Where do you find all this money? Hunt down someone who specializes in home financing: a mortgage broker (commonly called a loan officer). By teaming up with a loan officer, you not only have the means to secure financing for your investments, but you also have someone on call for when distressed homeowners need advice or someone interested in purchasing the property from you needs financing.

All mortgage brokers are not necessarily equal, some may not even be licensed, so shop carefully for a quality, licensed mortgage broker. A qualified broker can save you thousands in finance fees and interest. Look for the following qualities in a mortgage broker:

• State licensed.
• Member of the National Association of Mortgage Brokers (NAMB) or the Mortgage Brokers Association (MBA) or both.
• Positive personal referrals from people who have worked directly with the mortgage broker. Ask your attorney, bank, friends, family members, and colleagues for references.
• An understanding of foreclosures, because you need to borrow money based on the future value of the property, not the purchase price. By borrowing on the future value (or repaired value) of the property, you gain access to more cash for repairs, renovations, and other investment properties.
• No conflicting relationships. A mortgage broker who works in the foreclosure arena my have relationships with homeowners in foreclosure or other investors that may create a conflict of interest.

Laws require that anyone who wants to loan money work through a licensed mortgage broker, so if you want to use other people’s money to finance your investment, you almost always have to work through a mortgage broker or directly with a lending institution, such as a bank.

To obtain assistance from a mortgage broker, consider writing a letter of introduction. Let the broker know that you’re going to be investing in foreclosures and you may run into clients who require the broker’s assistance.

1. Set the price right the first time. Don’t set a super-high price hoping that the fish will bite. Your investment property is likely to linger on the market, during which time, holding costs continue to chip away at your profit. An asking price that’s in line with comparably priced homes is best.

2. Get the word out through a successful real estate agent. If you’re thinking of saving money on real estate commissions by selling the house yourself, think again. Homes sell in about half the time and for more money through a real estate agent. What you may save in commissions, you end up losing through holding costs and by having to sell for a lower price.

3. Begin marketing as soon as you take possession. Marketing begins as soon as you begin your renovations, especially if you start renovating the exterior first. Neighbors notice and begin to gossip, and word-of-mouth advertising begins to take off.

4. Plant a For Sale sign on the front lawn when renovations are nearing completion. A For Sale sign removes all doubt that the house is for sale.

5. Stage the house impeccably. Clean and scrub inside and out, mow the lawn, freshen up the landscape, remove the clutter, tastefully furnish and decorate the interior, set out some fresh bouquets of flowers, and let the buyers stream in.

If you decide to take the big leap and sign a mortgage, there are many options available to you. Let’s investigate some of these:

30-Year Fixed-Rate Mortgages

A 30-year fixed mortgage is repaid by the borrower making 360 equal monthly payments over a period of 30 years. Since your payments are fixed, you can expect to make the same monthly payment for the entire term of the loan, regardless of any changes in the housing market. This is a popular loan used to buy a private house and is available for conventional, jumbo, FHA and VA loans. You can also get a 15-year fixed rate mortgage, which is basically the same except your monthly payment is 25 percent to 50 percent more, and you pay it off in half the time. With a 15-year program, you’ll also be paying a lot less interest.

Adjustable Rate Mortgages

Adjustable Rate Mortgages (ARMs) are nice because of their low beginning interest rate. This low introductory rate is used to calculate the mortgage payment for a specified period of time. Once this introductory period is over, the interest rate is adjusted periodically based on a preselected index. So, with ARMs, you’re rolling the dice a little bit and betting that your rate won’t increase too much.

Be aware that there are caps on how high your rate can go, and this is negotiated at closing time. The most commonly used index is the yield on the one-year Treasury bill. The new interest rate is determined by adding this index to a set margin (which is determined by the lender). The most common program is the one-year Adjustable Rate Mortgage (one-year ARM). The interest rate on the one-year ARM is adjusted once each year, for 30 years, and so on for 3-, 5-, 7-, and 10-year ARMs.

Jumbo Mortgages

A jumbo mortgage is a mortgage loan that is larger than the limits set by Fannie Mae and Freddie Mac ($333,700 as of January 1, 2004, with a higher limit in some states). Since these two agencies will not purchase these types of loans on the secondary market, they usually carry a higher interest rate.

FHA Loan Programs

An FHA mortgage loan is insured by the Federal Housing Administration. Although mortgage lenders provide the mortgage funds, the FHA sets underwriting standards for approving applicants. In many cases, FHA underwriting guidelines are more lenient than conventional underwriting guidelines. This makes it easier for borrowers to qualify for a mortgage loan (low down payment requirements and a higher monthly debt allowance). Applicable loan limits differ by county, so contact your local HUD office for specifics.

VA Mortgages

A VA mortgage loan is a mortgage loan that is guaranteed by the Department of Veterans Affairs (DVA). One of the biggest advantages of using a VA loan is that the borrower can finance the purchase of a property with no money down. However, VA loans are restricted to individuals qualified by military service or occasionally to the public for resale in the event of foreclosure.

5/25, 7/23 Balloon Programs

A balloon mortgage loan is a type of mortgage loan that has a short term (typically five or seven years), but the monthly payment is computed using a 30-year term. When you use a balloon loan, you make a regular monthly payment for the scheduled term (five or seven years). When this loan term is over, you must pay off the remaining balance in one lump sum. If you are buying a house in the belief that the market will skyrocket in the next few years, and you’re planning to sell it, you could make a killing here!

If you decide not to sell the property after the loan term is over, you have the option to refinance the mortgage with a new one. With a 7/23 balloon mortgage you have the option to convert to a fixed rate (for a nominal fee) after the initial term is over. The interest rate for the remaining term of the loan (23 years) will be adjusted once to reflect market conditions, and then remain fixed for the remainder of the loan term.

