If you reduce the temperature in your property by only one degree during the cold months when the furnace is running and increase it only one degree during the hot months when the air conditioner is running, you will save between 3 and 5% of the monthly cost of heating and cooling. That’s really quite amazing when you stop to think about it. Chances are that you and your tenants or residents won’t notice the difference in the temperature, but you will notice the difference in your bank account. So why not go change your thermostat right now and start saving today.

Once you are saving this utility expense, make sure you do something smart with the money. Here’s another idea for reinvestment in the property that will even further reduce your utility bills. Use the savings from the one-degree differential explained above to buy a water tank to place between your water heater or boiler and your water supply in order to compound your savings long term. By installing this tank, you will provide for the cold water to enter your water heating system only after resting and warming up a bit in the holding tank. While the water is waiting for its turn in the boiler/water heater, it will warm up a significant amount all on its own. The water in the tank will get warmer by bleeding off much of the cold as it sits in an environment that is already heated by both your heating system and the additional heat produced by the water heater while it works to increase the temperature of the water already in it. This can be compared to sitting a glass of cold water on your kitchen counter and coming back later to a warm drink. Chances are that your furnace is in the same area as your boiler or water heater and likewise the heat it produces will help “prewarm” the water in the tank. Obviously, you won’t want an insulated holding tank.

By using this warmer water from the holding tank instead of straight from the much colder typical supply, your water heater will have to work much less to bring the water up to temperature for use in your sinks, showers, washer, etc. It is easy to see that if your water heater only had to increase the temperature of your water by 50 or 60 degrees instead of 80 or 90 degrees you would save big on utilities. Your water heater or boiler will also last longer, saving you even more over the long run.

As always, Middle Class Millionaires is happy to help in building your financial success with real estate.

The deal is long dead, but the message is one that bears repeating.

Real Estate is a business where there are always profit opportunities available. For many people, their focus is so narrow or their niche is so limited that they severely restrict their ability to look for, understand and capitalize on the numerous opportunities that abound. That’s the most important reason that you need a comprehensive education and approach to the business. Today there are profit potentials out there, but you need to approach the market a little differently than you did during the time when inflation and unbridled appreciation made investment easy and overcame bad decisions regarding purchases. You know the ones I’m talking about, the deals that, if the truth be told, were only saved by unusual or extreme upward market pressures.

Today, you must have a business basis for your decisions. The assumptions that should be used now are radically different than they were a year ago. Today you must analyze with more conservative income increase, more aggressive expense accelerations and more realistic occupancy expectations. Despite this different (seemingly negative) perspective, many great deals remain in the market. I don’t believe they are where the gurus are hyping right now. Sure the predatory concept of supposedly taking advantage of someone else’s hard luck and pending foreclosure seems on the face to be accurate, but with current governmental intrusion and more planned into the mortgage marketplace, this is for the most part unfounded. In many cases, if you buy out someone else’s position in an overpriced and overleveraged property, you are only buying their problem. (I strongly advise against buying other people’s problems; particularly when there are so many legitimately good deals available.)

To find the diamonds in today’s rubble, analyze harder than you ever have before. Rather than focusing on how much money you are going to make, put a fine tip on your pencil and focus on not doing deals where you can lose money. Only buy when you know you will make money, not just when you think you’ll make money. With this more conservative approach to analysis and acquisition, you will buy better properties, maintain profitability today and when the tides turn again (as they surly will), you will be sitting on properties that will then be exceptional money makers. So, for now, count more on your skills to analyze and buy right and less on the market to mask buying mistakes and you will do great. It’s a good time to be in the business. Good luck and let us know how we can help. For those of you who are not currently members of Middle Class Millionaires, there will be no better time to join than now. I guarantee it. The best investment you will ever make will be in the education you need to make your real estate activities profitable. To make money like the pros, you need to know what they know. Here’s your chance. Come aboard.

