My Blog
Posted By - Robert Farmer - 2 days ago



$200K PLAN!                     IDENTIFY-INTRODUCE-INVEST

  • Mindset – you are not borrowing money from them.  You are offering an attractive rate of return for them.  They will love you when done properly.
  • Framework – Indentify your potential partners. Introduce to them the opportunity.  Invest with them.
  • 5 Questions – Every investment partner has these questions whether the express them out loud or not.  What is it?  How much do you need?  How much will I make?  When do I get my money back?  What happens if you die or default on the loan?  What happens to their investment if something happens.  How am I protected?????
  • Identify your Private Money Partners – make a list of people you know who are potential private money partners.  Don’t disqualify anyone.
  • Develop your ‘Value Statement’ this is your elevator speech, your 20 second commercial of what it is you do.

Elevator speech --- ‘I put together lucrative Real Estate deals so that my partners can make safe and consistent returns.  I have some deals in the pipeline…….how about we get together so you can take a look.’

  • 3 types of people that will lend you money.  Who is most likely to invest with you.  1. People that know & trust you.  2.  Someone who knows a good deal when they see one.  3. Someone who already is investing in real estate.
  • Credibility piece – Have you ever done this before?  I just recently started getting private money for my investors…….but my mentor has been doing this for years.  This is not a new concept here.  There are investors all over the country that use private money for years.  They have raised over 26 million dollars over the past several years. 
  • Contact all 10 people on your list and arrange to meet with them for lunch.  Share your presentation with them.

Whether buying or selling, knowing the options available to you as an agent real estate investor can open doors to new opportunities and extra income that you may not have thought possible. It’s important to also understand which option best suits you, since the proper amount of leverage will maximize returns.

And of course, always consult an attorney anytime you are creative

financing and be sure to adhere to local laws. As long as you know the rules, creative financing can be a very helpful and lucrative tool.


Knowing your creative financing options is also helpful for crafting a good

exit strategy. Let’s say homeowner “Ed” wants to sell his property and you

are ready with a substantial down payment. However, like many agents, you are self-employed and have difficulty securing traditional financing because of your irregular income.

Ed can negotiate with you to receive amortized payments—payments that include both the principal and interest—on a monthly, quarterly, or annual basis. In this type of creative financing, called an installment sale, you get the property and Ed can charge a higher interest rate because he is, essentially, acting as the lender.


Now let’s say Ed has another property he wants to sell and you can only secure financing for a percentage of the cost through traditional means.  Ed can negotiate a creative financing plan for the remainder of the cost – again, at a higher interest rate. If you can only put $10,000 down on Ed’s $100,000 property, but the lender will loan him just $70,000, Ed may have to provide financing for the remaining $20,000.

This scenario is called a seller carryback loan because Ed is agreeing to “carry back” a portion of the purchase price and is acting as a junior lien holder or second mortgage holder. You get the property while Ed gets to sell and earn interest on the amount he financed.


It turns out that Ed is actually an investor himself and he has a third

investment property. He wants to sell it to you, but you are not able to

secure traditional financing. Ed decides to just keep his original mortgage and accept payment for the additional value of his property in the form of a promissory note or junior mortgage from you.

This option is called a wraparound mortgage or simply a “wrap” because the secondary mortgage is higher than and wraps around the original mortgage. How does it work? Ed negotiates a $1,500 monthly payment from you. He uses $1,200 of that payment to make his original mortgage payment and will pocket $300.

Ed will still be responsible for the original mortgage, which is first in line to be collected. Again, both sides should consult with an attorney before using any seller financing.


Let’s say someone else is now interested in Ed’s fourth property that’s for sale, but he isn’t ready or maybe isn’t able to buy just yet. Ed consults with his attorney and presents a lease option, allowing the interested party to rent the home with the option to buy at the end of the lease.The lease option addresses all necessary conditions, the length of the lease, and the non-refundable deposit, which goes toward the down payment. Ed can charge a higher rent than comparable properties since part of it will go toward the down payment also.Investor organizations believe that less than 20 percent of all lease options result in the renter purchasing the property at the end of the lease. If Ed’s renter falls into the majority, Ed gets to keep the deposit and the extra rent paid, unless the lease option is extended or redrawn.

Some states have strict laws governing lease options, so it’s important to speak with an attorney or educated real estate agent who can point you to one. But the reality is, as the property owner, you can benefit from the additional cash flow that lease options bring in.



You may be wondering why Ed, a successful portfolio investor, is trying to sell off all his properties if they are generating positive cash flow. It’s because Ed recently discovered that his passion lies in rehabilitating properties rather than being a landlord. He’s decided to join forces with his new brother-in-law, an experienced contractor, to purchase dilapidated properties, fix them up, and resell them for profit.  Ed’s real estate agent just showed him a modest home in need of some minor and major repairs. Ed’s confident that he and his brother-in-law can tackle everything except the property’s foundation problem. And for that, he’ll just call a foundation repair specialist to fix it. Ed is excited and ready to get to work, but his traditional lender doesn’t want to loan him the money because the foundation problem makes it a riskier investment. Ed’s real estate agent refers him to a hard-money lender.  Ed discovers the hard-money lender drives a hard bargain, but he’s willing to loan him the money. His interest rates are much higher, but his turn-around time is much quicker. If all goes according to plan and Ed rehabs and resells the property before the end of the term of his loan, he will get a fantastic return on his investment in a very short period of time.If you are interested in cash flow investing, you likely won’t be doing many rehab & resell investment deals. But the option does exist, if you are so inclined.

Cash in on the Exploding Investor Market.  There are incredible opportunities available in today’s market. Don’t get hung

up or sidelined by traditional financing.

Are You Ready to Own Cash Flow Real Estate?

Top 26 Creative Financing Strategies to Buy Real Estate.
Posted By - Robert Farmer - 2 days ago

Top 26 Creative Financing Strategies to Buy Real Estate.


  1. Hard Money Loan-Asset based financing.  House is qualifying for the loan and not you.  Typically the most expensive way to finance.  Short term.  Usually 65-75% LTV.
  2. Portfolio Loan – A loan made by a smaller, local bank or credit union.  They do not sell into the secondary market they keep in house.  Conventional rules do not apply. Conventional rules do not apply. Loans based on the income/value of the property not your credit and income.
  3. Master Loan Commitment – Negotiate a loan commitment like a line of credit with a portfolio lender. Rehabbing, flips and even long-term refinances from hard or private money.  Great for big rehabbers, developers and mortgage brokers. 
  4. Stock Loan – Securities based loan.  80% of the value of your stocks, bonds or mutual funds in your portfolio.  Non-recourse.  True NO DOC – no credit, income or employment verification.  50K minimum. You don’t have to liquidate your securities…….you just borrow against them.
  5. Blanket Loan – One Loan that wraps up multiple properties.  Usually residential. Portfolio lenders & some rules such as must be in same state, city, county or contiguous.  Property lines must be touching.
  6. LLC Loan – A loan originated in the name of your entity that does not report to your personal credit report.  Must be personally guaranteed.  Usually from portfolio lenders.  A tactic to ‘free up capacity’ for conventional loans.
  7. Self-Directed IRA – Allows you to invest in real estate using your IRA or 401K.  Look for checkbook control.  Excellent for recruiting private money partners as well.
  8. Non-Recourse Loan – Any loan that is not personally guaranteed by the borrower.  The recourse is limited to the property only.  Primarily for commercial loans of $5million and up or in deals with very low loan to value. Special non recourse loan for SDIRA’s. 
  9. Land Contract – An agreement where the buyer makes installment payments under a purchase agreement.  Also known as contract for deed, bond for deed and agreement for deed.  Can be a land trust for asset protection.  Seller holds title until the balance is paid.
  10. Lease Option – is an option buy the property while being leased.  Sandwich lease option means you lease option a property from a seller and then RE-LEASE it to a tenant buyer on a lease option.  Title stays in SELLER’s name.  Can be executed or flipped for a fee!
  11. Subject To – Buy a property by taking over the existing financing. Can sell subject to as well.  Title transfers to the buyer.
  12. Master Lease Option – exactly like a sandwich lease option buy on commercial income property.  100% purchase financing.  You increase the income to improve the value and cash out equity when you buy.  You can assign the option for cash.
  13. Rehab Loan – A construction loan for existing property.  Loan usually based on the ARV or loan to cost. LTC…Initial purchase funded and the repair money is distributed via draws.  Usually done with hard money, bridge or portfolio lenders.
  14. Transactional Funding – short term money typically used for double closings. 24 hours to 95 days.  95 day funding is usually equity participation.  No qualifying – must have the B to C deal approved for 24 hour funding.
  15. Private Money – Leveraging private individuals to fund your deals.  You dictate the terms, rates, structure, etc.  100% financing with NO qualifying.
  16. Debt Partner – Private money partner that invests in your deal in exchange for a set return each month.  No profit participation.
  17. Equity Partner – a private money partner that invests in exchange for profit participation in cash flow and or equity.  Most expensive private money but easiest to find.  Don’t be greedy if you have no ‘skin in the game.’
  18. Credit Partner – residential deals only.  Used to qualify for conventional loans.  Credit partner is the borrower and details of the arrangement are spelled out in a joint venture agreement.
  19. Seller Carry Back - When the seller agrees to carry back a second mortgage on the property.  Typically 15-25%.  A strategy to use with bridge and portfolio lenders to get to 100% financing!
  20. Wrap Mortgage – One promissory note for the entire loan.  Two mortgages secure the promissory note.  1st (original) mortgage in seller’s name.  2nd (new) mortgage that seller is carrying back.  Buyer makes ONE payment (PITI) to seller.  Seller pays the 1st mortgage and pockets the proceeds of the 2nd.  Title transfers to buyer.
  21. Shared Appreciation Mortgage – Seller agrees to a below market interest rate in exchange for a share of the appreciated value of the property.  The share of the appreciated value is known as the contingent interest which is determined and due at the sale of the property.
  22. Performance Mortgage – A mortgage that is recorded to secure a lease or purchase option. Accomplished with a performance mortgage or deed of trust.  If the seller breaches his option agreement, you can foreclose.
  23. Fractionalized Trust Deed – A private money loan where one mortgage or deed of trust is secured by up to 10 promissory notes.  10 debt partners all in equal lien positions.
  24. Syndication – Pooling capital from multiple private money debt and or equity partners to take ownership of real estate.  Rules on disclosure, offerings and marketing from the SEC.  Simple JV’s LLC’s , LP’s, PPM’s, REIT’s and Hedge Funds. 
  25. Participation Loan – A loan that is hared by a group of banks that join to make a loan too big for any one of them alone.  May want profit participation for loans.
  26. Cross Collateralization – Pledge equity in one property as collateral for a loan on another.  If you default on subject property lender can take the other property to. So be careful using this strategy.

Tax Sale Lists
Posted By - Robert Farmer - 2 days ago 142 comments

Tax Sale Lists

In my area, there are tax foreclosure sales monthly in addition to
the monthly mortgage foreclosure sales. Tax foreclosures happen when
the property owner fails to pay the real estate taxes. If the taxes go
unpaid for enough time the taxing authority forecloses, sometimes
wiping out all other liens.
The list of properties to be sold is published in advance and
includes the owner name and property address. From an investor’s
standpoint, tax foreclosures are not much different from mortgage
foreclosures. There are different procedural and legal rules but the
same business rules for investors apply. Thus these investor
opportunities are handled in the same way as the mortgage foreclosure.
You would contact the owners by letter, telephone or an inperson
visit and see if you can work out a suitable deal.

Contact Divorce Attorneys

Often, people involved in divorces need to get rid of property
quickly. Sometimes the spouses are so angry at one another that they
want to make sure there is no profit just so their ex-spouse does not get
Become known in the community of divorce attorneys as
someone who will purchase a house quickly. To generate leads from
divorce attorneys, you should send letters and a business card
explaining what you do, and you should consider running an ad
constantly in the local legal newspaper or bar journal.

Advertise “I Buy Houses.”

An effective way to get a motivated seller to call you is to
place a small ad in the newspaper or on a sign posted on the side of the
road which says “I Buy Houses, Any Condition, Any Location and then
the phone number.” I have found that ads in the free newspapers that
are distributed in most communities that have lots of coupons are often
the most effective. The ads are also very inexpensive.
When a potential seller calls you, they may or may not have
some idea that you are the house dealer and are not going to pay top dollar for the property. This will generate a random selection of motivated and moderately motivated sellers.

You want to determine in advance whether the seller has anything to offer prior to going to visit the house. By having anything to “offer,” I mean that the seller is either going to sell you the house cheap enough for a profit, or at a cheap enough price that the house can be rerented at a profit or that you are interested in living in without having to
obtain outside bank financing.  Find out what the seller’s motivation for selling is and ask them what the lowest price they would accept for the house is. If they are
looking for full market value or are otherwise not offering you anything,
just politely decline to visiting the home and wish them good luck. Do
not spend your valuable time visiting a house if there is nothing in it for

Finding Motivated Sellers - Part 2
Posted By - Robert Farmer - 2 days ago 98 comments

Look for the 'Unwanted Homes'

There are always sellers in the market who have a property that
they do not want. There may not be anything wrong with the property
but, for some reason, the people do not want the property anymore.

