David Lindahl
I built my company, The Lindahl Group, into a $140 million real estate empire very quickly because I took action on some basic principles. (Location 109)
INVESTING WITH THE FOUR PHASES OF THE REAL ESTATE MARKET CYCLEThe key to making a lot of money in emerging markets is understanding the real estate market cycle. (Location 119)
After reading this book, you will realize that even if the national economy and the national real estate market is soft or trending down, there are local markets currently in the emerging phase. In these emerging markets, you can literally make profits in 2 or 3 years, which might take a decade or longer to make in other real estate markets... (Location 131)
I bought in Brockton because I was buying three- tosix-unit buildings for well below their replacement costs, and these buildings had great positive cash flow! (Location 184)
mastering the four main phases of a market cycle. They are:• Buyer's Market Phase I• Buyer's Market Phase II• Seller's Market Phase I• Seller's Market Phase II (Location 238)
The average time for a market to complete a full cycle will differ, but can range from 10 to 25 years. East Coast and West Coast cities tend to be more dynamic than cities in the (Location 239)
heartland of America, and their markets rotate faster.In fact, our coastal cities tend to have meteoric rises and meteoric falls. Heartland cities tend either to be slow,… (Location 241)
WHAT YOU NEED TO KNOW ABOUT THE BUYER'S MARKET PHASE IEach market phase has its own characteristics. In a Buyer's Market Phase I, you will find a market that is oversupplied with properties. Supply is one of the… (Location 242)
For instance, we know it takes 2 to 3 years to plan, get permitted, and build a property. When everyone is in love with real estate, builders and speculators take out a huge number of building permits. By tracking these permits, we know… (Location 261)
The Tremendous Importance of Job GrowthJob growth is another market force with a huge effect on real estate market cycles. In a Buyer's Market Phase I, there is very little job… (Location 270)
For a city to move to the next phase of the market cycle-the Buyer's Market Phase II-it will have to… (Location 275)
In order to attract or create job growth, the first element needed is… (Location 277)
What's a sign of strong local leadership? When politicians offer tax abatements to corporations, to encourage them to build factories or hire workers in that city. They will also offer low-interest or no-interest loans… (Location 278)
To find out what your city's master plan is, call the local economic development committee… (Location 281)
How to Invest in a Buyer's Market Phase IIn this stage of the market, you are buying for cash flow. Because there is no appreciation taking place in the market, your primary concern… (Location 286)
That positive change usually comes in the form of job growth. However, you MUST understand how long this cycle can take. When a company commits to relocate to a new… (Location 292)
Knowing that a city will experience significant job growth a couple of years down the road is one of the best reasons to buy in an area. You can… (Location 294)
One of the best places to find forecasted job growth is from the United States Census. Go online to the Bureau of Labor Statistics, and search for"forecasted job growth" Then start calling the economic development committees in the cities that have the highest forecasted job growth. You will be well rewarded for your efforts!While you… (Location 295)
job growth for the previous year. Call their economic development committees to find out what they are doing to continue their growth. If they say they have eliminated incentives, avoid investing in this city. If the incentives are continuing-or if… (Location 298)
WHAT YOU NEED TO KNOW ABOUT THE BUYER'S MARKET PHASE IIAs new jobs are created in a city, population begins to migrate back into that city. The market… (Location 299)
As more jobs come into the area, the pace of real estate appreciation quickens. This is an exciting time! Existing properties that were once abandoned or boarded up are now snatched up by investors, who rehab them and put them back on the market.… (Location 301)
Market Phase I, bank foreclosures rise to their highest levels. A characteristic of the latter stages of a Buyer's Market Phase II is that the competition for these bank foreclosures becomes fierce. Soon,… (Location 303)
I have just described the very beginning stages of an emerging market. Only the savviest investors recognize these early warning signs of a market's recovery. You develop the ability to do this by… (Location 307)
If the city has an aggressive program to attract jobs, companies will be committing to the area. As these companies begin bringing jobs in, people will start migrating back into the area. This is your signal to take action!As jobs come in, additional jobs are created. For… (Location 326)
service jobs are created to support that professional. These are the "butcher, baker, and candlestick maker" Remember that these people need doctors, lawyers, barbers, gardeners, housekeepers, plumbers, mechanics, computer consultants, babysitters, and innumerable other professionals and service providers. This is called the multiplier effect.If a city is expecting to increase its labor force by 5,000 new nonagricultural jobs, you can expect a total… (Location 328)