You cannot safely go forward if you’re always looking in the rear view mirror. Make sure your analysis of properties is based on future assumptions, not past performance.

While is it an industry constant that people are taught to base purchase prices on historical numbers and not on your higher projections. Now would be a bad time to follow that advice.

At a time when, in many cases, the past performance of a property will be superior to what can be expected in the near to mid range future, if you buy based on historical numbers, you will pay too much!

The value of historical operating numbers relates only to their relationship with what you reasonably expect to happen in the future. The key word there is “reasonably.” You should expect any seller to try to get the highest price possible for his/her property. After all, isn’t that what you’d do? Of course it is. So, if the past has been poor, sellers will sell “future potential.” If times have been great, sellers will sell “past performance” with their assumed continuance.

Wise buyers will typically use the opposite focus when they buy. If times have been poor, then establish your offering price based on past performance. If times have been great, then establish your offer based on your logical expectations for future performance. Remember, you are buying a series of benefits that will come to you in the future and like it or not, you are basing your price now on the kind and amount of returns you expect for your time, effort, and money. So pay what is fair for what you will get.

If the seller will not sell under those circumstances, fine, take your business elsewhere. If you’re active in the business then you know that the “deal of the decade” comes around about once a week. Don’t let your ego or emotions trick you into buying high in a low market. Analyze your benefits over your expected ownership. Use reasonable, conservative, and logical assumptions and you should do fine. Once you can take the emotion, the excitement and the ego out a deal and focus strictly on the numbers, you will have become a consummate pro. Good luck in your purchases. We’re happy to help and we can if you’ll let us.

For those who think this is a bad time to buy real estate, before you lose any more opportunities, consider this. If you buy a home for $215,000 with 20% down, you’ll have a mortgage of $172,000. If you get a loan at 5.5%, amortized over 30 years, your monthly payment will be $976.60. If your concern is the monthly payment, remember that when things improve, and they will, interest rates will go higher. So, in a year, even if the price of the home dropped another 10% (unlikely) to $193,500 and things got a little better so mortgage rates inched up to only 6.5% and you used the same down payment of about $43,000, your mortgage would now be $150,500. Your monthly payment would now $951.26, a monthly savings of only $25.34. Over one year this would amount to a $304.08 savings. However, while the $304 savings sounds great, you need to factor in the fact that the interest paid over the first 12 months would be tax deductable, and if you’re in a 35% combined federal and state marginal tax bracket, you would have saved approximately $3,300 in taxes and paid down the mortgage by another $2,300, resulting in a real financial benefit to you of over $5,000.

Here’s another fact to consider: if you buy now at the higher price with the lower interest rate, your total interest paid over a 30 year period would be just over $179,000. If however you wait and if the price of homes were to drop by another 10 %, with the higher interest rate, even with the lower mortgage amount, you will pay almost $192,000 in interest.

So consider whether it is worth it for you to live where you want to live now, even if the market is a little shaky. When you run the numbers you may decide that now really is a pretty good time to buy. Good luck. We’re happy to help.

The second course of the full MCM instruction is all about analysis. MCM Members also have access to our sophisticated online analysis software. Access to that analysis alone is more than worth the cost of joining. Read more about joining MCM.

Can your home secure your retirement? Maybe not all of it, but it is possible that it can cover a lot more than you think. If you, like many Americans, live in a large family-style home, and you wish to downsize at retirement, your home may well be the asset that secures your retirement.

If you and your spouse file a joint return, you may qualify for up to $500,000 as an exclusion on the gain from the sale of your principle residence. Depending on the value of your home when you retire, you may be able to sell a current property, purchase outright a smaller home and invest the difference without incurring a tax liability. That means simply that you may be able to achieve up to a $500,000 tax free addition to your retirement nest egg. You can get more specifics from IRS Publication 523.