Example are landlords who are tired of land-lording; older people who
are being forced to go into a retirement home; the family of people who
have been forced to go into a retirement home who now own a property
they have no use for; people who own vacation or second homes who
do not use them anymore; and any people who have a property they
cannot take care of.
You should keep your eye out for these people who can be found
because they own a neglected or vacant property, who call you if you
put up signs saying “I Buy Houses” or place ads saying “I Buy Houses,”
or who might come to your attention through the grapevine as you let
people know that you are interested in buying a house in the area or
 Send Letters to Owners of Vacant Houses.
The ownership of real estate is a matter of public record. It is
also a matter of record among the neighbors of vacant properties.
When I see a vacant house, I will sometimes go on the internet to
check who owns it through checking the county real estate records,
county tax records, or using one of the public data bases such as Lexis
which can give ownership of property information.
This information can also be gained by going to the county court
house and checking with the land records division which might be called
the recorder of deeds or just the land records, to the tax collector to ask
who owns the property, or simply by knocking on one of the neighbor’s doors and asking.
Vacant houses are usually unwanted houses. Sometimes the
sellers are not motivated enough to put the property on the market. I
can think of one recent case where a man located a vacant house,
tracked down the owner that was living eight or ten miles away, paid less
than $15,000.00, including taking the property subject to taxes and other
liens, and got a property that is worth at least $50,000.00. That means
he has the potential profit of $45,000.00 before he lifts a finger. When
others see a vacant house, they see an eye sore. You should see a
golden opportunity.

Contact Banks and Mortgage Companies That Have
Foreclosed on Property.

Banks and mortgage companies are in the business of making
loans and collecting payments. They are not in the business of owning
and managing real estate.
All lenders have some percent of loans that go bad. If the
borrower does not pay the mortgage, the only way the mortgage
company is going to be paid is by foreclosing. If the property does not
sell at the foreclosure auction, the bank becomes the owner.
Some of the banks maintain websites giving lists of foreclosed
properties; others give them to realtors; and still others just keep an inhouse
list and sell them privately.

Finding Motivated Sellers
Posted By - Robert Farmer - 2 days ago 116 comments

Motivated sellers can be your express ticket to success in real
estate investing, despite your lack of capital money or credit. The
“motivated” seller has a problem that is being created by his real estate.
He is consumed with the problem created by the real estate and will be
flexible if you will promise to solve his problem.
The flexibility can come in the form of financing or some
substitute for financing that can allow you to control or benefit from the
property using either a loan from the seller or his granting of an option or
other right to you in exchange for your promise to help solve his
A perfect example of a motivated seller is a seller who has a
rental property that he cannot manage. That may be because he does
not know what he is doing, does not have the time, or perhaps is old and
would like to retire from the property management business. If you will
agree to take over management of the property, you can promise to pay
the seller from the proceeds generated from rents.
There must be a difference (profit) between the rents and
monthly expenses on the property, including any money you are paying
to the seller each month. To know what the true expenses of a property
are, look at the seller’s tax returns to see what he reports to the IRS as
his income and expenses. The seller will resist your efforts to see his
tax returns, but you MUST see them. The seller will tell you that he does
not report all of his income and that he overstates expenses. Tell the seller that if he cheated on his taxes he had his benefit by paying less
taxes, but he gave up the chance to sell the property for more then his
tax returns indicate the property is worth.

Another example of a motivated owner is the owner in
foreclosure. If an owner is in a property he or she cannot afford and the
bank is foreclosing, in the time leading up to the foreclosure sale, the
owners are generally very flexible. The will do pretty much whatever you
want to save their credit or remain in a place to live. The owner in
foreclosure is not concerned so much about the sale price of the
property or the fact that you might not pay on the mortgage. He is
already going to lose the house at foreclosure sale.
In some states, and as a practical matter with most residential
lenders, if someone catches up by paying the past due mortgage
payments, the lender is not going to continue the foreclosure. The
lender will probably have rights to continue the foreclosure if the house
is sold, but often will not exercise those rights if payments are being made, especially if the house is resold or refinanced within a relatively
short time period after you take over the loan. 

1. Contact Owners in Foreclosure.
The most motivated sellers in the market are going to be
people in foreclosure who are about to lose their house. Foreclosures
are publicly conducted sales and are always advertised. Generally
speaking, they are advertised for three or four weeks in advance.
Once you receive the list of foreclosures, you should go about
contacting owners in foreclosure by mail, telephone or by stopping by to
talk to them about your situation, about their situation and how you can
help them. The owners in foreclosure will be the most flexible. They will
allow you to take property subject-to an existing mortgage, assume
existing mortgages, enter into joint-venture agreements, and otherwise
be flexible. The whole trick is contacting them and establishing a
dialogue.  (to be continued)

How do I find a good contractor?
Posted By - Robert Farmer - 2 days ago 146 comments

How do I find a good contractor?

While hiring contractors recommended by friends is usually a safe route, never hire a construction professional without first checking him or her out. If your state has a licensing board for contractors, call to find out if there are any outstanding complaints against that license holder. Also, call your local Better Business Bureau to see if there are any complaints on file.

If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of worker's compensation insurance they carry and get policy and insurance company phone numbers so you can verify the information. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy.

If they pass the insurance hurdle, next check some of their references. A good contractor will be happy to provide as many as you want.

Finally, don't let yourself be rushed into making a decision no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money.

Is remodeling worth the price and time?

Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its "curb appeal" with a potential buyer down the road.

Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.

How do I look for fixer-uppers?

You can find distressed properties or fixer-uppers in most communities, even wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area.

Ascertaining whether the property you're interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost.

Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it.

The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's rehab budget.


real estate, reo, bpo, foreclosure, short sales, distressed sale, bank owned, investment property, buying a house, selling a house, condo's, townhouses, contact me, beach house, vacation property, senior communities, jersey shore, east windsor, princeton, west windsor, hightstown, trenton, hamilton, lawrence, lawrenceville, mercer county, monmouth county, millstone, luxury homes, vacant homes, fixer uppers, handyman specials, fix and flip, buy and hold, realtor, real estate agent in nj, weichert realtors, arc realty, prudential fox and roach, zillow, trulia, google maps, houses for sale, robert farmer

Vacation Homes - Good Investment?
Posted By - Robert Farmer - 2 days ago 128 comments

Vacation Homes

Are vacation homes a good investment?

You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits.

Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible.

Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house less than 14 days a year.

You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.

If you are looking for these or other types of properties contact me, Robert Farmer at 609-444-8204 or  Examples of other specialties are REO, foreclosures, short sales, distressed properties, bank owned, investment property, condo's, townhouses, beach house, senior communities, Jersey shore, East Windsor, Princeton, West Windsor, Hightstown, Trenton, Hamilton, Lawrence, Lawrenceville, Mercer County.

Cruise Control Landlording
Posted By - Robert Farmer - 2 days ago 127 comments

Cruise Control Landlording.......courtesy of Don Beck

9 Ways to Improve Your Cash Flow:

  1. Raise rents - depends on supply and demand
  2. Lower turnovers by doing repairs quickly
  3. Charge for parking spots/storage area
  4. Enforce Late Fees, bounced checks
  5. Install coin operated washers and dryers
  6. Use LED's and flourescent lighting in common areas
  7. Charge for pets
  8. Separate utilities
  9. Don't delay in filing for eviction

10 Ways to Fill Vacancies:

  1. Pay for referrals
  2. Use a 'For Rent' sign on property
  3. Ad saying it comes/includes renters insurance
  4. Curb appeal
  5. Target Market without discriminating-who are your target renters?  Put ads where they go to shop, to school, to work....etc.
  6. Incentives to move in early-cut rent or have give aways.....such as free microwave or flat screen TV.
  7. Design a flyer about the property
  8. Make small improvements/upgrades when tenants move out.
  9. Get a co-signer that owns real estate.
  10. Allow pets

10 Red Flags when Screening Tenants:

  1. Short employment history or short term residency
  2. Improperly dressed at showing
  3. No checking or savings account
  4. Multiple address's
  5. Don't list current or previous landlords on application
  6. Poor credit
  7. Is it real landlord or a friend when you call for references?
  8. 90% rule: tenant should be paying rent within 90% of their current rent payment.  Is it too much a jump in monthly rental amount?
  9. If they can't get a cosigner what does that tell you?
  10. Wants to pay cash & sign the lease right away.

10 Mistakes Landlords Make with Leases:

  1. Move In Day-take check during non-banking hours and give them the keys
  2. Accept post-dated check for part of the security deposit and give them the keys.
  3. Not specific about who pays what in the lease
  4. Lease expires during off peak season.
  5. Lease renews month to month instead of year to year
  6. Not checking photo ID before showing unit.
  7. Not requiring an inspection sheet filled out with photo's of unit and new tenants.
  8. Not giving lead paint disclosure
  9. Not getting extra security deposit and additional rent for pets
  10. Not changing the locks between tenants.

Contact: Robert Farmer  609-444-8204 or

Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Winsor, West Windsor, Mercerville, Lawrence.

Posted By - Robert Farmer - 2 days ago 124 comments


Is it smart to even consider a fixer-upper?

It depends. Distressed properties or fixer-uppers can be found anywhere, even in wealthier neighborhoods. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood.

Many experts recommend that before you make such an investment, first find the least desirable house in the best neighborhood. Then do the math to see if what it would cost to bring up the value of that property to its full potential market value is within your budget. If you are a novice buyer, it may be wiser to look for properties that only need cosmetic fixes rather than run-down houses that need major structural repairs.

Is there a tax break for a fixer-upper house if it is considered historical?

Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government.

The tax code does not allow deductions for the demolition or significant alteration of a historic structure.

The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.

The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

For a list of participating lenders, call HUD at (202) 708-2720.

If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home, or refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility.

Are there special loans for fixer-uppers?

If you need a home loan to buy a "fixer-upper" and remodel it, look at the U.S. Department of Housing and Urban Development's Section 203(K) loan program. The program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.

A 203(K) loan is usually done as a combination loan to purchase a "fixer-upper" property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Investors must put 15 percent down while owner-occupants are required to come up with only 3 to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements.

Two appraisals are required. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

What are building codes?

Building codes are established by local authorities to set minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.

All buildings must be issued a building permit and a Certificate of Occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.

Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.

Contact: Robert Farmer  609-444-8204 or

Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Winsor, West Windsor, Mercerville, Lawrence.

What Is A Good CAP RATE on Investment Property?
Posted By - Robert Farmer - 2 days ago 90 comments

Capitalization Rate (Cap Rate)

Just like we have a key income value (NOI) that is completely independent of the details of the financing, we also have a key ROI value that is also independent of the buyer and the details of the financing. This value is known as the “Capitalization Rate,” or “Cap Rate.” Cap Rate is calculated as follows:

Cap Rate = NOI / Property Price

If there is a single number that is most important when doing a financial analysis of a rental property, the Cap Rate may be it. Because the Cap Rate is independent of the buyer and the financing, it is the most pure indication of the return a property will generate.

Here is the cap rate for our example property:

Cap Rate = NOI / Property Price

= $37,169 / $418,000

= 8.89%

Another way to think about Cap Rate is that it is the ROI you would receive if you paid all-cash for a property. Though, unlike cash flow, where the value is maximized by paying all cash, the Cap Rate is *not* necessarily the highest return you’ll get on a property. This is because Cap Rate assumes that the investment amount is the maximum (the full price of the property), and we learned above that the value of ROI calculations goes up as the investment amount goes down.

So, what is a good Cap Rate? It really depends on the area of the country you’re in, but in general, most areas see maximum Cap Rates in the 8-12% range. And just like the value of single family houses are based on the prices of comparable houses in the area, the value of larger investment properties are usually based on the Cap Rate of comparable investment properties in the area. So, if the average Cap Rate in your area is 10%, you should be looking for at least an 10% Cap Rate for your property (barring other more complex situations and considerations).

Looking for high quality investment properties in Mercer County?  I specialize in your success in Princeton, Princeton Junction, Hamilton, Lawrence, East Windsor, West Windsor and the state capital of Trenton.  Looking to become a landlord....draw on my experience.

Robert Farmer 609-444-8204  or

Contact: Robert Farmer  609-444-8204 or

Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Windsor, West Windsor, Mercerville, Lawrence.

