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Investor number one: Gene

A down home country boy from north Georgia who is about as smart as they come. I selected Gene out of literally dozens of investors I could have chosen because Gene is one of the most successful investors that I’ve ever met, and has one of the more unusual investing strategies that you seldom hear about.

Gene told me this story himself during a casual visit to his office a few years back. Gene’s main strategy is keeping up with what state and local governments are planning to do, especially as it pertains to development of new projects.

Back in 1975 Gene was at a Department Of Transportation meeting when they decided to put an extension of an expressway system right through his small town. Through this public process, which anyone can attend, Gene discovered exactly where the new exits would be located for this expressway. Though the area was totally undeveloped, and at that time had virtually no value for immediate commercial use, Gene raised $86,000 and bought 100 acres surrounding the area where one of the planned exit ramps would be located.

During the ensuing years, Gene kept that land and paid very low property taxes, and waited for the expressway and the exit ramps to be built. It would be about 15 more years before the area became highly desirable for commercial use. But it eventually did. Today Gene prefers to offer 100 year leases to commercial clients, and has gas stations at this exit, restaurants, hotels and several other businesses, with land left over for new clients. If someone wants to buy an acre of this land, Gene’s asking price is $1,000,000 per acre. Not bad for an original investment of $860 per acre.

The main keys to his success are the ability to be very foresighted about what would happen in the future, and the patience to take advantage of it. In the years since that original purchase, Gene has duplicated this model many times over and owns a wide variety of commercial properties with tenants that include every one from mom and pop businesses to oil companies to fortune 500 retailers. He is a buy and hold guy all the way, and prefers to hold and lease rather than sell outright.

Investor number two: Mary

I had to get at least one of the ladies in here. I chose Mary because she too has a very unique storys as well as a creative approach to real estate investing.

Mary’s parents emigrated to the U.S. after barely surviving World War II in eastern Europe. After losing everything they had during the war, they arrived in the U.S. with nothing, to start a new life in America. Mary was born some years after their arrival in the U.S.

Today she is a highly successful real estate broker, who has her own realty company in addition to her investing activities. Mary owns apartments, buys and sells single family houses and has a typical investing business. But she did a deal once on a mobile home park that was very clever and something that you don’t hear about every day.

The mobile home park was one that had a reputation for drugs and trouble. The previous owners had allowed the park to run down, and because several of the tenants were involved with using and selling drugs, most of the better tenants had moved out, leaving the park half empty as well. But Mary is a bold investor who knows the real estate business inside and out. She saw something in that park that no other investor saw.

After closing on the park she promptly informed all of the current residents that there would be a crackdown on drugs and drug dealers. Using the legal tools at her disposal, she quickly rid the park of all those who had been identified as problem tenants or involved in drugs. Then she cleaned up the park to make it more desirable for future occupants.

Mary also had a creative idea up her sleeve that was truly a stroke of brilliance. While doing her due diligence on this park, she discovered that each of the individual mobile homes also had their own septic tank. Many communities of this type have several units sharing one tank, but in this case, they all had their own.

Because of this fact, Mary was able to get each of the units in the park rezoned as individual residences, with each lot partitioned into an individual parcel. As a result, Mary was able to offer the units for sale with owner financing. People could come in and buy their own unit instead of renting.

It worked like a charm and Mary sold the units off to owners instead of renting to tenants. The result was a higher cash flow per unit, while avoiding headaches and costs of maintaining the units. A run down, drug infested park was transformed into a major cash cow. Mary never stops learning, and considers all of the strategies that may be employed when looking at a potential investment.

In my next article, I’ll feature two more professional investors who have been wildly successful.

Donna S. Robinson is a real estate investor located in Atlanta, GA. Follow her on twitter at donnaconsults. Her facebook page is facebook.com/realtybizconsulting Her latest book, Basics Of Real Estate Investing” is now available on Amazon.com

Rental horrors © beholdereye - Fotolia.com

With today’s growing trend towards rentals, an increasing number of property owners are becoming landlords for the first time. The promises of real estate riches and passive income from cash flow abound. But let the new landlord be advised that the “simple” process of owning rental property can be fraught with financial and legal risks.

The horror stories involving rental property and landlords never cease to amaze me. There seems to be no end to the things that “bad” tenants can do to bring problems on people who only wish to provide a decent person a place to live, and realize a respectable income for doing so. But in many cases, the anticipated income turns into a seemingly endless loss that can cost a landlord thousands of dollars in property repairs, legal fees and potential liability.

Tenants who are evicted for not paying their rent can also render great damage to a property before leaving. I’ve seen properties that had the walls completely destroyed by a tenant who simply kicked them out. In another case a tenant took an axe to a property, chopped the light switches out of the walls, destroyed the electrical box, broke entire sections of walls, stole the light fixtures and appliances, leaving damage that totaled well over $10,000.

While rental property can be a great income generator, and a very good business, it’s essential to keep in mind  that there are a few things you must do in order to insure that you won’t become an easy target for “professional tenants” and those who are simply out to take advantage of you. After all, you are about to give someone the legal right to occupy a property that you own, and in so doing, you will be giving complete control of your property to someone that you probably do not know very well.