Depending on your anticipated lifespan, this means that your current home could provide the following additional annual cash flow for the entire term of your retirement. This would be in addition to any IRAs, 401Ks, Retirement plans, Social Security, or other investments. Here’s a list of additional annual earnings assuming that you never draw down the corpus (the $500,000) and that you leave it, plus your smaller home, to your heirs at your passing. Here’s the possible annual additional cash flow.

At 5% earnings: $ 25,000.00

At 6% earnings: $ 30,000.00

At 7% earnings: $ 35,000.00

At 8% earnings: $ 40,000.00

At 9% earnings: $ 45,000.00

At 10% earnings: $ 50,000.00

There are many other options regarding the use of the equity in your home at retirement, but even in this simple and direct approach you can see the incredible value of owning a home when you retire.

Many people do not consider their home a retirement asset, when in fact it can be a huge benefit. By downsizing housing at retirement you not only free up available capital, but you reduce overhead via smaller utility payments and lower maintenance. In addition, you will make a commensurate reduction in risk and stress. You’ll have less hassle, less cost, less cleaning and more freedom. Those are all great reasons to downsize when the time comes. Based on this information we hope that you have a firm goal to own your home, free of any debt, when you retire. It will serve you well during retirement.

As always, if we can help we’d be glad to.

Lenders will give you a pat answer like: “It’s just a matter of reducing risk.” I’ve got news, the risk they need to reduce is the single family market risk, not commercial or investment risk. After all, it was decisions on single family homes that got them in trouble, not intelligent revenue-based lending on commercial or investment deals. It’s kind of like punishing the big brother because the little brother misbehaved. We can complain all we want and point out the facts until we are blue in the face and it won’t change anything. So how do we keep financing deals that ought to be done? Well, … we finance them threw alternative lenders. Lenders who want to get a secure strong 7%, 8%, or 9& plus maybe a kick at some time in the future. Where are these lenders? We make them. They are made of people who live in your house, your neighbor’s home and in the home down the block. They work in your office, manage the local taco restaurant and drive truck cross country. They are everywhere. They don’t have the money to finance a whole deal themselves, but together they certainly do. They just need to be brought together correctly to generate a great return and enjoy the growth of their investment.

“That’s easier said than done,” you say. Of course it is. That’s what everybody says about stuff that requires work. But it is doable more easily than you might imagine. It just requires time and effort on your part. Here’s the simple look.

Form an LLC (or a corporation) for the purpose of investing in or lending on real estate. You can call it a Real Estate Investment Trust (REIT) if you like and are willing to meet the distribution requirement of that classification. Once the LLC (or corporation) is formed, start looking for good deals and investors simultaneously. Investors can invest their own available capital, or they can use their self directed IRA or 401K balances to make the investment. While waiting for the amount to add up to enough, it is invested in say, money market funds, so your investors are already earning what the market is paying. When the balance is enough and a deal qualifies, become the bank!

Under this scenario you can take investments of virtually any amount, depending on your structure and specifically on your qualification for registration exemption based on Regulation D, Section 230: 504, 505, or 506. It is being done everyday around the country and you can do it too. You can moan about the plight of the market and cry foul because of mortgage abuses but that will do you no good. Never has, never will. Your other option is to learn how to make the market your servant instead of your master, and then make it happen. It is up to you. Learn what you need to know and then get it done. The only thing you lack may be a little knowledge, experience and the willingness to put forth the work.

Another option of course is just to syndicate the deal in the first place, but that is a topic for another time. Good luck. Here’s wishing you success. If we can help we’d be glad to.

Of course we want the most from our properties. Since we want the most revenue, it follows that we get the most visual and functional appeal in order to achieve that goal. Recognizing that we are limited by the physical nature of the very properties we own, here’s a few ideas for making the most out of the least spacious properties. Smaller square footage properties are more and more in vogue. They cost less to build, to heat and to maintain. But the fact is that they lack space, and often the space it what makes them rent for more.