Build Wealth Through Real Estate Investing
Posted By - Robert Farmer - 2 days ago 10 comments

Build Wealth Through Real Estate Investing

More people have become millionaires through real estate than any other means.  Despite the obvious need to save for retirmenet, a recent Wall Street Journal article indicated that a startling 95% of Americans will face financial difficulties by retirement.  Of course, you have several options for building wealth, but most of these options pale in comparison to real estate.  Consider options like savings accounts, CDs, bonds, and money market accounts.  These are safe options but you certainly won't reach a goal of building significant wealth through these means.  For the most part, these options barely keep pace with inflation.  Think about it.  Home many millionaires do you know who became wealthy by investing in savings accounts?  The stock market can bring you some interesting returns, but it can also lead to some big losses.  You have very little control over the companies you invest in, and there are no significant tax advantages to owning stock.  In addition to the wealth you'd create, you would also benefit from the growing annual cash flow being produced by your income properties.  The income earned can help supplement your existing income, provide additional capital towards the purchase of additional income property, and eventually give you the freedom to quit your job and retire with passive income.

Your investment strategy can be customized and tweaked whether you're buying one property a year, two a year, or one every two years.  You can adjust the pace, but if you stick to the plan you can create a lot of wealth and cash flow.

Take advantage of real estate investing thru - appreciation, leverage, financing, tax advantages and of course the significance of inflation which few investors every consider.  Many people don't think about the inflation aspect and how your monthly mortgage payment is fixed in current dollars, but with inflation you're making those payments with cheaper and cheaper dollars every year.

Take action now and contact me to get started on your path to wealth in real estate.

Let's get to work.......Robert Farmer  609-444-8204

Contact: Robert Farmer  609-444-8204 or

Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Windsor, West Windsor, Mercerville, Lawrence.

Are You Ready to Be a Landlord?
Posted By - Robert Farmer - 2 days ago 1 comments

Are You Ready to Be a Landlord?

Many individuals invest in single-family homes or condos with aspirations of achieving financial success in the rental property market, but they fail to consider the responsibilities that come with being a landlord.  Besides the inevitable maintenance issues that will crop up, investors must also deal with their tenants in an appropriate manner.  Do you have the patience and the people skills to establish a positive relationship with your tenants?  Are you willing to act in their best interest as well as your own?  Take a moment to consider your attitudes and abilities and decide if being a landlord is truly a viable option for you.

Please call or email us if you have any questions or needs.    


Robert Farmer


Contact: Robert Farmer  609-444-8204 or

Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Windsor, West Windsor, Mercerville, Lawrence.

Short Sale Q and A- Homeowners Recover and Gain Control
Posted By - Robert Farmer - 2 days ago 1 comments

Homeowners... Recovering and regaining control

Q. What are my options as a home seller when my property is in or heading toward default?

A. In the event that you have been delinquent in paying your mortgage or anticipate that you will not be able to make payments moving forward, your options will vary based upon several factors or variables that are specific to you and your property. Always remember that each possible resolution will be evaluated on a case-by-case basis by all parties involved. When considering your options, you should take into account:

    * the amount of equity you have in your property compared to the outstanding loan balance

    * the additional financial resources you may be able to bring to bear

    * whether or not you live in a homestead state, and the nature and amount of the homestead exemption

    * and/or the amount of private mortgage insurance you have.

All of these factors should be taken into account along with many other variables and special conditions.

The most important decision you need to make is to "make a decision." Typically, when homeowners avoid confronting the serious lifestyle and financial consequences of defaulting on their mortgage, they end up with a significantly more deleterious outcome than they would have, had they taken charge of their own destiny while they could.

Once you decide to take action, we recommend that you contact a lawyer and a real estate agent qualified to assist with your special real estate needs. Top 5 in Real Estate members are not just committed to helping you pursue the potential option of a short sale, but to encouraging you to fully consider all other options that may be available.

Early on in the potential foreclosure process, all homeowners should not only contact an attorney, but also research all potential guidance and assistance available from the government, including the U.S. Department of Housing and Urban Development (HUD). HUD's Guide to Avoiding Foreclosure may be particularly helpful. HUD's toll-free telephone number is (800) 569-4287. Not all homeowners, however, can qualify for certain HUD programs. Whatever guidance you seek as a homeowner, we recommend, at a minimum, that you also carefully consider each of the following questions and answers:

Questions What is a better or more likely outcome for me and why?

    * A short sale or a foreclosure?

    * A short sale or a repayment plan?

    * A short sale or a forbearance plan?

    * A short sale or a loan modification?

    * In the case of an FHA loan, a short sale or a partial claim?

    * A short sale or a short sale/assumption agreement?

    * A short sale or a deed-in-lieu of foreclosure?

    * A short sale or a bankruptcy?

Answers: Any and all of the above-mentioned options pursued by homeowners should take into account their:

    * individual present and projected future financial circumstances

    * short- and long-range lifestyle goals

    * concerns over credit rating

    * desire to remain living in their present home

    * a complete understanding of the impact each available option might have in comparison to all other options being considered

In order to best contextualize or prioritize one's various opportunities or limitations with all other options, it is advisable that an attorney or other suitable counsel be engaged. Such counsel is vital in order to properly weigh all legal, financial, tax and lifestyle implications surrounding each option. Since this brochure principally focuses upon the subject of short sales as just one alternative, it is important to note that short sales usually benefit home sellers because they not only stop mortgage foreclosure, but typically prevent the lender from suing for deficiency. Deficiency refers to the difference between the outstanding loan amount and what the net proceeds are from the sale of the home, or in some cases, simply what the proceeds are that the lender receives from the sale of the home. During their short sale negotiating process, it is vital that homeowners have their attorney ensure that the lender agrees to forego suing for any monies that are written off due to the short sale.

Q. Within the short sale packet presented to the lender, there is a hardship letter that homeowners must provide. How important is this component in causing the lender to approve the short sale?

A. It is absolutely critical that the homeowner be able to document that they do not have the income or necessary assets to continue making payments on their home. Homeowners must be meticulously honest in documenting and presenting their "hardship case" so they do not implicate themselves in mortgage fraud; mortgage fraud results from inconsistencies between what the homeowner is now representing compared to the information provided at the time of the original mortgage application. This is why it is vital to work with a qualified attorney in the area of pre-foreclosure/foreclosure law during this process.

Q. What types of hardships would a lender generally consider conducive to a short sale agreement?

A. In the context of consideration for short sale approval, "hardship" is not defined by law. As such, there is no one definitive definition upon which you can rely. One would, however, anticipate that a lender would expect a hardship to result from the loss of job or salary reduction, divorce or separation, debilitating illness, medical bills, business failure, excessive debt, mortgage payment increase or the recent loss of a close family member, such as a child or spouse. Consult with an individual lender to determine the duration of the hardship, as lenders are unique in this regard.

Q. What are the tax consequences of a short sale?

A. The tax consequences for individual homeowners regarding short sales are different depending upon your financial situation. For that reason, it is critical to consult with a Certified Public Accountant.

Q. What is the Mortgage Forgiveness Debt Relief Act of 2007?

A. Prior to the implementation of this act, the law required taxpayers to include discharges of mortgage indebtedness as income for the calculation of income tax. This Act provides an exclusion for discharges of some types of mortgage indebtedness. Check with your tax advisor early on as to whether your transaction will qualify for income tax exclusion.

Q: What effect will each alternative have on my immediate, mid-range, and long-term credit?

A: There is significant confusion regarding the precise and relative proportionality surrounding how various pre-foreclosure/foreclosure and bankruptcy options affect one's credit score. It is therefore advisable that all property owners first check with their lender(s)', credit bureaus, future lenders, government agencies, and an attorney in order to best gauge how each prospective resolution may potentially affect their future credit rating.

Credit rating impact should also be evaluated contextually by considering the role of your credit rating regarding future financial and purchasing plans.

Q. How do I know if my property and I may be considered for a short sale?

A. Eligibility for a short sale resolution is determined by your lender's short sale policy. Your lender will also direct you as to what you must do to comply with their process and procedure. You can either contact your lender directly or authorize an attorney, real estate agent or other representative to contact them on your behalf.

Q. If a lender agrees to the short sale option on my property, can the bank still proceed with a foreclosure?

A. The foreclosure could be considered as a separate and distinct action taking place, even though the lender has agreed to the short sale proposal. This can easily occur when different departments of the same lending institution are seeking different outcomes, or simply because the bank, after agreeing to a proposed short sale outcome, but before signing a contract, believes that foreclosure would represent a more favorable outcome for the lender.

The submission of a short sale package/kit to the lender does not automatically stop a foreclosure action. Once a lender initiates a foreclosure action, the homeowner should consider that the lender will most likely retain this position until the lender has a signed contract in hand, has agreed to the short sale proposal, and has closed on the sale of the property.

At the time the lender agrees to the short sale proposal, the lender may or may not choose to terminate or postpone the foreclosure. A foreclosure may also proceed in the case of subordinate lien holders not having agreed to waive their lien on the property.

Because of the multiple stakeholders involved, and the complex nature of the regulatory environment, qualified, licensed counsel can be critical in taking steps to prevent a lender from not following through with the short sale process, especially in the case of a lender who has the intention of opting for a foreclosure-based resolution.

Q. How would I initiate the short sale process?

A. To initiate the short sale process, contact your lender(s). Typically, the department to contact is your lender's Loss Mitigation Department.

Either you or your authorized representative needs to ask the lender for a short sale package or kit. Most lenders will make their particular processing forms and procedures pertaining to their required short sale documentation available to homeowners.

Unlike what many people believe, some lenders will also allow you to apply and get approval for a short sale even when the homeowner has never been late or missed a mortgage payment. Please note that lenders will typically only consider a short sale after the borrower has: missed two mortgage payments; has no means to continue paying the mortgage; provided all the necessary financial and hardship documentation to the lender; agrees that they will not derive any proceeds from the sale

Q. Should I contact a real estate agent?

A. Absolutely. But before selecting a real estate agent to represent you, determine whether or not they are knowledgeable about preforeclosure, foreclosure and bankruptcy options. Your agent should not be giving you advice regarding your personal financial situation.

Any real estate agent who asserts that he or she is prepared to assist you as a homeowner in a potential short sale outcome must also be willing to follow the specific administrative procedures of the particular lender involved. In addition, the real estate agent should also acknowledge that they essentially confine their guidance to determining the property's value and how to best market the property, versus advising the homeowner on the best preforeclosure/foreclosure resolution.

Q. Should I contact an attorney?

A. Absolutely. We recommend that you contact an attorney with the understanding that the attorney needs to not only be well versed in real estate law and foreclosure law in your particular state or province, but also needs to be a proven negotiator on behalf of their clients. Not all short sales or other pre-foreclosure or foreclosure options are structured alike. Therefore, the role of a highly competent attorney in such matters-one who can skillfully negotiate on your behalf-can make a world of difference.

Q. How would multiple liens on my property impact short sale approval?

A. Each lender must recognize how it is in their best interest to approve a short sale resolution versus a more costly and protracted alternative. Here again, an attorney/lawyer or real estate agent who possesses experiential knowledge in this particular multiple-lien scenario can be instrumental in developing a multi-party resolution strategy satisfactory to all.

Q. Am I responsible to continue to make mortgage payments if I have intentions of applying for a short sale on my property?

A. Unless you have received information to the contrary from the lender in writing, you are responsible to continue to make mortgage payments.

Q. As a homeowner, what incentive do I have to assist in the sale of my property if I am not going to receive any proceeds from the sale?

A. I believe that homeowners first and foremost have an ethical responsibility to expend the necessary effort to support as high a sales price as possible-even though they will not experience a financial gain-when expecting the lender(s) to forgive any and all of the homeowner's outstanding mortgage debt.

We also believe that the higher the realized sales price, the more likely the lender will be in granting a short sale outcome for the homeowner and possibly either fully or partially waive a deficiency judgment. Moreover, we also advise homeowners to be wary of any real estate agent who, for the sake of facilitating a guaranteed sale in order to collect a commission before a property is foreclosed (ruling out any possibility of a commission), demonstrates a less-than-professional marketing commitment. Such real estate agents will often justifies this lackluster attitude by saying to a homeowner, "No matter what the home sells for, it really doesn't affect your pocketbook-only the lenders." This disregard for marketing on behalf of some real estate agents seeking to facilitate a short sale at all costs (but not to them) is one that lenders readily recognize.

We find that this unprofessional approach to real estate marketing, notwithstanding the special circumstances surrounding a proposed short sale outcome, is to the detriment of well-intentioned homeowners who are hopeful of gaining lender cooperation. Lender cooperation is, without question, influenced by how honorable they believe both the homeowner and the real estate agent are, despite the difficult circumstances facing the homeowner and the challenging marketplace facing the agent.

Q. Does a "Listing Agent" represent me (as the homeowner) or the bank if I have intentions of gaining short sale approval from the lender?