Another result of rising salaries is that the average household size will start to decrease. This is a further sign of… (Location 333)
HOW TO INVEST IN A BUYER'S MARKET PHASE IIAs I said earlier, this is the very start of an emerging market. When you find this market… (Location 336)
Remember: In this market phase, the strong demand for properties has not been created yet. We're only in the early stages of emergence. Therefore,quick turning properties… (Location 338)
be… (Location 340)
I do not recommend holding properties forever. You don't need the patience of job to make a profit with my system. Your typical hold time… (Location 341)
There's another reason why you should not have a problem paying the full asking price: It's okay, as long as the property… (Location 343)
Market Phase II, I want to see at least a 10% Cash-on-Cash Return (that's Net Cash Flow, divided by Acquisition Costs).Of course, I always try… (Location 344)
Just don't try to be cheap in this market. Remember that you are already buying at wholesale prices. If you… (Location 347)
investor in this deep-discount market, make a full-price offer to get the property. You… (Location 348)
WHAT YOU NEED TO KNOW ABOUT THE SELLER'S MARKET PHASE IThe next phase of the market is a Seller's Market Phase I. This is the latter half of an emerging market.A market transitions into this phase when it makes economic sense to start building again, based on absorption and rents reaching certain points. This is called the Point of Equilibrium.In this phase, local investors are now convinced the good times are here to stay. They're once again investing in the market.… (Location 351)
HOW TO INVEST IN A SELLER'S MARKET PHASE IIn a Seller's Market Phase I, you should both flip properties for big profits, and hold… (Location 369)
WHAT YOU NEED TO KNOW ABOUT THE SELLER'S MARKET PHASE IlA Seller's Market Phase II is the riskiest phase of the investment real estate market cycle. (Location 390)
Smart investors have pulled their money out of this market long ago, and have gone on to other emerging markets. They did (Location 400)
this as soon as the indicators hinted that the market was transitioning into a Seller's Market Phase II.Two main market forces will warn you about the dangerous transition into the Seller's Market Phase II.The first is job groi.vtb. When job growth becomes stagnant, that means the area will not enjoy population growth and may suffer from population loss. (Location 401)
The second market force you want to track carefully is supply. In every emerging market, a key (Location 404)
factor in a market losing its momentum is overbuilding. Overbuilding directly leads to oversupply. When builders create more than the demand warrants, they must begin to lower their prices so they can sell their inventory to pay off their loans. (Location 405)
You should always be monitoring the local building (Location 411)
department for the number of building permits that have been issued. This will give you the clearest indication of where supply will be in the next year or two. In major cities that are completely built-out, this is less of a problem. However, in smaller towns with lots of inexpensive land nearby, overbuilding can be deadly.Also constantly monitor the days on the market statistics for properties. Any real estate agent can provide you with this figure, which tells you the days between when properties get listed for sale and when they actually sell.As soon as the days on the market start to increase, it's time to start putting your properties on the market. (Location 411)
HOW (Location 423)
Do you ever want to buy in a Seller's Market Phase IF Yes. In the final stages of a Seller's Market Phase II, there are huge bargains to be had. In some cases, properties are available for 50% of the asking price of just a couple of years earlier! (Location 424)
One of the best money-making formulas of all is to take profits early from a Seller's Market Phase II and funnel those profits into an emerging market. What do you do next? Sit back and watch those profits multiply!What if you are holding a property in a Seller's Market Phase II and don't want to sell? (Location 429)
In that case, you need my Equity Protection Formula:1. Make sure you have plenty of equity. People with only 20% equity can easily get wiped out, or face foreclosure. Having 50% equity and a 50% loan-to-value ratio on your mortgage is a safe rule-of-thumb.2. Make sure you can cover your expenses (the mortgage, taxes, insurance, and maintenance) during these tough times. You may have more vacant units than you've ever had, due to population loss. You must be prepared to pay the mortgage (Location 431)
and other expenses out of your own pocket, if necessary.3. Be patient. Some markets take a year or two to recover. Others can take a decade or even longer. (Location 433)
Emerging markets are characterized by two key things:• people migrating in rather than leaving• jobs being created rather than destroyed (Location 440)
CHARACTERISTICS OF THE BEST EMERGING MARKETSThe best emerging markets show-and maintain-strong leadership. Any town can have a good few months or year. A true emerging market is strong for at least several years. It takes aggressive and thoughtful leaders to analyze a city and determine what needs to be done. (Location 448)