The challenge we have then is to give these smaller spaces a bigger feel. This requires the utilization of every inch of available space as well as instituting design elements that enhance the visual nature of the property and give it a more spacious feel. Sometimes this is easier than you might think. It requires some forethought and maybe some demolition and or some easy remodeling. Whenever we undertake this type of function it is important to make sure that your work is sound and that the structural integrity of the property is maintained. Assuming you will do that, here are some ideas for making the most out of small spaces

• Add window bumpouts (bay windows). They give you space to sit or put plants or artwork that will no longer clutter or impede on the square footage of the room.
• Place new windows opposite entry doors into applicable rooms. This allows an unobstructed view into the great outdoors. Since it draws the eye to greater distances, the impression of space in enhanced.
• Remove walls where a hall parallels an appropriate room, thereby enlarging the room. Some older properties have hallways that parallel a room and lead to another room where it would be perfectly acceptable just to enter the room directly from another (now larger) room.
• Remove walls to the side of stairs thereby opening the area to view. With a nice handrail in place this opens a room wonderfully. The wall opposite the one removed then becomes a perfect place for pictures, artwork, or just an accent wall.
• Remove unnecessary closets, opening the room. Many older properties have small coat closets in one room that flow into another. You may well be better off removing the closet and opening the space. When a small closet is needed, a corner closet can be added very inexpensively and will make a room look more modern or better designed.
• Consider half-walls between kitchens and dining areas or living areas. We have all seen these pass-throughs. They make a space much more livable and functional.
• Consider removing walls to make one large multi-purpose room instead of two small rooms. A kitchen/dining room is very popular, as is a dinning/family room combination. In both cases the visual appeal is improved and the sense of space expanded.
• Consider enlarging passageways between rooms giving a more open feel. Small doors feel confining. You may well be better off with wall openings that are much larger.
• Utilize dead space, like space under stairs for storage or bookshelves, thereby removing boxes, book cases etc. from the rooms. Without these items protruding into the room it will feel bigger.
• Enlarge windows when possible to allow natural light and undefined line of sight for people living in or visiting the space. Picture windows not only open but also enliven a room. They are a great addition.

There are a number of ways to enlarge the property without actually adding on. Lots of creative people are coming up with wonderful ideas. As we learn more we’ll be happy to send them along for your consideration. Good luck in your efforts. If we can help, and I suspect we can, it would be our pleasure to do so.

• Why you might want to inspect your units
  Warning: This post with a video is not for the faint of heart. It explores the squalor in which some tenants live. I’ve only seen one apartment that was in worse condition when a tenant left. Some day I’ll tell you that story.
• What’s The Investment Plan, Stan?
  This is good reminder to all real estate investors. You need more than just an idea or a superficial understanding of one investment technique. You need to know the business, and you need to have a plan.
• 10 Elements Every Rental Housing Ad Should Have
  10 ideas for creating better listings. Not all would work for every medium (magazine, newspaper, internet), but they are good thoughts you should consider. The author’s #8. Tracking especially spoke to me. You really should pay attention and have a way to track what works. I recently sold a car. I spent $70 or so putting ads in local papers. I also put up a couple of free ads online. I got a total of three calls from the $70 of ads I put in the paper. I got many, many more leads (including the one that actually purchased the car) from one of the free ads online. I’m not saying avoid classified ads in papers. I’m saying find out what works for you in your area.
• Grant For Investing In Real Estate: An Overlooked Option?
  Roger blogged about one such grant a while ago, too. It’s good to know your options.
• Types of Deals We May Stumble Upon On the Road
  Some reminders of types of short term deals that you can look for. Roger also made such a list a couple of months ago, along with a list for mid term and long term deals, too.

