The Smart Real Estate Investors Guide
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CONTENTS OF THE BOOK
 

AN UPDATE FROM THE AUTHOR: How CanSmart Investors Make the Best of a Real Estate Market That Has  Changed Forever?       

xix
New Market, Same Old Mistakes
xx
Same Game, New Rules xx

The Wave of the Future

xx

The Importance of Understanding the Numbers

xxi

How to Be a Successful Real Estate Investor

xxi

The Vital Importance of Due Diligence

xxi

Verify Everything

xxi

Speculation vs. Value-Added Investments

xxi

Speculation in a Buyer’s Market

xxii

Investing During a Depreciating Market  xxiiFinding the True Rate of Appreciation

xxiii

Investing During a Neutral Market

xxiv

Investing During an Appreciating Market

xxiv

Finding Investment Information via the Internet

xxv

The Power of Cash

xxv

The Importance of Cash Flow

xxv

The Importance of Cash Reserves

xxvi
What Having the Right Information Can Do for You xxvi
   

PREFACE

xxix
FOREWORD        xxxi
INTRODUCTION    xxxiii
PART I: PREPARING YOURSELF  
   
CHAPTER ONE  
WHY REAL ESTATE IS THE “IDEAL” INVESTMENT- INANY ECONOMY  3
Income  3
Deductions      4
Equity  5
Appreciation    6
Leverage        6
The Three Most Important Real Estate Myths—Debunked     7
   
CHAPTER TWO
 
IS REAL ESTATE FORYOU? 11
Vision: The First Step to Making Your First Million     13
Why Goal Setting is Important  
Make a Commitment to Learn     
Be Disciplined 
Create a Business Plan 
Karim’s Twelve Most Powerful Investment Ideas
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PART II: GETTING STARTED
 
   
CHAPTER THREE  
COMMERCIAL vs. RESIDENTIAL     
The Benefits and Disadvantages of Each Property Type   
Residential Properties 
One-to-Four Residential Units
Commercial Properties
Apartment Buildings
Condo Conversions
Historic Buildings
Mixed-Use Projects
Mobile Home Parks
Office Buildings
Raw Land
Self-Storage   
Shopping Centers
Special-Use Properties
Strip Centers and Small Retail Buildings
Subsidized Housing
Warehouses and Industrial Buildings
Types of Commercial Leases
Gross Leases
Long-term Leases
Modified Gross Leases
NNN Leases

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CHAPTER FOUR  
THE ELUSIVE “GOOD BUY”: WHERE AND HOW TO FIND IT       
Learning to Buy Right
Is It Really All About “Location, Location, Location”?
Beginning Your Search for Viable Properties  
Finding the Ideal Seller    
Strategies for Finding Good Buys  
Advertising   
Auctions      
Banks and Financial Institutions  
Bird Dogs    
Cash Incentives
Developers in Distress 
Discounted Notes       
Foreclosures and Notices of Default  
Internet       
Network 53
Newspapers   
Properties in Probate  
Real Estate Agents   
The Streets    
Tax Sales      
Unfavorable Markets   
Close That Deal! 

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CHAPTER FIVE  
ANALYZE THE MARKET,THEN THE INVESTMENT
First, Review Your Goals
Second, Analyze the Market   
Third, Analyze the Investment  
Karim’s “Smart Investment” Formula 
Inspect and Analyze the Records
Avoiding Pitfalls
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PART III: PRACTICAL ASPECTS OF REAL ESTATE INVESTING  
CHAPTER SIX  
CREATE VALUE IN YOUR INVESTMENT PROPERTIES— INANY ECONOMY 69

Why I Specialize in Value-Added Properties     
Create Your Plan       
Build Your Team
Choose theRight Property      
Calculate a Property’sTrue Cost       
The Benefits of Capital Improvements   
To Sell or to Hold?    
Financing Your Fixer-Upper     
Avoiding Pitfalls      
Beware the Gurus       
Beware the Rising Cost of Renovations  
Don’t Buy at Inflated Prices   
The Time Is Right—Right Now!   