After careful analysis, the city's leaders develop a Master Plan. In this Master Plan you will learn what incentives the city is willing to give companies to get them to move in or expand. You'll (Location 451)
discover how the city plans to revitalize itself and what areas will get special attention. These areas are often called Economic Zones. (Location 452)
In the early years of an emerging market, two areas where you should invest are the Economic Zones and the upper socio-economic areas. It is in these two areas that you'll receive (Location 454)
the greatest return on each dollar invested.Aggressive incentives can motivate large companies to move into the area. Because it takes anywhere from 2 to 5 years for companies to build their facilities, move in, and hire employees, you will have a roadmap forfuture growth. (Location 455)
The best emerging markets have a well-diversified group of jobs coming in. A market that's dependent on only one job type (for example, aerospace engineering) will experience a (Location 462)
dramatic decline if something negative happens to that one big industry in town. (Location 463)
I like to see jobs well diversified in service sectors, such as health, financial, and business services. These are the jobs of the future, as our country turns ever more into a service economy.Cities that have lots of manufacturing jobs are more vulnerable. Between outsourcing and overseas production, manufacturing jobs are continually going to shrink.Another characteristic of the (Location 464)
best emerging markets is some type of barrier to entry. And the best barrier to entry is lack of available land on which to build. (Location 466)
You can get an estimate of permitting time by calling the local building department. Ask how long it takes to get a routine building permit for a (Location 476)
small apartment building. Then ask how long it takes to get a variance (for example, to build extra units or an extra story).Remember, the longer the permitting and building processes take, the better for you! This helps to prevent overbuilding and an oversupply of units. With fewer units, you will have less competition and will be able to charge higher rents. (Location 477)
BUYING BELOW REPLACEMENT COSTThis is almost as important as having positive cash flow: Buy properties for below replacement value.Let's say land in your area is worth $500,000 an acre. If you have a chance to buy a small apartment building on an acre of land for $500,000, give it serious consideration! Unless there is something seriously wrong with the apartment building, you may be getting one of the biggest bargains of your life. (Location 520)
At the IREM website, wwwirem.org, you can look up all the CPMs or ARMs in any city in the United States. This is where you should search for highly qualified managers to help handle your out-of-area properties. (Location 569)
EMERGING MARKETS ARE NOT THE SAME AS HOT MARKETSMany investors make the mistake of investing in hot areas. These are the places you read about in popular magazines. Everyone is talking about them because they've performed great for several years. The amateur reads such an article and thinks "Great ... it's hot!" The professional reads the article and says "Hot = stale ... stay away!"When you chase after hot markets, you're chasing after yesterday's winners. These markets attract a lot of dumb money. (Location 615)
In contrast, emerging markets are under the radar, not to be found in any popular magazines. They're waiting to be discovered. (Location 620)
Remember that one of the keys to investing in emerging markets is to first sell off your properties in maturing markets. Equity that is tied up in a stagnating market is dead money. (Location 636)
Before you invest in emerging markets, you need a plan. This will be your roadmap to success. Investors who simply jump into an emerging market-or any market-without a well-thought-out plan are usually not very successful.In developing your success plan, first decide what type of (Location 678)
property you most want to invest in. You have a wide range to choose from: small single-family homes, luxury rental homes, apartment buildings (three units up to hundreds of units), office buildings, industrial buildings, shopping centers, and so on. (Location 679)
the main focus of this book is on apartments. (Location 681)
One of my students worked on his comfort zone with big deals (Location 720)
in Augusta, Georgia. (Location 720)
HOW TO SAVE TIME AND MONEY WHEN INVESTING IN EMERGING MARKETSThe first is doing a direct mail campaign. This is simply sending mailing pieces directly to the owners of the kinds of properties in which you are most interested. You can get a list of owners from the assessor's office of the city in which you are interested. Ownership and tax records are public information. (Location 735)
Another great source for lists of property owners are mailing list brokers. You can use Google or another search engine and enter the phrase "mailing list brokers" (Location 754)
