As a nationally recognized real estate mentor I have become acquainted with scores of REI “gurus” who have large followings…to whom they sell a lot of REI “education.” I say this completely tongue-in-cheek because, as you know, the real estate investing business is full of charlatans and scam artists. These are constantly pitching some new technique, software or seminar that is supposed to be a “magic pill” for those naïve enough to write big check for it.
So, today I am going to talk about the heartbeat of successful business, both in and out of real estate investing. I call it the “psychology of the deal.” You’ve no doubt heard that real estate is a “people business.” This is especially true of residential real estate. Why? Whenever you are buying or selling a house, you are occupied with a property that is likely someone’s home. Behind every door is a family with a unique set of circumstances. Regardless of what direction your real estate investing business is taking, life goes on. Now, understanding the nuances of life in general will arm you to become a better scout of motivated sellers as well as a ninja negotiator.
This is why, in my mentor for life!® REI mentorship program I FIRST teach the “psychology of the deal” before we ever get into the REI techniques associated with the transaction. One must be adept at reading people as well as fully aware of the signals they themselves give to others. This is why I often have my students review this particular training module BEFORE writing their first few offers.
It’s funny, but I have actually gotten deals where my competitors have failed. In fact, at times I have even paid less than for those properties than they offered. Again, understanding the human dynamic has served me well. I believe that putting ourselves in the shoes of others gives us insight into what makes them tick. What will compel them to sell us their property at a huge discount?
For us, as Real Estate Investors, it’s always about the money. We must have a wide margin for profit. With an enhanced understanding of human behavior, we are able to perceive the issues that mean most to them…and it’s often not just money.
When working with new mentees this concept takes them a little time to embrace. At first it is fully comprehensible, but I have found that new students will often revert to their old patterns of thinking. Making the transition to an REI pro with the natural ability to view matters from the paradigm of the other person simply takes practice. I live by the words of Covey: “Seek first to understand; then to be understood.” Try it and watch your REI business grow as a result.

If you have a real estate home business you are likely procuring distressed investment properties.  The expression “distressed” refers to the situation of the seller that has created an opportunity for you to acquire a lower-than-average purchase price.  Inevitably, though, in these situations we encounter “distressed” conditions in the physical sense as well.  This means that some form of rehabilitation must occur before it is ready to place back on the retail market.

Assuming you don’t personally wear the tool belt, you will have to hire construction professionals to get the needed work done.  There are some essential elements to the process that as a real estate mentor I always advise be checked off your list.  As far as any skilled work that is performed, you will want to see the proof of a State Contractor License, Liability Insurance, Workman’s Compensation Insurance (if they have employees) and references.  Of course, once you have these documents on file it won’t be necessary to go through this again except to update them as necessary.

There are other considerations, too.  For example, what if there is a disagreement between you and your Contractor?  The following document will greatly help to avoid that down the road and leave you with a clear title so you can quickly sell your property with ease.  First, before you hand them their fist check, get an IRS W-9 form filled out and signed.  The information contained therein is important at the end of the year.  If you don’t get it now, you may never get it.  Trust me!

Second, you must have a contract.  Anyone who thinks they can operate without one is simply being naïve.  Carefully spell out the scope of work to be performed, terms of compensation, precisely who provides all tools and materials, penalties for failure to meet deadlines, obligations for insurance and liability, and agreement on how changes (change orders) are made.  In my REI mentorship program I stress covering these issues well in advance of commencement of work.  Contractors are notorious for overlooking these types of details.  Don’t leave any matters about the scope of work and payment terms to chance!  These topics will all be addressed in a good contractor agreement.

Third, avoid complications at escrow by getting a signed final lien release from your Contractor before he/she gets final payment.  In fact, the typical procedure is to get progress releases as (actually before) each progress payment is made.  This means that the Contractor is waiving their rights to put a mechanic’s lien on your investment properties on account of some conflict.