A. The Listing Agent does not represent the bank.

Q. Is there a real estate commission paid in a short sale and, if so, who pays it?

A. Like all commissions, this has to be negotiated. Typically, the commission is paid from the proceeds of the sale. In the case of short sales, the home seller does not typically pay the commission. This is another incentive for a home seller to pursue a short sale remedy and use a qualified real estate agent. Moreover, many lawyers, although representing home sellers, are able to have the lender pay their fees. This makes it even more imperative that every homeowner considering any pre-foreclosure/foreclosure possibility-but especially where a short sale is the desired outcome-contact an attorney immediately. Homeowners should also encourage their attorney and their real state agent to meet as a group for the purpose of creating an effective overall short sale and marketing strategy.

Q. On average, how long does a short sale process take?

A. The time period will vary based upon circumstances, although the approval process and time to closing, in many/most cases, is longer than that associated with the sale of a property in a non "short sale" situation.

Q. Which process has a more adverse affect on my credit rating: short sale: foreclosure; bankruptcy; or deed-in-lieu of foreclosure?

A. It is critical that homeowners, either personally or through a representative, research their individual situation with the various agencies that determine credit ratings. Be careful of categorical representations and sweeping generalizations regarding the credit rating consequences of short sales, foreclosures or other homeowner options. There exists wide-spread confusion, oversimplification, and inadequate guidance presently being offered, especially by individuals purporting to be experts.

Q. What is a deficiency judgment?

A. A deficiency judgment is a court order authorizing a lender to collect part of an outstanding debt from foreclosure and sale of the borrower's mortgaged property or repossession of property securing a debt after a finding that the property is worth less than the book value of the outstanding debt.

Q. Should I take the word of my real estate agent if he or she tells me that I probably will not have a deficiency judgment, or should I have an attorney try to have this guaranteed as a condition of the short sale agreement?

A. Consultation with legal counsel on this matter is highly recommended.

Q. Am I more likely to be responsible for the deficiency judgment under a short sale or a foreclosure?

A. If we respond to this question with the belief and understanding that the waiver of a deficiency judgment would be a binding element in the short sale proposal and subsequent agreement, then the answer, of course, is that the homeowner in default of their mortgage would more likely be responsible for a deficiency judgment under a foreclosure. We recommend, however, that you consult with qualified legal counsel in this regard and investigate specifically whether or not steps can be taken to ensure that a waiver of the deficiency judgment can or cannot be incorporated into a final settlement. You should also determine whether or not the lender is likely to call upon a collection agency after the closing to pursue you for any outstanding sums due the lender. If you sense that an attorney should be representing your interests, we believe you instincts are correct.

Q. When is a bankruptcy preferable to a short sale or to a foreclosure?

A. This multiple choice question can only be answered after exhausting all possible outcomes as they relate to individual circumstances along with the meticulous advice of legal counsel.

Q. How important is the short sale package or kit when applying for a short sale to a lender?

A. Indispensible!

Q. On my own, can I prepare a short sale package/kit, and if so, how would I go about doing it?

A. The short answer is yes, you can prepare your own short sale proposal and submit it to your lender. Some lenders may even assist you in the process. Just like preparing your own taxes, however, you might need help in this critical process. Real estate agents experienced in short sales understand that the bank will want to find out what efforts have been made or could be made to market the property for the highest price and best use of the property. In addition, most lenders will require Broker Price Opinions and or Competitive/Comparative Market Analysis to determine benchmark pricing.

Q. Will lenders tell me what I need to have prepared in a short sale, or do they only make this information available to real estate agents and attorneys?

A. While it is advisable to have a real estate agent assume this very time-consuming and administratively complex responsibility, homeowners themselves are recognized by lenders as being capable of dealing with short sale matters themselves. Lenders, however, are very vigilant regarding the information they require pertaining to marketplace pricing and related real estate information, and rely heavily upon the expertise of high-caliber real estate professionals.

Q. In selecting a real estate agent, when the prospects of a short sale are desirable, is it more important to choose a real estate agent who is very competent in overall real estate sales and marketing, and not as knowledgeable in the short sale process, or is it better to select a real estate agent knowledgeable in the short sale process, but very inexperienced or ineffective in real estate sales and marketing?

A. Obviously, home sellers should want a real estate agent who possesses significant expertise in short sales and in real estate sales/marketing. The greatest emphasis, however, should be placed upon selecting a real estate agent who is highly competent in the areas of marketing, merchandising (staging), negotiating, networking and information technology. The lender-required processes and information, although critical, represent more of a service. The aforementioned skills are indispensible in putting forth the best and most credible effort regarding the sale of the property.


Lenders can discern the difference between real estate agents who only represent pre-foreclosure strategic advice and assistance-ee.g., the performing of the required administrative tasks-from leading real estate agents who can perform the required administrative tasks and who possess short sale acumen while representing world class real estate marketing-related skills.


Lenders . . . Recoup . . . To recover all or part of a loss


Q. When a real estate agent deems it necessary to alert cooperating real estate agents that their listed property is a potential short sale, so that the buyer does not unknowingly enter into a conditional negotiating process, how does this announcement prior to a lender's consent impact the marketing, property value, and ultimately the negotiating position of the lender?


A. This practice of announcing a potential short sale "Sale," before a lender agrees to the short sale conditions is considered by many real estate practitioners who represent home sellers as a method of undermining the integrity and market value of that particular property.


Clearly, one can argue that by not providing this potential status to prospective buyer agents and thus, their clients, deprives them of a form of disclosure; this is why great debate exists surrounding the handling of a short sale situation.


Q. Should a lender do business with a so-called Short Sales Specialist who strategically advertises "Stop Foreclosures" to homeowners, when their intended approach is either most likely or solely a short sale outcome? Does the practice of labeling properties as possible short sales before they officially enjoy short sale status undermine the value of all homes within that marketplace?


A. We leave it to lenders to determine how they respond to the growing practice of homes for sale being labeled as members of either the troubled or the distressed property category, even though the property itself, and thus both the homeowner's and the bank's potential proceeds, is not troubled or distressed, but rather the homeowner and the lender. By categorizing properties as being distressed or troubled, it essentially undermines the underlying loan that supports the market value of the property.


Q. How can a lender best identify evidence within a short sale package/kit that the listing agent has placed much greater emphasis on supporting a lower short sale agreed-upon price than they have upon marketing for a greater selling price?


A. Lenders should respectfully challenge any real estate agent who supports any proposed sales price or offer as to the appraisal method they employ along with the specific and customized off- and online marketing methods they have designed for the subject property. In other words, evidence-based marketing versus merely evidence-based pricing.


Q. How can a lender best determine how dedicated a listing agent truly is to not just "Selling" a home but selling a home for more, in a climate where almost all low offers can be justified or rationalized as representing the best or the only possible offer that could be brought to the lender?


A. Simply ask the real estate agent what methods they employ to market homes for more. Otherwise, attention might be diverted to how they sell more homes versus how they sell homes for more. This is a powerful distinction that lenders must demand real estate agents respond to in order to best determine if the offer, which is part of the short sale kit, represents either optimum marketing or instead a convenient rationale for a significantly lower price.


Q. What can lenders do to prevent the real estate industry from becoming a "foreclosure-prevention" industry instead of an industry of world-class marketers dedicated to bringing back property values for both presently challenged and future home sellers?


A. Again, by communicating to the entire local real estate marketplace that any short sale packet being presented for short sale consideration must include an evidence-based marketing overview of the property, and not just a dazzling display of pricing data supporting a self-fulfilling prophecy of lower prices.


Q. When should a lender who holds a subordinate lien on the property being considered for short sale agree to or choose to resist a short sale resolution?


A. It would be presumptuous to suggest that lenders, given what is financially at stake for them, have not carefully considered the bottom-line implications of each and any lien position they hold as it relates to short-sale resolution and all other options available to the lender(s).


Q. When properties are promoted as being distressed or as potential "short sales," does such labeling stigmatize not only the subject property but all other properties, and does this practice potentially damage the lender's greater loan portfolio as well as the asset value of all homeowner properties? If so, should lenders communicate their concern to the real estate industry regarding how properties upon which they hold mortgages are being marketed given our economic climate?


A. Lenders should make it known to the real estate industry that certain marketing practices, which seem intended to exploit the current marketplace, are not being overlooked and will influence which real estate agents are selected to represent bank-owned/REO properties.


Q. Since a home seller does not stand to receive any money from the short sale, how can they best be motivated to enthusiastically support a marketing effort designed to realize an optimum sales price of their property?


A. As we responded to this question in the section for homeowners, the authors of this publication believe that homeowners first and foremost have an ethical responsibility when expecting the lender(s) to forgive any and all of the homeowner's outstanding mortgage debt to, in return, expend the necessary effort to support as high a sales price as possible (even though there is not a financial gain to the homeowner). We also believe that the higher the realized sales price, the more likely the lender will be in granting a short sale outcome for the homeowner and possibly either fully or partially waiving a deficiency judgment. Moreover, we also advise homeowners to be wary of any real estate agent who-for the sake of facilitating a guaranteed sale in the hopes of generating a commission before a property is foreclosed (where they might not gain a commission)-demonstrates a less-than-professionalor lackluster marketing posture or commitment. Such agents justify this attitude by saying to a homeowner, "No matter what the home sells for, it really doesn't affect your pocketbook, only the lender's."


This less-than-professional marketing commitment on behalf of some real estate agents seeking to facilitate a short sale at all costs (but not to them) is one that lenders readily recognize. We find that this unprofessional approach to real estate marketing, notwithstanding the special circumstances surrounding a proposed short sale outcome, is to the detriment of well-intentioned homeowners who are hopeful of gaining lender cooperation. Lender cooperation, without question, is influenced by how honorable they believe both homeowners and real estate agents are in spite of the difficult circumstances facing the homeowner and the challenging marketplace facing the agent.


Q. Should a lender be concerned when a real estate agent is representing both sides of the transaction against the backdrop of a seller desperately seeking to avoid foreclosure and a bank's predisposition towards short sales, versus the protracted, costly and legally cumbersome foreclosure/REO alternative?


A. Yes, lenders, more than ever, need to be circumspect regarding the individual circumstances surrounding how their mortgaged property is being recommended to "closure."


Buyers . . . Reap . . . Create Reward from the Benefit of A Short Sale


Before buying a property marketed in a "short sale" context, consider the following:


Q. How much less should I offer on a property once I learn that the real estate agent has "labeled it to fellow agents" as a possible short sale, even though the bank hasn't yet classified the property in such a fashion?


A. For the same reason that it most likely is not in the best interest of a lender or the ultimate sales price of a property when it is marketed as being "under duress," it oftentimes is to the significant benefit of the buyer when a property is being labeled as a potential short sale.


Any offer on any property in any marketplace should be made only after the buyer satisfies the need to thoroughly research what properties are selling for, how long properties are taking to sell, which way prices are trending, and to the degree possible, what pressures to sell might be facing the owner(s) of the property in question.


Along with this approach to a proper pricing/offer strategy, it is recommended that the buyer be as aggressive as possible and anticipate an inevitable negotiating process. To that end, if a property is labeled as a potential short sale that might enjoy a stronger negotiating position, that will be reflected in your offer. At the same time, it is unwise to risk a great sales price (especially when one is seeking the lifestyle benefits of a particular home for sale) by pushing too hard and too unrealistically.


It is recommended that when packaging the offer for a property that is being advertised as representing challenging circumstances, that the buyer make his/her case by understanding the position of the lender regarding a short sale outcome versus foreclosure or bankruptcy. The key is to not appear exploitive, but rather to appear as one who is willing to make a prudent decision, even while most others remain on the sidelines.


Q. Do some real estate agents make it a practice of building in preprogrammed or time-interval-based price reductions, and if so, can I assume that the longer I wait, the greater the discount I will enjoy?


A. Some agents do build in strategic price reductions to come at specific intervals and they see it as their earnest attempt to help their homeowner-client win the race against a foreclosure.


Other agents, however, view this systematic concession as a lazy method that doesn't require aggressive marketing (which is self serving to the agent who does not want to risk losing a sale before a foreclosure), even if it means contributing to the downward spiral of home values. If possible, buyers should try to determine if a particular real estate agent makes it a practice to systematically include interval-based price reductions when considering how to best "time" their offer, so it coincides with the agent's willingness to concede to a lower price as a foregone conclusion.


Q. As the contract is subject to third-party approval, who is the seller of the property and with whom am I doing business?


A. You and the agent representing you are doing business first with the home seller and marketing agent regarding your offer, but must realize that ultimately the business decision will be made by the lender(s), although the home seller does not have to agree with the lender's terms for the short sale approval.


Q. How can I, as a buyer, best determine whether or not the seller of a so-called potential short sale property significantly overpaid when they purchased the property?


A. Each property-although conveniently considered a comparable to other properties-is truly distinctive, and therefore, all pricing is subjective. Consequently, in order to best understand the relative value of a property and whether or not somebody overpaid or underpaid requires marketplace sophistication and savvy. The necessary marketplace information that is required to make the determination of what a property should have been bought for requires more than Internet-based research and statistics, but a thorough understanding and appreciation of the physical, exterior and interior condition and esthetics of a large number of properties that fall within the same range as the property being considered for purchase. We believe that an experienced real estate agent (like a Top 5 in Real Estate Network® member) can help buyers save tens, if not, hundreds of thousands of dollars by assisting them in determining how to best buy property in a financially challenged marketplace.