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CHAPTER SEVEN  
FLIPPING THE “FIXER-UPPER”     
Karim’s Twelve Steps to Successful Flipping    
Completing a Successful Renovation     
Curb Appeal Comes First!       
Create Pristine Interiors!     
Hiring a Contractor    
Financing Your Flip    
The Reality? It Can Take aLot of Time 
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CHAPTER EIGHT  
FORECLOSURES   
What Causes Foreclosure?       
The Risks      
Find Those Foreclosure Deals!  
The Internet   
For Sale By Owner      
Real Estate Agents     
Title Companies
Distressed Mansions    
Purchasing the Note    
The Note vs. the Deed of Trust 
Approaching the Seller 
Pre-foreclosures and Buying “Subject To”       
The Trustee’s Sale     
Title Insurance and Property Profiles  
The Due on Sale Clause 
REO Properties 
Short Sales    
Avoiding Pitfalls      
Do Your Due Diligence  
Close Before You Pay   
Never Rent to the Seller       
Get a Title Insurance Policy   
Record the Trust Deed Promptly 
Watch Out for Inflated Home Appraisals 
Foreclosure DOs and DON’Ts     
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CHAPTER NINE  
OFFERS, LETTERS OF INTENT, AND CONTRACTS       
Know Your Sellers’ Motivation  
Making Lowball Offers  
Give the Sellers What They Need
Karim’s K.I.S.S. Rule  
Writing the Offer      
The Letter of Intent   
Sample Letter of Intent
The Purchase Contract  
Commercial Purchase Contracts  
Ten Important Commercial Sales Contract Clauses
Who Pays for What?     
Prorated Contracts     
Prorated Income and Expenses   
Remedies for Damage during Escrow      
Legal Notifications    
In Case of Default     
Personal Property      
Records
Property Maintenance during Escrow     
No New Contracts       
Twelve Essential Real Estate Forms     
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Part IV: TAKING YOUR SUCCESS TO THE NEXT LEVEL  
CHAPTER TEN  
OPM AND THE INCREDIBLE POWER OF LEVERAGE       
What Is “OPM”? 
The Incredible Power of Leverage       
Obtaining Your Primary Real Estate Loan
Buying with No Money Down      
Seventeen Sources of Down Payment Money
Personal Resources     
Friends, Relatives, or Business Associates     
Joint Ventures 
Private Equity Funds (Equity Lenders)  
Hard Money Lenders     
Mezzanine/Bridge Financing     
Centers of Influence   
Professional Organizations     
Seminars       
Investment Clubs       
Seller Financing       
Government Insured Loan Mortgage Assumption    
Barter 
Over-Borrow    
Lease with an Option to Buy    
Add Repair and Closing Costs   
Inflate the Price      
Raising and Managing Your Investment Finances  
Defining the Roles and Responsibilities of Each Partner
Avoiding Pitfalls      
Avoid Short-term Loans with a Balloon Payment  
Never Sign a Loan with a Recourse Clause       
Keep Enough Cash Reserves for Emergencies      
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CHAPTER ELEVEN  
THE POWER OF NEGOTIATION: HOW TO GET WHAT YOU WANT (AND MORE) BY GIVING PEOPLE WHAT THEY NEED   151
Karim’s Nine Keys to Negotiating the Best Deals Ever   
Everyone Negotiates    
Know What Youand Your Negotiation Partner Want
Always Ask to Negotiate with the Decision Makers       
Build a Relationship   
Exercise Patience      
Turn a Conflict into a Conflict Resolution     
Make Concessions in Small, Diminishing Increments      
Lose a Few Skirmishes and Win the War  
Be Willing to Walk Away
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CHAPTER TWELVE  
HOW TO KEEP MOST OF YOUR PROFIT: THE TAX ADVANTAGES OF REAL ESTATE INVESTING    161
Managing Real Estate Investing with Taxes in Mind      
It’s a Complicated System      
Choice of Organization 
Personal Ownership     
Partnerships   
LLCs   
Local Taxes, Fees, and Assessments     
Local Taxes and Fees When You Buy      
Local Taxes When You’re Holding
Local Taxes When You Sell      
State and Federal Income Taxes 
State and Federal Taxes When You Buy   
State and Federal Taxes When You’re Holding    
Tax Segregation
The Cost Segregation Study     
What Personal Property Qualifies?      
Determining When to Do Cost Segregation
Backdating Cost Segregation    
Tax Planning for Unusual Circumstances 
Passive Activity Loss  
Taxes When You Dispose of Your Real Estate     
Tax-Deferred Exchanges 
IRS Rules for 1031 Exchanges   
When Should You Do the Exchange?       
When Will You Finally Be Taxed?
What is “Boot”?
Three-Party Exchanges  
What About Partnerships?       
The Reverse Exchange   
Tax Considerations for Non-Investment Real Estate      
The $250,000/$500,000 Personal Residence Exclusion     
Your Second Home: To Rent or Not to Rent       
Other Personal Tax Considerations      
Other Tax Considerations       
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CHAPTER THIRTEEN  
TAX LIENS AND TAX DEEDS
Tax Lien Sales 
Tax Deed Sales 
State Laws     
Getting Started
The Advantages of Buying Tax Sales     
The Risks      
Do Your Homework       
Order a Title Report   
Notify All Parties     
No Immediate Cash Flow 
Governments Make Mistakes      
Taxpayer’s Right of Redemption 
Record the Deed Promptly       
Watch Out for Other Liabilities
No Immediate Tax Benefit       
Beware the Tax Sale Gurus      
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CHAPTER FOURTEEN  
YOUR KEY TO HIGHER RETURN: EFFECTIVE PROPERTY MANAGEMENT
How to Get the Highest Return on Your Investment       
Have a Clear Objective: Short-Term or Long-Term
Should You Manage Your Property or Hire a Professional?
Karim’s Ten Tips for Effective Property Management     
Move-In and Move-Out Reports   
Frequent Inspections   
House Rules    
Documentation  
Organization   
Insurance      
Collections    
Keep Yourself Up to Date       
Attract Younger Tenants
Smoke Detectors and Fire Alarms
The Resident Manager: A Make-or-Break Position for Your Business       
Making the Move to Professional Property Management    
Investigating the Property Management Company  
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CHAPTER FIFTEEN  
YOUR KEYS TO STEADIER CASH FLOW: AGGRESSIVE MARKETING AND TENANT RETENTION      207
Fill Those Vacancies, and Fast!
Karim’s Strategies for Marketing Vacancies     
Make Your Units Rent-Ready     
Operations Manual and Job Descriptions 
Tenant Screening: How to Avoid the Tenants from Hell   
The Telephone Screen   
The In-Person Interview
Income 
How to Get Rid of the Tenants from Hell
DOs and DON’Ts of Property Management in a Soft Market 
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Tenant Retention: How Keeping Your Tenants Happy Increases Income and Reduces Expenses  221