In most cases, with single family residences, rehabs don’t often require such involved projects.  In fact, I teach my students that rehab should rarely be more involved than simple repairs and cosmetics.  That is simply basic “real estate investing for beginners.”  In a future article I will address the differences between “rehab” and “remodel.”

The world of real estate investment is full of subtle nuances that can yield handsome profits, if handled intelligently.  The flip side is that we may lose everything without properly regulating our spending on a “fixer.”  One of the reasons I am recognized as one of the nation’s most effective real estate mentors is the fact that I have made my share of mistakes and I have learned some valuable lessons from these.

I cringe when I see novice real estate investors remodeling a house on a street that doesn’t deserve that kind of attention.  This is called over-improvement and is a very costly mistake.  That’s why it pays to know your market and the neighborhood where you buy.

I always try to help my students see the need to “rehab” rather than “remodel.”  Rehabbing is more closely associated with repairs than replacement.  There are, however, times when replacement is more cost effective than repairing an old or outdated fixture.

The following 3 reasons are:

• When the cost of repairs exceed reasonable replacement
• When the perceived value of the property increases due to an upgrade
• When yours is the only house on the block w/o (energy efficient windows)

In my real estate mentor program I advocate never over-improving a property.  It would be tantamount to throwing your money in the trash.  Each and every rehab decision must pencil out and NEVER be based on an emotional impulse or personal taste.

I will be discussing more specific types of improvements that are fiscally responsible in subsequent articles.  For now, a good rule of thumb is to repair when possible, and only replace when it makes sense.

Let’s talk about flooring.  One nice thing about figuring costs on flooring is that when an entire house needs it, we can quickly multiply the square footage by a predetermined “price per sq. ft.” number.  This especially comes in handy when we are pressed to come up with an offer price because it simply doesn’t take a lot of time.

As I stated in my article Real Estate Investing Rehab Tip #7, a good real estate mentor would encourage repair over replacement whenever possible.  Flooring is one of the exceptions to that rule.  This is primarily true when there is a textile floor covering (carpet).  Carpet retains dirt, not only that which is visible, but odorous.  Try and sell a home to a retail buyer that smells bad!

With few exceptions, there are basically 4 types of floor materials that meet the accepted standard for today’s home.  They are:

• Carpet
• Ceramic Tile/Stone
• Linoleum
• Laminate (simulated hardwood)

In many U.S. communities, carpet is a preference.  This is especially true in the bedroom.  The other three on the list are more resilient and most often used in bathrooms and kitchens.

While tile of all sorts is often attractive and wears like iron, for real estate investment purposes, is too costly and cannot be completed in one day.  It often involves 1 or 2 return trips.  From both a labor and material standpoint, tile is prohibitive and (in most cases) I don’t recommend it for the investor.

Linoleum is commonly used in kitchens and baths, yet its’ downfall is that is can rip and stain.  It is also a problem by the bathtub as it can delaminate from exposure to excess water.  I say:  If it’s there and in good condition, leave it.”

Over the last 15 years or so a variety of simulated-wood flooring products have come to us.  I believe the concept originated, or was at least refined, in Scandinavia.  Now, thanks to free enterprise, there are a plethora of knock-offs at a very attractive price point.  It is possible to procure laminate flooring less than $9.00 per sq. yard.  Compared to carpet, the price is competitive and its’ lifespan should out live carpet by a long shot!

Other advantages include:

• 1-day installation
• No special tools required
• No special skills required

A word of caution: Avoid purchasing the special trim pieces.  This is where they make their profits!  It may be cheaper to replace the baseboards altogether.  Many times, as in older homes, baseboards could use some improvement and the pre-primed fiber-board baseboard stock available at your local home-improvement center is really rather cheap.  If the project moves to this extent, it will look stunning when you’re done!  This may be an improvement that proves to be well worth the investment.

In this series, I have been discussing specific ways in which the savvy real estate investing entrepreneur can maximize his/her profits through the rehab process.  We have discussed the folly of over-improving an investment property.  As a real estate mentor I usually advise my students to choose repair over replacement whenever possible.  There are, of course, exceptions.  When a feature costs more to repair, has become obsolete or outdated, and is inefficient it is likely good to explore alternate methods.