Q. Since short sale properties are expected to be purchased in as-is condition, given the lack of financial interest of a home seller regarding the outcome of their property, and considering the potential adverse physical effect that these circumstances have on the value of the property, how late in the negotiating process should my appraisal be in determining market value?


A. Any buyer for any property should be willing to pay for all relevant and necessary inspections and appraisals of the property, and have a pre-closing walk-through contingency as part of the sales agreement.


You should consider making any offer subject to the existing lender's acceptance to include not only a general home inspection contingency, but also, where applicable, satisfactory inspection reports for lead-based paint, natural hazard disclosure, pest/insect report, underground storage tank, septic/sewer inspection, well water and seller (conditions) disclosures. All of these contingencies should be in addition to the typical mortgage, appraisal and title contingencies.


Q. How should a buyer negotiate with a lender on a short sale property when the lender typically is not subject to property condition disclosures and the seller, given their financial situation, may not be a viable party regarding future recourse?


A. Buyers, especially with certain types of homes (e.g., age and condition), should most definitely include disclosure concerns as they prepare and present their offer to the lender and as an overall part of their overall negotiating strategy.


Q. How can I find out about subordinate liens or other claims to the property, and how will this impact my negotiations and the time necessary to close?


A. Ask your agent to have a title search conducted; it will include all the necessary information regarding lien holders. This should guide you regarding the estimated time it will take before a closing might be possible. Further research into the short sale practices of each lien holder, and the institutions they represent, might also reveal their relative willingness to accept lower offers. It is also recommended that the buyer title the property with title insurance, although without a strategy to remove all liens, no closing will be possible.


Q. Please explain what options, other than a short sale, the primary lien holder has with regard to the disposition of this property.


A. The other options include deed in lieu, loan modification, forbearance and foreclosure.


Q. When is a short sale the bank's better option, with regard to the disposition of the loan on this property?


A. When a lender deems that all other options are either too costly or carry with them a high level of financial uncertainty, the short sale represents closure and finality.


Lenders also often favor short sale resolutions because they are not in the business of, nor do they have expertise regarding, managing or owning properties. Moreover, short sales are typically less expensive for the lender than the foreclosure process.


Q. Where do you see my opportunity to reap a reward in the purchase of a property that is hopeful of a short sale resolution?


A. When your offer represents a quicker, cleaner and clearer financial outcome to the lender than the other options available to them.


Q. Under what circumstances would the bank reject or not consider my offer to purchase a short sale property?


A. The offer will not be accepted when it is considered to be either too low or not in the best interest of the lender. Mortgage preapproval, if possible by the lender, or a full-cash offer can eliminate the lender's concerns regarding last-minute credit issues. A high loan-to-value ratio will also offer the seller/lender a higher level of comfort, especially if their institution will be the mortgagee for the transaction.


Q. Strategically speaking, what can I do to best ensure the bank's acceptance of my offer to purchase the property?


A. From the lender's perspective, the greatest qualities of the short sale resolution are closure and finality. By accepting your offer, even if the price is lower than market value, due to the situation, the lender can close the file and move on. To best ensure a smooth transaction, do not muddy the waters with contingencies and time frames inconsistent with conventional closing times. The lender will likely need to take time to deliberate prior to accepting an offer. Once the offer is accepted, anticipate that the lender will want to close within 30 days. Consider including language in your proposal and contract that provides the lender with the time they need to review the offer and reach a decision. Then include an iron clad means of closing (i.e., paying for the property on your part). When you remove obstacles in any real estate transaction, you pave the way to a smoother closing.


Q. With regard to price, what would you recommend to best ensure that the bank accepts my offer, and at the lowest possible price?


A. By the time you come to realize that a given offer on a given property makes sense for you, either as a personal or as a business investment, you should have completed a significant amount of research. Your research, or the research of your highly skilled and specialized real estate agent, should be able to help you arrive at a point where you have a rationally supportable negotiating range in mind, based upon market conditions, market prices, the investment you'll be making and the return you are anticipating. We recommend that you consult with your real estate agent on how to best present your pricing rationale within the lender's context. If you are going to make an offer because it is a good investment in today's market and your offer is too low, the lender will likely reject the offer so they can gauge your perspective as a prospect.


Share your reasoning with the lender so they can see your perspective as a buyer or as an investor. Creditworthiness notwithstanding, when the lender/seller understands your rationale they will also understand why they should not likely be able to anticipate a better competitive offer. When their other, more ambiguous options are not financially viable (e.g., foreclosure, bankruptcy, deed-in-lieu), and when your offer makes sense, you will have the best opportunity to have your offer accepted at the lowest possible price.


Q. What is the bank's decision-making process in the consideration of my offer to purchase, and how long should I expect this to take?


A. The decision-making process varies, based on the institution. Here again, a highly skilled real estate agent experienced in this area can offer specific details regarding the details of the process in your situation.


The lender/bank needs a rationale to justify any write-downs/write-offs. This can often be subject to internal lender protocols, and this can add time to the approval process. The lender will need to rely upon appraisals and broker price opinions that they will most likely order themselves. Both can be developed quickly. Some lenders will have a monthly meeting in which they review proposals. If a short sale package/kit is incomplete, expect it to be rejected or returned to you for clarification or review. This can delay your process up to one month or more.


Lenders will generally need to negotiate to obtain releases from secondary lien holders. Anticipate that the time required for this process and subsequent negotiations have the potential to become protracted.


Anticipate that a "simple" title search should be expected to take approximately three to five days.


Remember, each lender has established their own rules for their short sale process, including what percentage of a debt-to-balance (ratio) payoff they will accept. The lender should also be expected to have internal guidelines for how much commission they will pay for real estate brokerage services and for attorney fees.


Q. What is an REO property?


A. The letters "REO," stand for real estate owned. These are properties owned by a lender, in most cases a bank, and become classified as REO typically after an unsuccessful foreclosure auction when the title to the property reverts back to the lender. Some banks, given the number of properties they now own, have established their own REO departments. In many cases, leading real estate agents have developed relationships to create opportunities for buyers and investors. Buyers/investors can also contact the REO departments of lending institutions to learn about available properties or visit various bank-created websites, which list their bank-owned or REO properties for sale.


Q. In general, would a buyer benefit more from buying a bank-owned (or REO property) or a short sale property?


A. There is no general rule that can, with any degree of certainty, state which category of real estate buying results in a more favorable outcome for a buyer. It is important, however, that buyers understand that lenders are extremely motivated to sell when they own the property (REO). As a buyer, it is also easier to identify the true condition of an REO as the property should be vacant.


Banks do not want to own properties and have a great incentive to not only sell their properties, but will actually offer credits to buyers, in some cases, if the buyer agrees to fix defects or perform renovations on the property.


Short sales offer many advantages as well as evidenced throughout this information; but again, it is very difficult for anyone to categorically assert that either foreclosures or short sales represent the best opportunity for a buyer.


Q. What is the estimated time between the acceptance of my offer and the closing?


A. There are no norms with which we can guide you. Each jurisdiction has required time frames for notification of the intent to foreclose and for the various steps in the process. Once again, we recommend that you work with qualified, licensed professionals, including attorneys with local experience in your market, for specific guidance in this are. As a generality, however, it is not uncommon for a lender to consider a proposal for approximately 60 to 120 days and anticipate closing 30 days after they accept your offer.


Q. Is it worth the wait?


A. In many cases, yes, it is worth the wait, but this depends upon each person(s) circumstances.


Q. What is the benefit of buying a short sale property as opposed to buying a conventional property?


A. For the buyer, it is a better or lower price, resulting from a stronger negotiating position; for the seller/lender, it is the opposite.


Q. How do I learn about the relevant local real estate market during the last year or so, and how can I get predictive data regarding estimates of future prices?


A. Contact a real estate agent and ask them to provide all past and present pricing data, absorption rate data (where available) and all other contextually relevant information they can make available to you.


Q. Can I benefit from buying a property that was marketed as a distressed or short sale property, and then turn right around and sell (flip) it for more by removing this stigmatized label?

A. When real estate prices were escalating rapidly, properties were being purchased and refinanced as the market continued to rise. This practice created equity leveraged by credit debt. Fearing a reversal of this trend and the resulting under-collateralized loans that would inevitably follow, the Federal Housing Administration (FHA) implemented "anti-flipping" regulations as a condition of the loan, which, under specific circumstances, require the owner to hold the property for a fixed amount of time prior to selling it once again. As of right now, these regulations have been temporarily waived. Check with qualified counsel for details on how this may or may not affect your investment decisions.

Benefiting from the purchase and subsequent sale of a distressed or short sale property would depend more upon what your purchase price was than on how the property was labeled. However, because the property was "labeled" and viewed by the marketplace as being a "distressed" property, it may have very well led to a much lower price when you bought it. Fully consider the tax implications as well.

Ask your CPA about the $250,000 home sale exclusion. In the case of an owner-occupied residence, under the current IRS regulations, you would have to live in the property for two out of the first five years of ownership to qualify for the $250,000 home sale exclusion. We highly recommend that you consult with qualified licensed professionals prior to making such purchasing or investment decisions.

Contact: Robert Farmer  609-444-8204 or

Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Windsor, West Windsor, Mercerville, Lawrence.

Investment Strategies
Posted By - Robert Farmer - 2 days ago 6 comments

Investment Strategies

When purchasing an investment property, there are certain strategies you may employ to find success.  The first is to purchase a property at a bargain price, usually at least 20% below current market value, in the hopes of making a tidy profit from the sale.

Another common strategy is to find a property with great potential, purchase it at its current market value, and perform the necessary work to increase the value of the property.  This strategy works best if you increase the value at least 20% within the first six months.

One strategy to avoid: making a purchase simply because you believe the property will quickly increase in value due to appreciation in the market.  There is no way to know for sure how the market will progress, and most investors who succeed at this strategy have a healthy amount of luck on their side.

Please call or email us if you have any questions or needs.

Robert Farmer

609-444-8204 or

For a list of the best properties in Mercer County, NJ which includes Princeton, Princeton Junction, West Windsor, Hamilton, Lawrence, Lawrenceville, East Windsor, Hightstown and Trenton area sign up for my property mailing list.    Thanks

Can You Buy Homes Below Market?
Posted By - Robert Farmer - 2 days ago 127 comments


Can You Buy Homes Below Market?

Most buyers will see between 5-10 homes before making an offer, an investor who makes bargain buys usually goes through many more. It takes a lot of determination to find a real "bargain."

There are a number of ways to buy a bargain property:

  1. Buy a fixer-upper in a transitional neighborhood, improve it and keep it or resell at a higher price.
  2. Buy a foreclosure property (after doing your research carefully).
  3. Buy a house due to be torn down and move it to a new lot.

I have helped many investors find that bargain! Give me a call or leave your contact information on this website so we can start looking today.  No obligation consultation.

Hope to hear from you.........Robert Farmer 609-444-8204  or

Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Winsor, West Windsor, Mercerville, Lawrence.

Should I Invest in Condo's?
Posted By - Robert Farmer - 2 days ago 125 comments

Condos, Apartments & Single Family

What are the differences between condos and single-family homes?

Using appreciation as a measure, condominiums in some areas have been as profitable an investment as single-family homes in the past five years. And in some markets, condos appreciated even more, according to some experts.

While single-family homes have been the preferred investment by homebuyers, changing demographics are helping make condos more popular, especially among single homebuyers, empty nesters and first-time buyers in high-priced markets.

Also, the condominium community has worked hard in the last few years to overcome image problems brought on by homeowners association and developer disputes as well as all too frequent construction-defect litigation.

Should I be looking into condos?

While condos never had the kind of appreciation experienced by single-family homes in the go-go 1980s, most ultimately have not lost value, say some experts. And with high prices in many urban markets and more single homebuyers in the market than ever before, the market for condos is strong.

As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer).

The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes.

Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact, condos have appreciated more in the past few years than when they first came on the scene in the late 1970s and early 1980s, experts say.

While there are lots of reports about homeowner's association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past.

Meanwhile, changing demographics are making condominiums more attractive investments for single homebuyers, empty nesters and first-time buyers in expensive markets.

How do homeowners associations work?

Learn everything you can about the homeowners association before you buy into a development governed by one. The association's financial, political and legal conditions are very important to your investment and quality of life.

When run properly, homeowners associations maintain the common grounds and keep civility in the complex. If you follow the rules, the association should not intrude on your privacy or cost you too much in association dues.

Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the association’s covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you can get away with violating the rules or change them later because you may find yourself in turmoil with determined neighbors firmly in control of the association board.

Find out all you can about the association's finances. Beyond reviewing the budget, talk to the association treasurer and find out if dues are expected to increase and if any special assessments are planned. Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike or special assessment later on.

Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo complex for you.

Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics. Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a good thing.

Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real estate investments, the more you know the better off you are.

Is it difficult to project rents on rentals?

If you are buying a rental income property and applying for a loan to do so, the lender will require an area rent survey by a certified appraiser. The amount a landlord can expect to receive in monthly rent largely depends on what the property has rented for in the past, the condition of the building, its location and the current housing market.

Lenders also look at other cash-flow considerations. They want to know if you have enough reserves on hand to cover predictable and unforeseen expenses, such as property insurance, taxes, regular maintenance and repairs.

Contact: Robert Farmer  609-444-8204 or

Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Winsor, West Windsor, Mercerville, Lawrence.

Are Foreclosures a Good Investment?
Posted By - Robert Farmer - 2 days ago 4 comments


Are foreclosures a good investment?

A foreclosure property is a home that has been repossessed by the lender because the owners failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic conditions affect the number of foreclosures, too. Many people lose their homes due to job loss, credit problems or unexpected expenses.

It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court judgments are cleared or at least disclosed.

Are there different types of foreclosures?

Judicial foreclosure action is a proceeding in which a mortgage, a trustee or another lien holder on property requests a court-supervised sale of the property to cover the unpaid balance of a delinquent debt.

Non-judicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.

How do I find a foreclosed property?

In most states, a foreclosure notice must be published in the legal notices section of a local newspaper where the property is located or in the nearest city. Also, foreclosure notices are usually posted on the property itself and somewhere in the city where the sale is to take place.

When a homeowner is late on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The financial institution that has initiated foreclosure proceedings usually will set the bid price at the loan amount.

Despite these seemingly straightforward rules, buying foreclosures is not as easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition.

How does HUD affect my buying a foreclosure?

If you are strapped for cash and looking for a bargain, you may be able to buy a foreclosure property acquired by the U.S. Department of Housing and Urban Development for as little as $100 down.

With HUD foreclosures, down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from 5 to 20 percent. But when the property is FHA-insured, the down payment can go much lower.

Each offer must be accompanied by an "earnest money" deposit equal to 5 percent of the bid price, not to exceed $2,000 but not less than $500.

The U.S. Department of Veterans Affairs also offers foreclosure properties which can be purchased directly from the VA often well below market value and with a down payment amount as low as 2 percent for owner-occupants. Investors may be required to pay up to 10 percent of the purchase price as a down payment. This is because the VA guarantees home loans and often ends up owning the property if the veteran defaults.

If you are interested in purchasing a VA foreclosure, call 1-800-827-1000 to request a current listing. About 100 new properties are listed every two weeks.

You should be aware that foreclosure properties are sold "as is," meaning limited repairs have been made but no structural or mechanical warranties are implied.

You can only purchase a U.S. Department of Housing and Urban Development property through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.

Where do you find government foreclosed homes?

The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors.

You can only purchase HUD-owned properties through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.

Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market's 5 to 20 percent.

Buying a foreclosure property can be risky, especially for the novice. Usually, you buy a foreclosure property "as is," which means there is no warranty implied for the condition of the property (in other words, you can't go back to the seller for repairs). The condition of foreclosure properties is usually not known because an inspection of the interior of the house is not possible before the sale.

In addition, there may be problems with the title, though that is something you can check out before the purchase.

Buying directly at a legal foreclosure sale is risky and dangerous. It is strictly caveat emptor ("Let the buyer beware").

The process has many disadvantages. There is no financing; you need cash and lots of it. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title. The property's condition is not well known and an interior inspection of the property may not be possible before the sale.

In addition, only estate (probate) and foreclosure sales are exempt from some states’ disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it.

Can I get financing on a foreclosure?

One reason there are few bidders at foreclosure sales is that it is next to impossible to get financing for such a property. You generally need to show up with cash and lots of it, or a line of credit with your bank upon which you can draw cashier's checks.

What are trustee sales?

Trustee sales are advertised in advance and require an all-cash bid. A sheriff, a constable or lawyer acting as trustee usually conducts the sale. This kind of sale, which usually attracts savvy investors, is not for the novice.

In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed.

Contact: Robert Farmer  609-444-8204 or

Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Winsor, West Windsor, Mercerville, Lawrence.

Wall Street's Biggest Lie
Posted By - Robert Farmer - 2 days ago 10 comments

Wall Street's Biggest Lie

The big investment firms on Wall Street tout the benefits of investing through an IRA. And they're right: IRAs can be great vehicles, given their tax-favored nature. However, the biggest lie on Wall Street is the "Self-Directed IRA".

What they should call it is "The IRA where we dictate what you can put in it, because we know better."

What a joke.

Sure, there are some investments that the government will not allow in your IRA; but there are a whole group of investments that the government is just fine with you putting in your IRA…but the fee-hungry investment firms don't want you to know about!

Why? Because they don't get their fat fees from them!

Here's the truth:

You CAN invest in real estate through an IRA…but probably not through the one you already have! That's because if you set up your IRA through one of the major Wall Street firms, or your typical bank, you were sold a bill of goods that real estate was "not suitable".

That's what they want you to believe, so you'll stop asking questions.

Did you know you can invest in the following types of real estate through a truly "self-directed" IRA:

    * Raw land

    * Single-family homes

    * Apartments

    * Mobile Homes

    * Commercial Property

    * Real estate notes

    * Mortgages

    * Tax liens

Just contact us by clicking here. We'll be happy to give you the information that's been kept from you all these years…the exciting possibilities of having real estate investments grow tax deferred in an IRA.

By the way, you can invest for retirement and not put the investment in an IRA or any other type of tax-deferred vehicle. You simply invest with after-tax dollars.

Remember, we're not your attorney or tax advisor. We suggest that you check with them about any investment you're thinking about making.


"Everything you told us came true: You took the time to listen to our investment needs; you explained the real estate loan process completely. And you’ve always been prompt in getting back to us when we have questions. That’s a lot more than I can say about our stockbroker!"

Mary Haney | Montpelier, Connecticut

"At first I didn’t believe you when you said that IRAs could hold single-family home investments. So I checked your story out. You were right! I’m mad that I lost several years of good investing time by listening to the “experts” at my investment firm. But I’m happy now that I have a TRUE ’self-directed’ IRA, with investments that only ‘insiders’ knew about before."

Doyle Jesser | Congress, AZ

"I’m much happier now that I’ve gotten away from the horse-race atmosphere of the stock market, and have found a whole new world of investing in real estate. I know real estate is not 100% guaranteed, but at least if I’m a lender, I’ve protected myself with collateral. Thank you for opening my eyes to investment choices I never even knew existed!"         

Peter Myer | Durango, CO

"In the past we have been very conservative as a retired couple with a steady income. Since working with Randall we now have confidence with the collateral held and our earnings far surpassed our mutual funds. We have been impressed with the knowledge Randall exhibited regarding real estate investments. Most of all it is exciting to work with this type of investment!!"

Woody & Sandra | Oregon City, OR


Q. "Isn't real estate awfully risky?"

That's like saying "Aren't knives deadly?" Well, they can be…but they can also be life-savers. As with most things, it's all in how you use the tool.


This site is not about investing in some speculative land deal over a Superfund site. Instead, we focus on making standard, bank-like loans on property. And we're not overly concerned about the repayment ability of the borrower, because the real security for each loan is in the substantial collateral of the property.

Make no mistake: Investing has risks. However, the trick is in how you choose those investments, and what kind of safety net (collateral) you build under them. That's what we're good at.

Q. "If this is such a good investment, why isn't Wall Street advertising

it on TV?"

As we mentioned before, these are not mass-produced investments. You get to know exactly which property you are making your loan on. In contrast, Wall Street wants to raise $50 million at a whack, stuffing people into generic investments that are as mixed together as hot dog meat. They have no interest in matching up individual lenders with single properties. So they tell you real estate is not allowed in your self-directed IRA, and they steer you in the direction of their fee-bloated mutual funds.

Q. "What if I want to get out of the investment earlier than I had planned?"

You should only be investing an amount of money that you can leave in the investment for the term of the loan. Because the real estate borrower will be most likely using the loan to renovate a property and sell it, that process must take its course before the borrower will be repaying the loan. Therefore, unlike a money-market account, these investments are not able to be withdrawn on a moment's notice. Of course, that's one reason why you can expect far more profits than a money-market account will deliver.

Q. "What are the tax consequences of these investments?"

We're not your tax advisor, and we urge you to speak to one before making any investment. But in general terms, because you are a lender, you will not receive depreciation benefits. You will be receiving interest income. You may or may not be able to offset that income with some of your other investments.

Q. "Do I invest in one property or several?"

You make a loan on one specific property at a time. That's the beauty of this type of investment: You know exactly where your money is going. Of course, if you decide you like this form of investing, there's nothing to stop you from making multiple separate investments.

Q. "Investing in only one property means I'm not diversified, right?"

You should already have a diversified portfolio of investments, and should only be thinking of adding private lending to that portfolio. It will make your portfolio even more diversified. We certainly don't suggest that you put all your investable assets into one private loan (or one stock or mutual fund, for that matter!).

Q. "Where do I go from here if I have questions, or just want to get started?"

We're only a few mouse clicks away. Just go here to contact us by using our completely private, confidential system.

Contact: Robert Farmer  609-444-8204 or

Keywords: Real Estate, REO’s, Foreclosures, Short Sale, Flipping houses, Multi-Family, Hard Money, Mortgages, Investing, RE Investing, Sales, auctions, rehabs, discounted notes, For Sale By Owner, lease options, Mercer County, Hamilton, Lawrenceville, Princeton, Princeton Junction, Trenton, East Winsor, West Windsor, Mercerville, Lawrence.

ROI-Real Estate Financial Analysis
Posted By - Robert Farmer - 2 days ago

Have you ever considered buying investment real estate? Are you curious about how you would go about analyzing the financial details of the property you are considering buying? How you would go about figuring out if the property were a good deal or rip-off?


The following is a detailed tutorial on how to do a thorough financial analysis of any multi-unit residential rental property you might be considering purchasing. While different sized properties require more or less analysis then you’ll find here, the information presented in this document is the basis for analyzing any sized multi-unit residential property, from two-unit duplexes to 500-unit apartment complexes.

While this analysis will also work for single-family rentals to some degree, the market value of single family homes is generally determined differently than multi-family properties. The value of single family homes (investment or not) is generally determined by market “comps.” Comps (or comparables) are those properties in the same area that have similar characteristics – same floor plan, same number of bedrooms/bathrooms, equivalent garage size, same amenities, etc. So, a single family investment home will generally rise in value if similar homes in the same area are rising in value, and lose value if similar homes in the area are losing value.

Larger investment properties (those with at least two units, and especially those over four units) are valued differently. The value of larger investment properties is directly related to how much income/profit it produces for its owner. So, it’s possible that an apartment building in a neighborhood where house prices are dropping could be increasing in value is the components of the market that drive income are improving.

The fact that multi-family properties are valued based on their income potential demonstrates how important good financial analysis of these properties is. You can’t just compare your apartment building to others down the street to see how much it’s worth.

I should also mention that, while this analysis will work for any multi-unit residential rental property, it is not sufficient for analyzing commercial property; for things like office, industrial, or retail space, you should seek additional guidance.

The goal is this document is to teach even the most novice real estate investor how to analyze the financial components of a rental property, but I expect more experienced investors will also find some good information in here.

Note: Keep in mind that while do financial analysis is relatively simple once you understand the basic concepts, it takes a little while to get a “feel” for how various inputs affect the overall outcome of the analysis. You should play with the numbers for a bunch of example properties (see the end of this tutorial for a list of places to find examples), and see how the inputs affect the outputs.

In the next section, we'll discuss the major input and outputs associated with our financial analysis...

Knowing What to Look For

The first step in being able to analyze the value of a rental property is to understand what factors contribute to the value of a property value, and what key metrics you should be looking for before making a purchase decision on a rental property.

In general, good financial analysis involves being able to input a bunch of information about your investment into a financial model, and have that model kick out a bunch of information that you can then use to determine whether the investment is a good or a bad one (and whether it is the right investment for you).

Below are the very high level inputs and outputs that we will be working with in the financial analysis of our property. If any of these terms – or details around them – don’t make sense, keep reading; everything mentioned in this section will be discussed in much more detail later in our tutorial.

High-Level Inputs

In general, the information you need to do a thorough financial analysis of a residential rental property includes the following:

  • Property Details: This is information about the physical design of the property, including number of units, square footage, etc
  • Purchase Information: This is basic cost information about the property you are considering, such as the purchase price, the price of any rehab or improvement work you’ll need to do, etc
  • Financing Details: These are the details of the loan you will obtain to finance the property. This includes such things as total loan amount, down payment amount, interest rate, closing costs, etc
  • Income: This the detailed information about the income the property produces, such as rent payments
  • Expenses: This is the detailed information about costs of maintaining the property, including such things as property taxes, insurance, maintenance, etc

High-Level Outputs

The most important part of any financial analysis is being able to interpret the data you get from your spreadsheet or model. It doesn’t matter how many statistics, metrics, or calculations you can gather if you don’t what to make of them once you have them.