Tips for Keeping Tenants Happy 

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CHAPTER SIXTEEN  
MISTAKES INVESTORS MAKE AND HOW TO AVOID THEM  
Lack of Preparation and Research       
Expecting to Always Win
Thinking Real Estate Investments Are Only for the Rich 
Having No Exit Strategy
Trusting the Sellers’ and Brokers’ Numbers     
Insufficient or Negative Cash Flow     
Underestimating the Time It Takes to Fix, Flip, Rent, or Sell  
Failure to Do a Thorough Inspection    
Lack of Adequate Insurance     
Mismanagement  
Ineffective Marketing and High Vacancy Rates   
Trying to Go It Alone  
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CHAPTER SEVENTEEN  
FREQUENTLY ASKED QUESTIONS     
“Why are real estate investors so edgy?”       
“When is a good time to invest?”       
“Where should I make my first investment?”     
“How can I make money on a fixer-upper?”       
“How much should I spend on fixing up a property?”     
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“Once I select the type of property I want and know the area where I want to buy, how do I find a good deal?”   235
“What’s the best way for someone like me to start building wealth in real estate?”      235
“What is a FICO score?” 236
“Is now a good time to finance a deal, considering the current credit market?”  236
“How can I raise investment money from private sources, and what are ‘hard money’ lenders?”     236
“How can I ensure that people trust me enough to give me investment money?”     237
   
GLOSSARY        239
   
ABOUT THE AUTHOR        255
 
The Smart Real Estate Investors Guide
 
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