We must remember that over the years, architectural standards have changed…often for the better.  One area that this applies is in kitchen work surfaces.  Yes.  Counter tops are often a focal point when showing a home to prospective buyers.  How often have you seen “granite counters” in the Realtors comments as a “plus” for a retail listing?    In the last decade, the cost of natural stone slabs has come down exponentially so that many landlords now feature stone in their rentals.  I do.

There are direct importers in most metropolitan areas across the country, who offers a nice selection of pre-fabricated slabs in their huge warehouses.  These can be found in 8’, 9’, and even 10’ lengths depending on the type of stone.  They are pre-cut with a standard bull nose finished edge.  Usually for a $20.00 up charge you can get a right or left return finished edge as well.   Also, 4” or 7” matching back-splash stock is available.  Many offer free delivery, too.

What I like is that some stone selections have an available 36” wide bar top with 3 finished edges.  In some cases it may pay to reconfigure the kitchen to accommodate the cheap stone acquisitions.  Either way, if you’re smart, you can often buy pieces that reduce the complexity of installation.  I have been doing that for some time so that now I have my Painter do my installs.  It’s that simple.

A typical galley kitchen can be completely done for under $800.00 labor and materials.  Obviously, some kitchens require more.  The point is that for a small price you can get more “bang for your buck” by including this upgraded feature in a simple fix and flip.  In many cases, the home does not need to be on the higher end of value.  The funny thing is that the cost to replace an inferior counter top material isn’t much cheaper!

Consider this cost-effective improvement on your next project.  This represents a huge improvement in the value of your investment property.  Nevertheless, if you acquire a home with plastic laminate counters in pristine shape, the course of wisdom could be for you to leave it alone and let the new homeowner make their own choices…or not.  When considering whether or not to repair or replace, I generally follow the rule:  “If it ain’t broke, don’t fix it.”

In previous articles we have covered some very good ways of increasing your profits from a real estate investment transaction.  Whenever possible, repair rather than replace, right?

Now let’s discuss another specific area in which we can get more “bang for our buck.”  I think it is best remembered if we say: “paint is cheap.”  That’s right.  The value of effectiveness per dollar invested is truly optimized with paint.  All you have to do is throw good money after new appliances on a couple of investment properties to realize that the most effective impressions are covered with paint…for a lot less money!  Inside or outside the home, paint represents the least costly means of getting attention from prospective home buyers…or renters, for that matter.

There are some principles with paint that I have learned over decades in the business that I am going to share with you right now.  When choosing paints remember these timeless lessons:

• A little color doesn’t cost any more than plain white.
• Avoid strong color schemes and lean toward neutrals.
• Pull your taste out of the color decision process.  Tastes differ and you could lose buyers by pushing the “color envelope.”
• High Gloss belongs on Front Doors (only when they are in good condition).
• Flat Finish paints belong on ceilings.  No ceiling is perfect and flat conceals flaws well.
• Avoid semi-gloss on walls except kitchens and baths.  You want to avoid that “institutional” look.
• Discreet accent walls can be stunning.  This is a darker but complementary color.
• Don’t forget the mailbox.
• Keep the exterior Front Entry light and bright.
• Ceilings should be kept bright, especially when they are lower.

There you go.  This gives you 10 good tips to use when planning the painting of your next investment property.  As a leading real estate Mentor I advocate the intelligent use of materials, like paint, on most rehab work.  In my years in the industry I have seen far too many mistakes made by professionals.  Don’t do what they did.

If you’re really determined to make it in real estate investing,  get a Mentor.  Do thorough research, choose wisely, and then follow their directions to a tee.  There are, of course many more things I could say about this subject as well as paint, but I’ll leave that for another day.

Whenever planning the rehab of an investment property, it is wise to put yourself in the shoes of your typical buyer.  Since first impressions are the most lasting, I would like to address your buyer’s first impression of your property.  This is known as “curb appeal.”