Here is a very high-level list of outputs you’ll receive from your analysis, and how/why they are important (we’ll go into each of these in much more detail later in our tutorial):

  • Cash Flow: Cashflow simply refers to the amount of money you will make every month or year by owning this property after all expenses are accounted for. This is your profit
  • Rates of Return: In general, “rate of return” refers to the amount of money you make on an investment *relative* to your upfront cost of obtaining that investment. When analyzing a rental property, there are actually several rate-of-return calculations you should do, each offering their own insight into the value of the property, and its value to you based on your personal financial situation. We’ll go into much more detail about rate of return later in this tutorial

In broad terms, those are the key inputs and outputs you’ll be dealing with during the financial analysis of any residential rental property.

Gather your information

In order to perform a good analysis of your target property, you need access to all the data mentioned in the first section of this tutorial. Gathering accurate data can often prove the difference between making the property look great on paper and look horrible.

Pro-Forma vs Actual Data

Remember from the introduction of this tutorial that the value of multi-unit properties is directly related to how much income/profit it produces for its owner. Because of this, it’s often in the seller’s best interest to provide numbers that are more “appealing” than they are accurate; for example, a seller may give high estimates of rental income or neglect to mention certain maintenance expenses to give the impression that the property is more valuable than it is. So, part of your job is to make sure you have the best information available when doing your financial analysis.

How do you do that, you might ask?

Well, while you may rely on “pro-forma” data (basically, pro-forma means “estimated”) from the seller to kick off a discussion about a property, you should ensure that before you actually close on the property that you get actual data about income and expenses. You should ask to see previous years tax returns, property tax bills, maintenance records, etc. Hopefully all the actuals will prove similar to the pro-forma data you had previously been given, but don’t be surprised if it doesn’t. Remember, the seller is trying to make a sale, and will oftentimes get creative to make the numbers seem better than they are.

In addition to getting actual data from the seller, you should do your best to ensure there are no surprises if you were to buy the place. For example, when was the last time the property was assessed for taxes? If it was a while ago, and values have increased significantly since then, it’s possible that the property will be reassessed very soon, and property taxes will increase. Remember, even small changes to the income and expense numbers can mean big changes in your bottom line.

Where to find your data

Remember the list of inputs we specified in section 2 of this tutorial? That is the data you are going to need to complete this financial analysis. Here is where you should be looking for each of these:

  • Property Details: This information should be available from the seller, but more comprehensive and detailed information can also be obtained from your local County Records Office
  • Purchase Information: Obviously the seller is going to name a purchase price (which will likely be negotiable, of course), but the more important information here will be any upfront maintenance or improvement work that needs to be completed to ensure that the property can (or continue to) meet its income potential. While there may be no extra cost here for properties in good condition, it’s worth having the property inspected by a professional building inspector to ensure that there are no hidden issues or problems
  • Financing Details: You’ll want to talk to your lender or mortgage broker to get an idea (or better yet a letter of approval) about the cost of the loan and the necessary down payment
  • Income: Details about income should come directly from the seller, but as mentioned above, don’t rely on pro-forma data for final analysis. You can also talk to the property management company currently running the property (if there is one) to get this information
  • Expenses: Similar to income, details about expenses should come directly from the seller (last warning not to trust pro-forma data!) or the property management company currently running the property. This is another place where a building inspector could help warn you about any major repairs that may be coming due in the near future (new roof, new heating/AC, etc)

Example Property

While it will be your responsibility to do your own due diligence in gathering the necessary data when it comes to evaluating real properties, I’m going to take the liberty to create a fictitious apartment building for sale to use as an example for this tutorial.

Here are the details on the building (click here to download flyer)...

For reference, this is similar to what a seller might provide in terms of pro-forma data on a property for sale.

Example Financing

For the sake of this example, let’s assume we’ve also spoken with our lender, and have secured a loan with the following properties:

  • Downpayment: 20% of total cost
  • Finance Amount: 80% of total cost
  • Interest Rate: Fixed 7% over 30 years
  • Closing costs: 2% of total property cost

Based on that here are the calculations we’ll need later in our analysis:

COST ASSUMPTIONS                                           FINANCING ASSUMPTIONS

Purchase Price       $400,000                           Downpayment                        20%

Downpayment          $80,000                           Finance Amount               $320,000

Improvements          $10,000                           Downpayment Amt               $80,000

Closing Costs            $8,000                           Interest Rate                            7%

TOTAL COST         $418,000                           Mortgage (Years)                     30

CASH OUTLAY        $98,000                          Mortgage Payment                $2,129

Now, using this fictitious building and our assumed financing options, let’s jump into our analysis!

In the next section, we will jump into our analysis...

Net Operating Income

It’s now time to jump into the analysis. And one of the cornerstone metrics of your analysis is “Net Operating Income” or “NOI.” In short, NOI is the total income the property generates (after all expenses), not including debt service costs (loan costs). In mathematical terms, NOI is equivalent to the total income of the property minus the total expenses of the property:

NOI = Income – Expenses

In general, NOI is calculated on a monthly basis using monthly income and expense data, and can then be converted to annual data simply by multiplying by 12. So, now that we know we need NOI, and we know that NOI is calculated using property income and expenses, let’s jump into our income and expense calculations.

Assessing Property Income

Gross income is the total income generated from the property, including tenant rent, other income from such things as laundry facilities, parking fees, etc, and any other income that your property will produce on a regular basis. From our example property, we have 8 units renting for between $525-650 per month, as follows:

UNIT              TYPE             RENT

1                     1+1                 $525

2                     1+1                 $525

3                     1+1                 $525

4                     1+1                 $525

5                     1+1                 $550

6                     1+1                 $550

7                     2+1                 $650

8                     2+1                 $650

                   TOTAL             $4,500

Plus, we have $200 per month ($2400 per year) in additional income from laundry facilities in the building, for a total monthly income of $4700 (and annual income of $54,000).

Because the majority of a property’s income generally derives from tenant rent, it is very important that your income calculations take into account the rent you won’t be collecting due to unit vacancy. In any area, there is some average vacancy rate; the vacancy rate for the property you are evaluating may be higher or lower than the surrounding area, and if it is, you need to decide how you’d like to factor that into your analysis.

For example, if building vacancy is listed as lower than average local vacancy, the first question you should ask is whether the data you are looking at is pro-forma or actual? If it’s actual, what is the current management doing to keep the building filled? Is the rent lower than market rents? When do current leases expire? In any regard, you need to determine what you think is a reasonable vacancy rate going forward; my suggestion would be to err on the side of conservative for this, and not assume that your vacancy rate will be any lower than the local average vacancy rate.

So, to assess total income on the property, you want to subtract out the income that you likely won’t see due to vacancy. In our example property, the seller listed typical vacancy at 12%, so we’ll go with that for our analysis. So, our total monthly income for this property would be:

REVENUES:                                  MONTHLY        YEAR 1

Rental Income                                 $4,500                $54,000

Vacancy Rate             12%                  (540)                (6,480)

Net Rental Income                           $3,960                $47,520

Other Income                                      $200                 $2,400

GROSS INCOME:                                $4,160             $49,920

With the total monthly income $4160, the total annual income would be $49,920.

Assessing Expenses

Now let’s calculate our total expenses for this property. In general, expenses break down into the following items:

  • Property Taxes
  • Insurance
  • Maintenance (estimated based on age and condition of property)
  • Management (if you choose to employ a professional property manager)
  • Advertising (to advertise for tenants)
  • Landscaping (if you hire a professional landscaping company)
  • Utilities (if any portion of the utilities is paid by the owner)
  • Other (anything else we may have missed above)

Any expenses listed as monthly should be converted to annual, and then we can total our expenses to find the annual cost of operating the property:

the total annual expenses for this property would be $12,751:

Calculating NOI

Now that we have our total annual income and expenses for the property, we can calculate NOI using the formula above:

NOI = Income – Expenses

= $49,920 - $12,751

= $37,169 (the property generates $37,169 per year)

While NOI doesn’t give you the whole picture (or even enough information to make any decisions), it is the basis for calculating most of the important metrics in our analysis.

In the next section, we'll examine those key metrics...

Calculating Key Financial Metrics

We now have all the key pieces of information necessary to determine if this property meets the financial bar you’ve set for making an investment. If you remember from the beginning of this tutorial, I listed a number of key outputs you will want from this analysis. In this section, I will focus on the first two of these – Cash Flow and Rates of Return.

In the last section, we learned that NOI was the total income the property produced, not including the debt service (loan) costs. You might have been wondering, “Why doesn’t NOI include the expense cost of the loan, since that will ultimately affect your bottom line?”

Cash Flow

The reason we don’t include debt service in the NOI calculation is that NOI dictates what size income the property will produce independent of the owner’s particular financing model. Because the monthly or annual debt service amount is going to be specific to the particular financing plan (it will be dependent on the down payment amount/percentage, interest rate, amortization schedule, etc), if we included debt service in the NOI, then NOI would only be meaningful in the context of that particular financing plan. And because different buyers will no-doubt have different financing, it’s important to have a income metric that is specific to the property, not the buyer.

That is why we have the cash flow calculation. Cash flow is equivalent to NOI adjusted for the expense of debt service. Specifically, cash flow is the NOI minus the debt service payments:

Cash Flow = NOI – Debt Service

As might now be obvious, cash flow is the total profit you will see at the end of the year from this property. As is also probably obvious, the higher your debt service payments (the larger your loan, higher your interest rate, or shorter your amortization period), the smaller your cash flow. If you pay all cash for a property (don’t take any loan), your cash flow will equal the NOI – this is the maximum cash flow on the property.

If you recall from our financing data, our monthly debt service would be $2129 on this property, and therefore our annual debt service would be $25,548. For this property, our cash flow would be:

Cash Flow = NOI – Debt Services

= $37,169 - $25,548

= $11,621 (at the end of the year, we’d have $11,621 in our pocket from this property)

Hmmm, paying all cash will minimize my debt service (it would be $0) which would therefore maximize my Cash Flow. So, if paying all cash maximizes Cash Flow, and if you have the means to pay all cash for the property, why wouldn’t you?

Read on to find out…

Rates of Return

Cash flow isn’t the only important factor when it comes to analyzing the property. What is more important than cash flow is rate of return (also known as return on investment or ROI). Think of ROI as the amount of cash flow you receive relative to the amount of money the investment cost you (your “basis”). Mathematically, that would be:

ROI = Cash Flow / Investment Basis

Obviously, ROI is going to be higher when one or both of the following is true: Cash Flow is higher or Investment Basis is lower. You can see that from the equation above, but it should also be obvious when you think about it: if you can make a lot of money from a small investment, things are good!

What is a reasonable ROI, you might ask. Well, we already know our ROI from several other types of investing vehicles. For example, if you put your money in a high-interest savings account, your return (in this case, your interest rate) is about 5%. In mathematical terms, for every $100 you “invest” in your savings account, you get $4 in cash at the end of the year:

ROI = Cash Flow / Investment Basis

= $4 / $100

= 4%

We know that a savings account will have an ROI of about 4%. A CD will have an ROI of about 5%. And if you do a little research, you’ll find that investing in the stock market will have an average ROI of about 8-10%.

So, what would our ROI be on this property?

There are actually three ROI numbers that you should be concerned with; let’s explore each of these individually.

Capitalization Rate (Cap Rate)

Just like we have a key income value (NOI) that is completely independent of the details of the financing, we also have a key ROI value that is also independent of the buyer and the details of the financing. This value is known as the “Capitalization Rate,” or “Cap Rate.” Cap Rate is calculated as follows:

Cap Rate = NOI / Property Price

If there is a single number that is most important when doing a financial analysis of a rental property, the Cap Rate may be it. Because the Cap Rate is independent of the buyer and the financing, it is the most pure indication of the return a property will generate.

Here is the cap rate for our example property:

Cap Rate = NOI / Property Price

= $37,169 / $418,000

= 8.89%

Another way to think about Cap Rate is that it is the ROI you would receive if you paid all-cash for a property. Though, unlike cash flow, where the value is maximized by paying all cash, the Cap Rate is *not* necessarily the highest return you’ll get on a property. This is because Cap Rate assumes that the investment amount is the maximum (the full price of the property), and we learned above that the value of ROI calculations goes up as the investment amount goes down.

So, what is a good Cap Rate? It really depends on the area of the country you’re in, but in general, most areas see maximum Cap Rates in the 8-12% range. And just like the value of single family houses are based on the prices of comparable houses in the area, the value of larger investment properties are usually based on the Cap Rate of comparable investment properties in the area. So, if the average Cap Rate in your area is 10%, you should be looking for at least an 10% Cap Rate for your property (barring other more complex situations and considerations).

