Jack Cummings – Real State Finance & Investment Manual (9th Ed.)

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Book description
Updated and revised to include ten years of new developments in real estate investment, Real Estate Finance and Investment Manual, Ninth Edition is the definitive guide to financing for all real estate investors. Understand all the financing options, learn how to choose an appropriate strategy, read about insider techniques, and get hands-on experience with case studies and helpful checklists.

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From the Back Cover
The classic real estate investment financing resource every investor needs—completely revised and updated!
Since 1977, Jack Cummings’s Real Estate Finance and Investment Manual has been the definitive source of financing guidance for investors everywhere. If you want to maximize profits, you have to understand all your financing options and choose the appropriate strategy for each property. This comprehensive guide gives you all the information and insight you need to make the right choice every time.

Written by leading real estate author and investor Jack Cummings, this new edition has been completely revised for the first time in a decade. It covers all the new real estate investment strategies and insider techniques that will work for you no matter where you live and features brand-new case studies, updated mortgage information, and a unique “constant rate” amortization schedule designed by the author to help you better control cash flow. In addition to new material for today’s real estate market, you’ll find a mountain of reliable and practical information that has made this book the ultimate financing guide for investors for three decades.

Inside, you’ll discover trustworthy, expert guidance on:

• Setting realistic goals to guide your investing choices
• Mastering the art of effective negotiation
• Using leverage to maximize returns on your investments
• How to decide between conventional and creative financing methods
• Understanding and using wraparound and blanket mortgages
• Uncovering real estate tax loopholes that increase cash flow
• Utilizing powerful techniques for closing any deal
  With checklists and other handy resources you can put to immediate use, Real Estate Finance and Investment Manual, Ninth Edition is the only book you need to manage the financing of all your investment properties.

About the Author
Jack Cummings is President of Cummings Realty, Inc., which consults to real estate investors and developers and also specializes in site selection for hotel, condo, apartment, and mixed-use developments around the world. His other real estate titles published by Wiley include The Real Estate Investor’s Guide to Cash Flow and Equity Management, The Tax-Free Exchange Loophole, and Commercial Real Estate Investing.
Excerpt. © Reprinted by permission. All rights reserved.

Real Estate Finance and Investment Manual
By Jack CummingsJohn Wiley & Sons
Copyright © 2008 Jack Cummings
All right reserved.

Chapter One
HOW REAL ESTATE INVESTING GOALS HELP YOU FORMULATE EFFECTIVE FINANCING STRATEGIES 

GOAL OF THIS CHAPTER

The goal of this chapter is to impress on you the importance of establishing worthy and measurable goals to which you can direct your investment efforts. Because real estate is such a versatile method of investing, the most effective method of buying, holding, and later selling differs among investors with different goals, but similar properties. A goal without a method of measurement leaves investors adrift in a sea of doubt as to where they are in respect to the attainment of their goals. A goal is reached by interim steps or interim goals that lead to the desired results.

Most real estate investors struggle through their initial investments. Although this is a common situation, it does not have to be a normal one. It is possible to avoid the difficulties of establishing an effective investment strategy, which is an essential step to your ultimate success in the quest to attain your desired goals. The very mention of the need to obtain effective methods should be etched into your mind as one of the critical keys to achieve success in any task.

TO BE EFFECTIVE, FOCUS ON RESULTS

To be effective, you must know what the results should be in very specific ways so that you can remain focused on those desired results. Effective strategies are not fixed, however, and it is essential that, in real estate investing, likely mistakes are acknowledged, and that corrections in the investment plan be implemented.

The typical investor often uses what I call the “shotgun” method of investing: Their time, energy, and financial resources are spread over a wide range of tasks. This is a system of default, that is, one arrived at because of a lack of knowledge about how to design an effective program. These investors waste resources by learning about the wrong kind of investments for their desired results, often concentrating on investment tactics, and are not productive in maximizing those desired results. This improper use of time and effort diverts the progress toward their goals and can postpone or even halt achievement of those goals.

Have Clear Goals

Much of this book is devoted to helping you achieve your goals, so one of the first steps is to embrace the concept that through a clear understanding of your goals you will have a running start to attain them.