Pay close attention to investment listings posted by commercial brokers. You may not be interested in any of these listings. However, notice WHO is putting up a lot of listings. This will identify for you the most active commercial brokers in the area. For every property these highly active agents have put on the Internet, they may have several more (and better) deals that they're only showing to their best clients. (Location 839)
Here is your action plan for contacting them: Call them up and explain that you saw their property on the Internet but that the particular property you saw (Location 841)
doesn't make sense for you. Then proceed to tell them the exact type of property in which you are most interested. They might tell you on the spot that they have a property that meets your exact buying criteria!Using the Internet as your own personal bird dog can yield a consistent flow of high-quality deals.Here is just one other example of my power prospecting techniques: Your courthouse posts eviction cases, with the name of the landlord who is suing a… (Location 842)
You must get employment data if you are to invest successfully in an emerging market. You can get it from the Bureau of Labor Statistics. That data will tell you how many jobs are coming into an area now, and how many came in over the past few years. These helpful government number crunchers… (Location 859)
Examine the population and employment growth trends for an area over the past 5 years. Then look at predicted future… (Location 862)
market where jobs are predicted to increase significantly. This is a true emerging market.Next, contact the Economic Development Committee of your target city. Determine what they are doing to attract jobs and which employers are committed to coming to the area. The more, the better!Invest in cities or towns that have announced the building or moving of a major new… (Location 863)
It IS possible for a city to become too aggressive in its growth mandate. To lure business in, some cities offer 10- or 15-year tax breaks. These deals definitely can attract high-quality employers, but sometimes the city gives away too much: The city may not receive enough in revenues to pay for needed infrastructure, schools, and roads.… (Location 871)
If the city is not careful, taxes may creep up to the point where it's no longer attractive for people to move to that city, or even stay in it.Keep track of the tax base, and make sure the city is not running up deficits. Follow the news in the cities where… (Location 874)
Also research the types of jobs coming into an emerging market. Not all jobs are created equal! An area that creates 1,000 new jobs in fast food and discount warehouse stores is not equal to an area that attracts 1,000 new engineers. However, don't necessarily look down on… (Location 877)
When investing in emerging markets, look for a local workforce that is made up of approximately 40% service-sector jobs. This means that about 40% of the local employee population… (Location 882)
Be sure to determine the path of progress for the city. The path of progress is where the majority of the new construction is taking place. Is the town growing fastest on the north side, the east side, or some other area? Ask the local property managers for their opinions on the path of progress. The path of progress becomes the A area in which to invest.One of the most lucrative investment strategies of all is to… (Location 891)
Watch the market closely, though: The path of progress is not ALWAYS a great area in which to invest. When a market matures, the path of progress will dry up. Even though that outer land is cheap, no one will want to build upon it. When a market starts to turn, it is the fringe areas of the… (Location 900)
When buying properties in an emerging market, always keep an eye on the number of building permits that are being applied for and where the… (Location 904)
The more properties that come onto the market, the more saturated the market becomes. If developers build faster than tenants can absorb them, there will be an oversupply of rental units. This… (Location 910)
Try to buy in a market where there is some sort of restriction on supply. Boston doesn't have any raw land to add new supply. Montgomery, Alabama is surrounded by… (Location 914)
multi-family construction permits there. In parts of California, building is severely restricted due to lack of water; builders sometimes wait years just to get a… (Location 915)
Donald Trump has a point when he says, "If you're going to think, you might as well think big!"I started out doing small three- to six-family buildings. I… (Location 918)
If you are going to buy a $1 million property, then assume you'll need a down payment of 10% to 20%. The deal can still be no money down, though! That's because the down payment doesn't have to be your own money. Let's assume you need $100,000 to $200,000 to get going. We'll call this your seed money. You can get your seed money from a number of different sources, including: private lenders, hard money lenders,… (Location 925)
Get the Leads Flowing InOne of my very favorite ways of getting deals is to contact out-of-town owners. (Location 959)
Approaching out-of-town owners is an easy, hands-off way of getting started in real estate investing. You'll be contacting these property owners through the mail, using letters I'll give you. (Location 975)