If you have a great interest in owning rental property, but very little time to devote to learning the business, it’s best to retain an attorney that has a lot of experience with real estate and rental property laws. Each state has it’s own version of what is commonly known as “The Landlord – Tenant Law”. This is a body of state and  federal laws that govern the rights and responsibilities of landlords and tenants. Lacking knowledge of these laws can cause you to make mistakes that could end up costing you thousands of dollars, or make it darn near impossible for you to take back control of your own property from a bad tenant who knows these laws better than you do.

Attorney Carlos Bibbs, who specializes in representing real estate investors and investment companies, cautions landlords on the importance of having the proper business entity to protect you from personal liability, as well as a lease that is designed to comply with the landlord-tenant laws while also giving the landlord the legal grounds to quickly get rid of problem tenants.

Make sure that your tenants don't end up doing this... Image courtesy antiguan_life via Flickr.com

According to Bibbs, landlords often use generic leases they purchase from online sources or at the local office supply store. While these leases may appear to be adequate, they often do not contain essential clauses that are needed to protect landlords from the wide variety of legal pitfalls that can arise. Some may be thrown out of court in an eviction proceeding due to errors or omissions. This could leave a landlord stuck with a tenant who refuses to pay and is difficult to evict because of an inadequate lease. It is highly recommended that all landlords have their lease reviewed by an attorney to insure that their rights are completely protected. Leases also may need to contain clauses that address specific events, such as what happens if the tenant lies about the number of people who are actually living in the property.

It’s important for new landlords to  understand how to properly screen potential tenants. Proper pre-qualifying of tenant applications can help you avoid problem tenants. There are a number of companies that provide tenant screening services. Tenant Screening Report is one such service. Prices vary for this service, but most landlords who pay for screenings charge an up front application fee to cover this cost.

For ongoing information and education, there are a number of organizations and clubs that cater to landlords and rental property managers. Local real estate schools and colleges offer continuing education classes in property management. Even if your state does not require you to be a certified property manager, these classes are excellent courses to take if you’re new to the world of landlording and property management.

Taking care of business is the best way to insure that you’ll have a happy life as a landlord. Don’t wait until you have a problem tenant to discover that your lease is inadequate to address the situation. Rental property is a great business. When managed properly it can be an excellent source of income and tax benefits for years to come.

The 16 properties in the portfolio total 118,046 square feet and are leased to tenants from several well-known companies, including Bank of America, Walgreens, Capital One Bank, Applebee’s, Verizon, Taco Bell, Dollar General, and AT&T.  The properties are located in areas across the united states, including Missouri, North and South Carolina, Georgia, Minnesota, Wisconsin, Florida, and Texas.

“These assets have been outstanding investments for our company during our holding period and should represent an excellent investment for Inland,” says USAA Chairman and CEO Pat Duncan.

USAA Real Estate Company is a subsidiary of USAA, a Fortune 500 financial services company that has served U.S. military families since 1922.  USAA has approximately 8 million members and $6 billion in assets.  USAA provides co-investment, acquisition, build-to-suit and development services for institutional and corporate investors.  In its portfolio are retail, multi-family, and hotel properties.

The Inland Real Estate Group of Companies, INc. is one of the leading commercial real estate service providers in the United States, with specializations in auctions, brokerage, financing, education, and acquisitions.  Inland has 40 years of experience in real estate investment trusts and offers leasing services for multifamily, office, retail, and industrial clients.

As a consequence of these same conditions where buyers may be “locked out” of purchasing, there also exists a situation where homeowners that want to sell their property cannot. In many cases price reductions have driven sellers out of the market with choice properties even, because low selling price and other cost factors in the deal make it unfeasible. And here is where putting two lose situations together can equal a big win.

A lease option is something that could effectively eliminate these issues for both parties. It is basically an agreement to lease a home and purchase it within a specified time period. The buyer/leaser agrees to a monthly payment that is higher than the normal rent to cover the down payment and also pays a deposit at the time of leasing. A lease option agreement actually has a great number of advantages for both sides of this seller-buyer equation – particularly in this market. Ideally, the big win-win should be easy to accomplish given the parties are sincere and the agreement is firm.

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Whilst lease option seems to be a good idea in principle, there are pros and cons that need to be considered by both the landlord/seller and the leaser/buyer, and some of these are as follows:

Pros and cons for sellers

1. You can save a fortune in fees, charges, and commissions usually associated with selling your home
2. You can get the full value sometimes for your property
3. You will get a good tenant, as the person will be moving in with the intention of eventually buying the property
4. There is a chance that at the end of the lease the tenant does not or cannot complete the purchase
5. You could miss out on appreciation in the property between the time you agree to the lease option and the time that  the property purchase goes through

Pros and cons for buyers:

1. You can get into the property without the worry of having a large down payment, perfect credit, or a mortgage loan
2. You get to try the property before you buy so you can be sure that you are in the right property and area
3. You can save for your down payment and improve your credit whilst leasing the property ready for when it is time to make the purchase
4. There is a risk of losing the deposit that you pay if the seller cancels the agreement because of something as simple as a late payment
5. You would lose your deposit along with any payments made on monthly lease payments if you decide not to go ahead at the end of the lease period or are unable to go ahead due to continued difficulties with getting a mortgage

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As you can readily see, even in a depressed housing market buyers and sellers can often come to terms via “out of the box” thinking and cooperation. A lease option, with proper safeguards for both parties in place, is one excellent way to put buyers and sellers together. Expect to see more of these types of arrangements as prices continue to decline. Next we need to see what the broker’s role can be in these types of agreements.