There are eight simple and undeniable factors that will lead you to success in real estate investing. They are:

1. Know what you want to accomplish: Your goal.

2. Ascertain what you need to maximize your abilities and to overcome your deficiencies. Establish your interim goals.

3. Put a timetable on your success in completing an interim goal: to measure where you are in your journey.

4. Find the specific type of real estate that will take you to your goal: Your vehicle.

5. Learn everything you can about that kind of property in the areas you want to own it: Master the vehicle.

6. When you find the property that seems to meet your investment criteria, tie it up: Take action and gain control.

7. When you have entered into a contract that binds the seller to terms you think will work for you, spend time and effort to ascertain if this is truly the property for you to purchase: Conduct due diligence.

8. If you discover anything that suggests the property will not meet your goals, then either withdraw from the transaction, or adjust the price and/or terms to the point where the transaction will meet your original criteria: Final decision time.

While these eight elements may appear to be very basic and overly simplified, they are a specific and important part of real estate financing. These eight elements are so important they should be the essence of every chapter in any book written about real estate investing.

ESSENCE OF ACCOMPLISHMENT

Ultimate success in real estate investing depends on a clear focus of the desired result. As an example, a hotel developer who wishes to own a chain of hotels must first understand what it takes to own and operate such properties. This requires a total commitment to every aspect of hotel operation, starting with what kind of location will best fit the specific type of hotel to be developed. A great location for a convention hotel may not be good at all for a budget “stop-for-the-night” kind of hotel/motel property. However, operational aspects are just a part of the overall picture, and the hotel developer must continually be cautioned to avoid being sidetracked to the green pastures of another category of real estate development. Hotel development requires a very specific and dedicated approach to the economics that make that type of real estate venture work. The same specific knowledge will apply to every category of real estate from rental apartments, shopping centers, mobile home parks, and so on.

Don’t Stray from the Right Path

In my more than 30 years as a broker and developer, I can attest to the fact that truly successful investors are those who stay firmly within a narrow focus of interest and knowledge. They are the shopping center giants who do nothing but develop, own, and operate regional malls, or the rental apartment owners who dominate a local or national market. However, size and importance of investment has little to do with this idea. Success is a function of focus that is directed to becoming an expert in the category of real estate desired and to the precise location where the investor wants to own. For the residential rental investor this means knowing what is available, what prices are offered, and how to deal with residential rentals in any given area of the country.

LOCATION, LOCATION, LOCATION IS NOT THE ANSWER

This introduces the critical factor of location. By location, I mean the specific and well-defined area chosen. The less than perceptive investor will quickly discover that to accept the Wall Street definition of real estate as being a universal commodity is a mistake. Wall Street likes to compare every investment to stocks, which can be treated as universal in nature. However, real estate cannot be so easily defined, so what happens in San Francisco will not equally happen in Miami, or New York, or anywhere else. To forget this is a tragic mistake. Although there will be some events that will be similar in the diverse real estate market, real estate is essentially a local commodity that will rise and fall in long-term value based on what goes on in that very local market. Only then will you begin to see opportunity surfacing long before other, less knowledgeable investors recognize a good buy from a relatively poor one.

Real Estate Is Not Universal

The trick is to recognize that real estate is universal in nature, but its value orientation trends, which seemingly follow a similar pattern from area to area, are really very local in nature. This paradox occurs because real estate is not as dependent on national trends as many investors believe. What causes real estate to go up or down in value may be something occurring in or around the location of the real estate and may be created by a much longer process than is apparent. Such events would include elements of financing, taxation, recession or legal impediments, which effect real estate in a national and international way.

What may appear to be a sudden jump in the value of vacant commercial land may really be the long-term effect of continued down-zoning by local building and zoning departments, which have caused a shortage of such zoning. This is an important factor in both the purchases and financing of real estate.

For this reason, it is important that you develop a system or operating procedure that allows you flexibility. With a set program, you can move quickly and decisively when you recognize a property that fits your investment criteria. In addition, be ever vigilant on governmental intervention in land use because simple changes in use ordinances can have a major impact on land values in the future.

Your Secret Weapon Is the Local Building and Zoning Department

Because many local building and zoning departments are often directed by local governmental departments that are antigrowth, it is not uncommon for building regulations and restrictions to continue to change and together with zoning ordinances become more restrictive. These tightening of rules can quickly take away development rights you thought you had purchased a few years earlier. You need to be ever vigilant of what goes on in your local government. This includes all levels of your city, county, and state governing bodies.

BE AT THE RIGHT PLACE AT THE RIGHT TIME

Just about every person has made this comment at one time or other: “Boy, that person sure was lucky to be at the right place at the right time.” Timing is very important to just about every decision you can make, and when it comes to investment decisions, timing is generally the most important aspect of the entire process. However, for timing to work there must be recognition of opportunity. Unless you see a way to reach for your goals, the right time just never seems to come around. As for being at the right place, that is up to you. Your gold mine is likely to be found wherever you want to look for it-that is, if you truly want to take the time and effort to learn everything you can about the kind of property you want to buy in that chosen location.