Cash-on-Cash Return (COC)

Just like there are multiple measures of income -- NOI (financing independent income) and Cash Flow (financing dependent income) -- there are also multiple measures of return. As we’ve discussed, the financing independent rate of return (the theoretical return on a fully paid property) is the Cap Rate, and of course there is the real (not theoretical) rate of return as well. This is called the Cash-on-Cash (COC) return, because it is directly related to the amount of cash you put down on the investment.

For example, we discussed that if you took $100 and put it in a savings account, you’d receive $4 per year, or 4% ROI. The COC is the equivalent measure of how much return you would make if you put that $100 into the property.

COC is calculated as follows:

COC = Cash Flow / Investment Basis

In our example, the annual Cash Flow was $11,621, and the investment of cash that we had to apply upfront on the property was $98,000 (this includes the downpayment, the improvements, and the closing costs). So, our COC is:

COC = Cash Flow / Investment Basis

= $11,621 / $98,000

= 11.86%

As this return is directly comparable to our savings account return, we can see that we are getting a better return than either a savings account or in a diversified stock portfolio (albeit with a lot more time and energy spent).

While it’s completely up to you on what rate of return you need to purchase a property, it should be obvious that if you’re getting less than a 10% return on a property, it’s probably not worth your investment (you’d rather take that money and invest in the stock market where you can do a lot less work).

But, before you run off and make any final decisions based on COC, consider that the Cash Flow you make on a property isn’t the only thing that affects your bottom line…

Total ROI

In addition to Cash Flow, there are several other key financial considerations that affect a property’s performance. Specifically:

  • Tax Consequences (depending on your situation, you may gain or lose money to taxes)
  • Property Appreciation (you may not be able to predict this, but if you can)
  • Equity Accrued (remember that your tenants are paying off your property for you)

The difference between COC and Total ROI is that COC only considers the financial impact of Cash Flow on your return, while Total ROI considers all the factors that affect your bottom line. Total ROI is calculated as follows:

Total ROI = Total Return / Investment Basis,

where “Total Return” is made up of the components we discussed (Cash Flow, Equity Accrual, Appreciation, Taxes).

Let’s use the following for our Total Return calculation:

  • Let’s assume we would expect a 2% appreciation on the value of the property this year, based on the improvements that we would do upon purchase (2% appreciation is $8360)
  • We can calculate that the equity accrued in the first year of the mortgage is $3251
  • Let’s also assume that for the sake of this example that there are no tax breaks (or extra taxes due) by owning this property.

The Total Return of the property for this year would be:

Total Return = $11621 + $8360 + $3251 + $0 = $23,232

And, therefore the Total ROI would be:

Total ROI = Total Return / Investment Basis

= $23,232 / $98,000

= 23.71%

Not too shabby, huh?

Putting it all together

We now have all the data to assess the value of this property, but keep in mind that our assessment is only for the first year of ownership of this property. In subsequent years, accrued annual equity will increase, expenses may rise (with inflation), rental rates may increase or decrease, depending on the market, your tax situation may change, and a host of other factors may contribute to the return on you investment either increasing or decreasing.

While you can’t predict the future, you should extend your analysis out a couple years, using trend data or demographic data that indicates the direction of the market, inflation, etc.

What Is The Return On My Real Estate Investment?

Purchase price, loan terms, appreciation rate, taxes, expenses and other factors must be considered when you evaluate a real estate investment. Use this calculator to help you determine your potential IRR (internal rate of return) on a property.




Purchase price ($) 



Market Value (if different from Purchase price) ($)



Cash invested ($)



Depreciable value: (%)




"Interest-Only" Loan? (Y/N)



Loan amount (may include estimated Rehab) ($)



Interest rate: (%)



Term: (years)



Closing costs ($)




Gross rental income ($)



Income frequency



Annual rent increases: (%)



Occupancy Rate




Annual property tax ($)



Annual insurance ($)



Annual maintenance ($)



Annual HOA ($)



Annual increase in expenses: (%)



Other Information

Duration of analysis: (years)



Realtor fees upon future sale: (%)



Annual appreciation rate: (%)



Marginal tax bracket: (%)


Description: elp

Long-term capital gains bracket: (%)




Real Estate Investment Evaluation is Both Quantitative and Qualitative

I was taking a look at a potential investment the other day. It was a sprawling four unit multi-family property that was being occupied in its entirety the owner, who had been there for thirty years. The owner was an eclectic academic and there was every manner of bric-a-brac and antique scattered throughout the place. The place wasn’t sub-divided properly. Carpet needed to be replaced and floors repaired. The shifting foundation had bulged the floor in places, and had created large cracks that ran up and down various walls.

I toured the place with some friends of mine – a couple that was interested in getting into real estate. They wrote the place off from the moment they walked in the door. But when I saw those bulges and cracks I saw one thing: money. Foundation problems scare off most investors, which decreases competition and can soften up pricing.

But how to evaluate a deal like this? Or any deal, for that matter? Personally, I break the considerations down into two categories:

• Quantitative: How do I expect the property to perform as an investment? For this part I can whip out my calculator, or my spreadsheet, or my evaluation software and run some numbers.

• Qualitative: I have to ask myself “can I pull it off?” If you’re like the vast majority of real estate investors, then you’re a part-timer. That means you’re going to have to tackle this project on top of your “day job” and manage it afterwards. This part of the analysis will take some soul searching; a calculator isn’t going to help you here.

Quantitative - Running the Numbers Using Cap Rate

Personally, I tend to look at three key figures when I’m considering an investment. Cap rate, is the first of these tools.

Cap rate is simply the annual net income divided by the price of the property. For years investors have been using the “1% rule” which simply states that the monthly rental income for a property should be roughly 1% of the price that you pay for the property. Some markets have moved away from this ratio due to rocketing property values, but in others you can still find properties that fit the 1% rule. Something that you should keep in mind, though, is that the 1% rule of thumb is a fair indicator of whether or not the property is going to generate enough cashflow on an annual basis to cover mortgage payments plus expenses. There, of course, are a lot of variables that go into this (from taxes, to interest rates to the percent down payment that you pay) but it’s a starting point.

Cash Flow as a Quantitative Evaluation Tool

The only reason you care about cap rate is that you’re really trying for an easy proxy for what kind of cashflow the investment is going to generate. In investing cash is king – ignore this calculation at your peril.

Estimating cashflow entails plotting out the major expected cash outflows (taxes, principal, interest, expenses, vacancies, fees, repairs) and comparing it with the income that the property produces. You can do this either via a spreadsheet or using a real estate evaluation software package.

Rate of Return as a Quantitative Real Estate Investment Analysis Tool

Cashflow, in turn, will allow you to calculate the property’s expected rate of return (ROR). Rate of return is a measure of profitability; it measures the cash that a project will generate vs. the cash that you have to put into the project.

You’ll need a spreadsheet or a real estate evaluation software to calculate this ratio. I think it’s highly useful because it allows me to compare the return I’m expecting for the investment vs. the return I would reasonably expect for other, dissimilar investments. For example: if I ran the numbers for the property I described at the beginning of this article and it kicked back to me a rate of return of 8% I’d surely pass.

I can expect to get 8% investing on the stock market (lower risk, and a whole lot less effort). For the risk and effort I’d have to put into this project I’d expect a rate of return well north of 20%.

Qualitative - Can You Get the Project Done?

As I mentioned above, your calculator won’t help here. This is when you need to take a look in the mirror and think about how much time and effort you’re going to be able to devote to the project.

Again, let’s look at the project I talked about at the start of this article. Let’s say you’re comparing it against a similar opportunity; another multi-family in the same neighborhood but which requires less work. You’d take that opportunity over the fixer-upper unless the second one offered a considerably higher rate of return. But how much higher?

To starting investors I always offer the same advice: In this area err on the side of caution. A project that you can get done is infinitely better than one that has you burned out by the time you’re halfway through it. Find something in your comfort range that offers some decent numbers, get it done, then move on to a more challenging (and hopefully more profitable) project the next time around.


Analysis is part art, part science. Take a look at the other topics in this section for more ideas on evaluating investments.

Investing in Real Estate - A Way of Life!
Posted - 2 days ago 6 comments
Have you been thinking of investing in Real Estate?  
Why not join a network of experienced 
professionals such as those at South Jersey 
Real Estate Investors Association.  
Come and learn, network and see what we have to 
offer you...........the new investor!  
How is the stock market doing for you anyway. 
Ask me how I bought a house for .25 cents 
on the dollar. 

SJREIA Meeting

Check out our meeting the other night with Robyn Thompson-'Queen of Rehab'.

If you don't know her, she is a very prominent national speaker that has bought and sold and flipped over 340 houses to date.

Top Real Estate Financial Calculator Problems Explained

Real estate investors use a variety of mathematical tools to analyze the performance of their investment properties. We've taken some of the most popular ones and explain their purpose and how to do these real estate investment calculations.


This one is relatively simple. We want to know what income will be realized if a property is fully occupied and all rents are collected. We take number of units times annual rent for a total.

Example: An apartment complex with six units. Three rent for $700 per month and the other three rent for $800 per month.

Here's How:

  1. 3 units*$700/month=$2100
  2. $2100*12=$25,200
  3. 3 units*$800/month=$2400
  4. $2400*12=$28,800
  5. $25,200+$28,800=$54,000 Annual income.  This is our GPI.  Remember that we are assuming full occupancy and all payments are made.

2.  Gross Rental Multiplier

Though not the most precise of tools, the GRM can give you a quick comparison tool to decide on whether to do a more thorough analysis.

How to Calculate and use the Gross Rent MUltiplier (GRM)

As I work with real estate investors, I do quite a few market value analysis for each property finally purchased. The Gross Rental Multiplier (GRM) is easy to calculate, but isn't a very precise tool for ascertaining value. However, it is an excellent first quick value assessment tool to see if further more detailed analysis is warranted. In other words, if the GRM is way out high or low compared to recent comparable sold properties, it probably indicates a problem with the property or gross over-pricing.

2. Estimating value of property based on GRM:

Let's say that you did an analysis of recent comparable sold properties and found that, like the one above, their GRM's averaged around 6.75. Now you want to approximate the value of the property being considered for purchase. You know that its gross rental income is $68,000 annually.

GRM X Annual Income = Market Value

6.75 X $68,000 = $459,000

If it's listed for sale at $695,000, you might not want to waste more time in looking at it for purchase.

1. Getting the GRM for recent sold properties:  

 Market Value/Annual Gross Income=Gross Rent Multiplier (GRM) 
Property sold for $750,000/$110,000 Annual Income=GRM of 6.82

How To Calculate Break-Even Ratio for Real Estate Investment

Lenders use the break-even ratio as one of their analysis methods when considering providing financing for a real estate investment property. Too high of a break-even ratio is a cautionary indicator.

1.  Determine the debt service for the property:  In this case we'll assume an annual debt service of $32,000.

2. Determine the annual operating expenses for the property.

In this case, we'll assume that management and direct operating costs annually are $47,000.

3. Calculate the annual gross operating income of the property.  We'll assume a gross operating income of $98,000 annually.

4.  Add Debt Service to Operating Expenses and divide by Operating Income:

$32,000 + $47,000 / $98,000= .81

Benefits of Investing In Real Estate
Posted By - Robert Farmer - 2 days ago

Benefits of Real Estate Investing


There are two reasons that investors typically do not choose real estate: 1- They do not understand its true potential, 2- They feel that compared to stocks, bonds, annuities, etc, real estate is just too much trouble and too complex to become involved with. By choosing real estate you can diversify and give your investment dollars some real impact.


When you place $15,000 into most investments you receive $15,000 worth of investment. When you place $15,000 into real estate, however, you can receive $125,000 worth of investment. If that piece of real estate appreciates at 10%, you earned $12,500 in investment dollars as compared to $1,500 in investment dollars for your other investment. QUITE a DIFFERENCE!


If you have any interest at all, I would be happy to go over detailed scenarios. Your time will prove very worthwhile.  Please call or email if I can help in any way.

Thinking of Investing in Real Estate - but not sure?
Posted By - System Admin - 3 days ago 8 comments

Warren Buffet, in his recent annual letter to his shareholders, shared some lessons he learned from a couple of real estate investments.  They are great lessons that we should all take to heart.  

1) Keep things simple and don't swing for the fences. 
2) Focus on the future productivity of the asset. 
3) If you instead focus on the prospective price change of a contemplated purchase, you are speculating. 
4) Focus on what the properties will produce and don't worry about their daily valuations. 
5) Forming macro opinions or listening to the macro or market predictions of others is a waste of time.

While day trading stocks is very popular, it is hard to argue with the success that Warren Buffet has had in investing for the long term.  The same is true in real estate.  There are people that have made a lot of money by flipping properties but the people that have invested in real estate for the long term seem to have had the greatest long term success.  As Warren said, "If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continue to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it."  In his two real estate examples, he found something that would generate 10% return and hopefully provide some upside down the road.  Not a bad model to follow.

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