Consider, what does a prospective buyer see as they drive up to any property?  Where is the eye automatically drawn?  What feelings are triggered when they first get a glimpse of your offering?  Questions like these must be weighed each and every time we make a real estate investing decision.

As a leading real estate mentor I teach my students certain techniques that have proven useful for decades.  The truth is, when it comes to the prospective owner-occupant, the emotions are often the same in each and every case.  Let’s, now, discuss some of the expectations a buyer may have.

First, always follow the policy of “clean & green.”  Just as you would not show a house with the beds unmade or dishes piled in the kitchen sink, it is in bad taste to offer a home for sale that does not present itself in a clean, green manner.  Following this simple principle is not an expensive proposition.  Actually, it’s only when you must replace landscape elements that it starts to ring up a large tab.  Keeping the lawn clean, edged and watered is probably the most cost-effective chore you can perform.

Secondly, it’s not a house to your buyer.  It’s a home. What features will the buyer contemplating a future home be looking for?  Isn’t it a warm, inviting presentation?  Therefore, the entry must always be unobstructed, clean and friendly.  Whenever there are bushes or shrubs that have overgrown their space it must be determine whether they can be cut back or must be removed altogether.  Either way, you will want to open up the walk to the front door.  Also, while it is good not to leave a front wall “naked,” I advise that any bushes that have over-grown in front of a window must be cut back or removed.  Blocking these essential elements is a “red light.”

So remember that your curb appeal is the first and last thing your buyers will see before making a decision.  It is also generally the cheapest face lift you can perform on the property.  There are, of course, other little things you can do as well, but always place the foregoing high up on your list of priorities.

In a previous article I spoke of the importance of recognizing curb appeal.  I would like to comment on another little area of that first impression we give our buyers.  It is the front door.

The front door is in itself not only the entry to the home but it tells your guest something about the house as well as its’ inhabitants.  Regardless of the condition of the rest of the property, the front door is a slate upon which the real estate investing professional can paint a beautiful mental picture.

What I mean by all of this illustrative speech is:  The emotions are triggered by the entry to the home.  A clean, sparkling, shiny front door provides hope that the interior will be as impressive.  I have never seen a prospective buyer upset that the front door was “too nice.”

Now here are some tips on what you can do to give that sterling first impression.  First, if the handle/lockset is worn or generally cruddy, it would be good to invest in a brand new one.  Typically a bright brass or nickel finish is what works best.  Avoid mixing 2 finishes on the same door.  You laugh, but I’ve seen it done many times.

Next, if the door is in very good condition, a bright high gloss paint finish is advisable.  If it is a clear finish over stained wood, the finish must still be near flawless.  If not, paint over it.  Here is an area where getting a qualified Painter is a good investment.  If you can get the door finish sprayed on the outcome will be noticeably superior.

What if the door has a lot of mileage on it?  In other words, it is severely tattered & scarred.  This may be a case for total replacement.  As a top real estate mentor I am an advocate of repairs over replacement.  However, because of the huge importance of your curb appeal and especially the front door, it could very well be worth the investment to spend a little more of your budget on the front door.  Funny enough, most buyers are much less concerned about everything else once they enter a sparkling entrance.   This is part of the psychology of the deal that I teach my joint venture partners.   Believe it or not, psychology plays an important role in real estate investment as well.

If this sounds all too simple to you, well, it is.  Understanding human behavior and what triggers certain emotions is simple.  Its’ importance, though, cannot be over emphasized.  The point is:  You don’t necessarily need to throw a lot of money at an investment property to prepare it for a profitable sale.  But if you can, the front door will be one small area that will make one large impression.

I would like to talk to you today about some more cost effective methods of optimizing your rehab dollars.  You’ve heard me say “paint is cheap.”  In fact, paint is about the most cost-effective enhancement that the real estate investment professional can employ.