Without Action, the Best Time and Place Are Lost

To benefit from being at the right place at the right time you must act. You must make a decision to move forward in a decisive way. For a pilot, the act of taking off requires a decision to pull back on the yoke before arrival to the opposite end of the runway. Fortunately, the real estate investor can act without having to make an all-or-nothing decision. But there is a right way and a wrong way to go, and unfortunately, the vast majority of real estate buyers or sellers only think they are acting decisively. In reality, they make decisions by default, or they spend time trying to decide what to do without having control over the situation.

Get the Other Party to Commit First. The key to having control over the situation is to get the other party to commit to deal with you prior to your being locked into the deal. This kind of strategy sounds simple and it is how smart investors function. Only by locking up a deal as early as possible will you have extra time to do due diligence, obtain ideal financing, and decide if that investment truly fits into your investment portfolio prior to that final decision moment.

Who Is More Motivated?

Sellers are generally the more motivated of the two sides of any transaction. They are, after all, fixed to one action: to dispose of that property. The buyer has the luxury to buy that property or to go on to another one. Sellers will commit to a price, terms that seem to work for you, and while they are bound to those terms, buyers are still are not firmly committed to the transaction.

As a buyer, it will be up to you to discover the important facts about the property and to make educated investment decisions accordingly. In real estate terms, you negotiate a contract to purchase the property that gives you time to conduct and approve all the due diligence, elements you believe are necessary. Only when you have completed these inspections and investigations can you be expected to make an informed final decision. That decision may be to move forward to close on the contract, to walk away from the deal, or to seek to modify the agreement by adjustment in price, time, or terms-or all three. The key is to obtain the time that allows you to control the deal until you are comfortable to continue to invest time and money in the deal.

Know What Is Important

Timing plays its most important role in the step that comes just before your gaining control over the situation. For example, suppose you have made a decision that rental apartments are what you want to buy. Your goal is to own enough rental apartments to allow you to hire full-time outside management to professionally and effectively manage and operate the investment. This is your choice because it fits the kind of lifestyle you want for yourself and your family. You have hired a good real estate lawyer and a good tax accountant to advise you on those specific matters. Your lawyer has given you a good purchase agreement that allows for adjustment to different situations, but that covers all the possible due diligence you would want to accomplish. This means full property inspections. These inspections will include all building elements, such as plumbing, electrical, structural, roof, foundation, termites, radon gas, and most important of all, environmental problems.

Carefully Investigate Existing Leases. Added care must be given to a complete review of all existing leases, if any exist, to be sure that the revenue potential has been properly stated by the sellers and that you do not become saddled with a rent roll full of holes. It is not uncommon for sloppy management to fall down on lease control and the tenants you ultimately inherit may have you over an economic barrel.

Buyers Need a City Code Violation Inspection. In addition to these situations, your due diligence provisions should give you the right to request a city code violation inspection. Most cities will send out a code enforcement inspector to decide if there are any building code violations. You will also want to check out all other governmental restrictions such as zoning, environmental issues, and possible limitations due to platting or possible building moratoriums. These situations all require time to check.

Due Diligence Checklists. Remember this simple statement: There is no set or specific list of due diligence items you need to include that will cover you in every category of real estate for every location. Every property and every location has different factors that need to be checked. The list that served you so effectively in Miami may overlook a lot of critical factors you need to check when buying a property in Seattle or Chicago. Time and money are spent in accomplishing these studies, and they should be done only if you have the property locked up; that is, have the seller firmly tied into a deal while you spend the time and money to properly make a decision.

Your private due diligence checklist must be compiled locally to fit your specific category of real estate and your own needs. Local inspection companies, your realtor, your lawyer, and individuals in the construction trade (who know the area and the kind of real estate you want to buy) can be helpful in compiling your specific due diligence checklist.

Once you are armed with the knowledge that allows you to recognize a potential opportunity, you are at the right place and now are the right time. You should act by moving quickly to tie up the property. After all, if the property looked good to you, it may also appeal to other prospective buyers.

(Continues…)

Excerpted fromReal Estate Finance and Investment ManualbyJack CummingsCopyright © 2008 by Jack Cummings . Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Product details
Publisher ‏ : ‎ Wiley; 9th edition (July 16, 2008)
Language ‏ : ‎ English

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