Just like with the lease-option program, you’ll have to determine for yourself which mortgage program best fits your need. However, whichever program you choose, you should always keep an eye on accelerating your payments — this is one of your pieces of heavy artillery in the Cash Flow War.

Pick a Partner

In every office there seems to be at least one agent who is exceptionally well organized. Pick the person who seems to be the best qualified and with whom you are the most compatible. Some offices have a formal buddy or mentor system that pairs off each newcomer with an experienced agent, so the contact might be made for you. Others might have a structured coaching program in which you agree to pay for the personalized tutoring.

Naturally, that’s one of the things you’ll make certain you’re clear on before you sign on. No matter what the system, make sure that you find out how the official office files are maintained and learn how to locate things for yourself. You will become popular if you can find what you need without always asking for help.

Fishing for a Mentor

I’m taking my son fishing for the first time. We’re on the riverbank and he’s next to me as we both cast our lines. I’m getting nothing. He’s getting nothing. Down the bank about twenty yards was an older man who was pulling a fish about as fast as he could bait his hook. I left the bank for a quick trip back to my car for some water.

When I returned my son was about ten yards from the man, observing his every move. It worked. He started catching fish. Fortunately, the gentleman seemed honored that he was chosen as a model. Moral to the story: choose your mentors wisely. Make it someone who has clearly excelled in meeting the same challenges you are about to face, and someone whose business philosophy and ethics are compatible.

Organize Your Work Space

Whether you have a private office, a cubicle, or simply a desk in a common area, you should arrange your space to be efficient and to reflect your personality. Often you will need to locate something in a hurry while someone waits on the telephone. You’ll become frantic if you need to sort through piles of unrelated information in the classic paper shuffle.

When your “action pending” basket starts to exceed the volume of all others combined, you need to discipline yourself to act on items immediately. The file drawer in your desk should be used for folders of individual clients, customers, prospects, and closed transactions, arranged alphabetically.

Organize Your Information

One of the greatest practical problems of organization that new agents traditionally face is keeping all the information about one transaction or one person in one place. One solution is to prepare an all-purpose form for each client, customer, or prospect on which you make a chronological record of all contacts and all pertinent actions.

There are times when disputes arise as to who took what action, when. Unfortunately, these disagreements sometimes result in litigation. You will also find that months or even years might go by between contacts with a particular individual. It will be comforting to you, and impressive to others, to be able to recount past contacts accurately. Your office may have a form or software program for keeping these records, but the format you use is not important—the discipline to use a one-source system is.

Organize Your Time

It’s easy to get carried away on this subject and you could spend most of your time organizing your time. There is general agreement on the basics. First, you need to organize your schedule each day in some fashion; second, you need to establish priorities. There are all sorts of calendars and planners on the market. You need to get one with which you are comfortable, have it with you all the time, and use it religiously. When the year is over save them. Never throw one away. Ever.

As you establish priorities on how to spend your time, keep in mind the way you earn money in real estate. Forgive the repetition, but the only way you are paid is for one of your listings to sell or for you to sell a property. It is remarkable how much time some real estate agents spend on fringe activities. That is not to say that you should not perform community service activities, help decorate the office for the Halloween party, keep your individual space looking impressive, or engage in enjoyable hobbies. Just remember how the bills are paid.

Set Goals for Yourself

Again you can spend an inordinate amount of time deciding what it is you want to accomplish. For most people, the first few months are best spent learning the profession and becoming aware of the various long-range opportunities. The more you know about what is available, the easier it will be to establish short-term and long-term career goals.

Some folks simply opt not to establish formal goals at all. If you don’t really care where you’re going in your career, then I suppose they are not necessary. Others may have goals but have rather unique methods of achieving them. Those with a more mystic bent put pictures of expensive cars, lavish mansions, and sleek yachts on their walls and have faith that positive thinking will make it so.

1. Purchase price of the real estate option: Negotiate a real estate option fee that does not exceed 5 percent of the property’s current market value.

2. Credit for cleaning up the property: Obtain a $500 cleaning credit, to be applied toward the option fee, for cleaning up the property.

3. Credit for the real estate option fee paid: Require that the full amount of the option fee be credited toward the purchase price when the option is exercised.

4. Length of the real estate option period: Negotiate a 6- to 12-month option.

5. Fixed purchase price of the property: Negotiate the fixed purchase price of the property to include the amount of the down payment to be paid and how the purchase is to be financed.

6. Right to extend the real estate option period: Obtain the right to extend the option period for two 3- to 6-month periods, to include the cost of each extension period.

7. Right to assign the real estate option agreement: Negotiate the right to assign or sell the real estate option agreement to a third party during the option period.

8. Option fee sole remedy for default: Negotiate that the option fee paid is the sole and exclusive remedy in case you exercise the real estate option but fail to purchase the property.

9. Refund of the option fee for eminent domain action: Negotiate that the optionee will receive a full refund of the option fee plus any accrued interest if the property is condemned by eminent domain during the option period.

10. Right to enter the property: Obtain the right to enter, clean, market, repair, and show the property to prospective buyers during the option period.

11. Right to a refund of the option fee for damage or destruction: Obtain the right to a full refund of the option fee plus accrued interest if the property is severely damaged or destroyed by fire, storms, or earthquakes during the option
period.

12. Require title transfer documents be held in escrow: Require that a warranty or grant deed and purchase agreement with the notarized signature of the option or be held in escrow by a reputable attorney or title or escrow company during the option period.

13. Right to record a memorandum of real estate option agreement: Negotiate the right to record a memorandum of real estate option agreement in the official public records.