1. Contact the lender and see if interim arrangements can be made. Lenders have flexibility and in most cases will try to help their customers any way they can. They don’t want the foreclosure to happen. It’s tough on their business. In some cases, lenders can allow a “cram down” on a mortgage. While this action is most common in a Chapter 13 Bankruptcy, this is where a lender reduces the mortgage balance to make it more in line with the actual value of a property when financing significantly exceeds real property market values. It is roughly akin to having an existing owner do a short sale/refinance on their own property. This may be more attractive for the lender than having the headache and expense of foreclosure and resale of a property where it is obvious that the lender will suffer a larger loss than the reduction in the mortgage balance requested.

2. Be honest with your family and tell them what you are up against. Chances are that family members can help you weather the storm. It’s far better than losing your home and destroying your credit rating. In addition, family members may be in a position to help with refinancing, a short sale or know of someone else who can be of assistance. Sure this is can be a little embarrassing, but in most cases family members understand what has happened and may have had a similar challenge in their life. In these cases family members, when in a position to help, are generally glad to.

3. Contact a HUD-approved credit counseling agency or the FHA or VA for refinancing under more attractive terms. For an approved credit counseling agency call 800-569-4287. These agencies can assist in consolidating loans, reducing interest rates and may be able to assist in producing a “work out” of the situation. To learn of approved FHA lenders call 800-225-5342, and VA lenders call 800-827-1000. You may be able to find a lender who will refinance at a lower rate or at a fixed rate rather than fighting with an existing Adjustable Rate Mortgage that may have reset at a level that makes payment problematic.

4. Contact the state attorney general if the borrower feels their lender misled them. If your lender has enough complaints files, it may result in state legal action on your behalf.

MCM Members can go one step further and access the MCM Forums for specific help and direction with regard to this issue or any other. Remember, we’re happy to help. If you’re not an MCM Member see our current offer.

Also, members of the newsletter list had a chance to purchase a dvd recording of the webinar for $7 for a limited time. Now the price has gone up, and we’re making the DVD available to everybody. The price is currently only $14, and next week the price will go up one more (and final) time.

How To Use Your IRA To Invest In Real Estate

Sounds good doesn’t it? It is not. It is an accurate deception and that’s how they can justify printing it. In this case, when you understand that the few homes that are selling are the million-dollar plus homes way up on the hill, you begin to see how this “fact” can skew another less exciting “fact” that shows clearly that near my neighborhood, homes that sold for $265,000 a year ago are now offered at $230,000 with no takers. New townhomes originally offered at $259,000 are now listed at $210,000. Still the spinmiesters want you to believe that everything is rosy. What’s interesting is that while they are wrong, they are also right, without knowing it.

Things really are all right. Maybe not where everybody seems to focus, in the single family detached marketplace, but the industry as a whole is sound. For example, in most cases, when single family suffers, multi-family benefits. Every coin has a flip side. Your challenge is to make sure you know how to respond to the marketplace and benefit accordingly.

With all the confusion with the financial markets right now, I have been asked many times, “What should I do?” Well it’s really easy when you think about it. The first thing you should do is call your lenders.

With the pressure on the financial markets and the dropping of the Fed Rate, now is a perfect time to consider refinancing you properties. Assuming you have a met your ongoing obligations as a mortgagor, you may be able to refinance you properties with a significantly lower interest rate than what you are now paying. This provides a series of great benefits. For example, if you leave your monthly payments the same and just refinance the balance of your note, you will be paying off the principal balance faster than you would have under the old agreement. In many cases, you as the owner could drop years off their mortgage term. Just think what you would do with the mortgage payments when the property gets paid off that much sooner. Is that your early retirement? Is it capital to pay down other debts? Is it investment for new a venture? In whatever case, it is more money sooner than you would have had. And that is good.

The real pro understands the structure of real estate investment opportunities and operation and is wise enough to capitalize on market movements when they occur. While your neighbor is losing sleep worrying over his mutual funds, you should condense your investment period and shorten the time between today and the day you will have met all of your financial goals. At Middle Class Millionaires, we’re happy to help. Good luck. Work hard. Success awaits. Go get it.

