 20 years people in these minority and immigrant groups will continue to buy homes in record numbers.

Federal, state, and local governments in cooperation with private lenders will be working hard to close the home ownership gap.

8. Investors. During the next 20 years, more than 60 million baby boomers will need a retirement income. They will increasingly turn to investment real estate to meet this need. Demand for property as an investment will continue to explode—as it has during the past 5 years.

You don’t need advanced knowledge of economics and demographics to recognize the fact that every major social trend is pushing real estate prices upward.