Now let’s talk about a specific feature of flat finish interior paints.  When viewed under a microscope at about 400X magnification, flat paint film appears like the moon’s surface.  It is full of rough, porous edges.  This is why is carries no sheen.  There is simply no way for light to bounce off of such a rough surface.

Some of the drawbacks to using this type of finish are that it is more absorbent and susceptible to staining.  That’s why flat doesn’t belong in kitchens or bathrooms.  In addition, most latex based flat paints are not scrub able.  They can either wear through or burnish from rubbing against it.  Burnishing comes from essentially knocking down the rough edges which basically polishes that area.  It will cause the spot to reflect light which, in turn, will appear as an irregular shiny spot on a wall.  The more expensive flats use better resin systems and are less likely to burnish like their cheaper alternatives.

Advantages range from a softer, more luxurious appearance to improved touch up abilities.  One of the greatest features of flat finish paint is its’ use on ceilings.  Since no ceiling is perfect, I advise my students to always use flat paint on ceilings as it will help conceal irregularities which can be highly visible in certain light.  Since ceilings rarely get touched, a cheap grade of flat is perfectly fine to use as burnishing, staining or other weak features won’t likely occur.

Flat paint is usually the least costly finish so the major number of gallons, if flat, will save you money.  Personally, I like to spray out all of my ceilings with a bright white flat first then come in and cut in the walls with a complementary color.  The extra labor involved can be well worth the final outcome.  You will have 1) bright, spacious ceilings which create the illusion that they are taller and, 2) a custom-looking, two-tone color scheme that makes the house look more like a home.

Remember that some of the little things you do can cause a buyer to envision your house as their new home. Knowing how to skillfully use paints will help you accomplish that. This is just one small example of what a seasoned real estate mentor can provide his prodigy.  Real estate investment is a broad and multi-faceted industry.  In subsequent articles I will discuss other great tips for the discreet use of paint on your investment properties.

I am going to talk to you today about one of your homes’ biggest enemies.  If you’re thinking I’m referring to water…you’d be wrong.  Maybe you think I’m talking about termites or other wood-destroying pests…again, you’d be wrong.  This enemy destroys all buildings, from residential to commercial.   In fact it is attacking your hair, your skin, the paint finish on your car, etc.

That’s right.  I’m talking about sunlight.  To be specific: ultraviolet light.  It is highly destructive and your understanding of how it works will help you in your real estate investing home business.  How so?

I am going to give you an example of how sunlight destroys things.  Have you ever seen a beautifully finished wooden front door that has been stained and then finished with a clear coat of varnish, lacquer or some other non-pigmented finish?  Let’s say it’s fully under the cover of an awning and never gets wet.  However, a few hours each day it is exposed to direct sunlight.  What happens to that expensive wood door?  Depending on the intensity of the suns’ rays in that region, the finish will fail and even start to peel off in a relatively short time.  It may take 3 or more years.  However, in some warmer climates, it can be less than 1 year!

What, exactly happened to that door’s finish?  To comprehend the answer it is necessary to first understand the principle in place here.  Earlier I said that ultraviolet light destroys even your hair and skin.  Now, suppose you were to stand under a tree.  Would the sunlight have an opportunity to do its’ destructive work on you as long as you remained in the shade?  No.  The tree served as a protective barrier acting as a shield against the harmful rays of the sun.

So too, the clear finish, though sealed, did not shade the wood from the direct sunlight.  The wood door was fully exposed to ultraviolet light intrusion and deteriorated under that circumstance.   Without any pigment, the clear finish, no matter how water resistant, could not provide protection from the sun.

So what actually happened was the wood door underneath the finish started to degrade and separated from the clear film.  This caused air to work its way in and eventually the finish started to peel off.

What does this mean for you, the real estate investing professional?  It may be that if a door is situated in a place where it will get continued exposure to direct sunlight, you may wish to paint rather than strip and re-varnish.  A high-quality sprayed on finish can be stunning on the front door.  Best of all, you will have stopped the sun exposure problem dead in its tracks because you now understand one of the principles behind ultraviolet light!