When you consider these two financial factors while recognizing the ridiculous increases in single family real estate prices, you may well find that this is a great time to take advantage of the market by improving your existing properties in ways that will allow you increase revenues. There is a real good chance that the cost of financial improvements, due to still low interest rates, easily makes the improvements not only affordable, but profitable. People need a place to live and will pay accordingly. With less people being able to buy homes, it forces more people (with more money) into the rental market thus fueling the upward pressure in rents at all levels. If your real estate has the elements or amenities it needs to qualify for the higher rents and you should have no problem getting them. Here’s a real life example of an apartment complex that is being remodeled one unit at a time. Let’s look at just one unit and see if these numbers and percentages make sense.

Cost to gut and rebuild 575 square-foot apartment $12,000.00.

Rent increase $100.00 per month or $1,200 per year. (Percentage annual yield on investment amount: 10%.)

Value increase based on 7% cap rate using the $1,200 new revenue: $17,143

So here’s the question, would you invest $12,000 to have an immediate increase in the real value of a property of $17,143 (That’s a 43% increase on your $12G) and then continue to earn a 10% cash-on-cash ongoing yield on the original invested amount? If your answer is “No”, you might want to consider seeking work elsewhere. (Tell me where else you can turn $12,000 into $17,000 this quickly, this securely or this simply and still have a great ongoing cash return.) If your answer is “Yes”, you should look at your current holdings to see if this type of possibility exists in upgrading (appliances, HVAC, amenities, lighting, landscaping, etc. etc. etc.) Remember, if the debt service on money borrowed to make improvements is less than the increased revenue, you have a positive spread, an increased NOI and a higher market value. This is true creation of wealth.

As with anything in this business, treat your decisions like a business and let the numbers lead the way. It is always a great time to be in real estate if you understand how to approach the differing marketplaces and conditions. At Middle Class Millionaires we’d be happy to help any way we can. The “Improvement Analysis” online software (in the member’s section) will give you the answer to the question “Is this improvement a smart investment? Check it out, you’ll love it. Good luck and the best of success in your real estate career.

1. Have all rent due on the first day of the month. Some people collect rent based on when during the first month a resident or tenant moved into the space. This is a recipe for disaster. Experienced property managers will tell you to always pro-rate the first month’s rent and then collect all future rents on the first of the month. Imagine the headache of trying to coordinate rent collections, statements, and billings if each space required its own timing.

2. Increase rent on all (no exceptions) leases at renewal. When a lease is first signed, it should be understood that rents will go up at the end of the lease period, whether it is six months a year, or whatever term you use. The best way is to have the resident or tenant agree to the rent increase in their original lease. They are excited to get in and will typically think; “Fine, in a year from now you can raise the rent by $50 a month and if we like it here we’ll stay, otherwise we’ll move.”

3. Increase all month-to-month rents at the same time. If you use a firm lease period with the resident having an option of extending on a month to month basis, then schedule all increases at the same time. This way you can sent out a blanket letter to all residents that fit in the category. When a group receive the same letter they are less likely to feel that they have been singled out for the increase and that others are getting a better deal. In addition, it is easier to change your accounting/billing program one time per year for this purpose than multiple times. In addition, if you choose wisely what time of year to implement these increases you will have less people leave due to the additional rent because they will be too busy to look for another place, it will be too hot or too cold, or they will want to be stable through the holidays. The make-up of your residents will tell you what the best time of year will be. If you want more specific help with your exact area, MCM members can go online to our forums and ask for some input specific to your area from other readers and our home office staff. www.middleclassmillionaires.com.

If you evolve your business to take advantage of this type of management process in a systematic manner, you will find that property management is not as difficult or time consuming as you may have once thought. The Middle Class Millionaires course on property management can step you through the process of building an effective system to handle all of your property management operational challenges while accessing all of the income opportunities available. Property Management can be a wonderful and profitable part of the business. Good luck and let us know how we can help.